Nothing is so bad that governments can’t make it worse. Yes, that is even true of the energy crisis. And governments are doing their very worst to prove the maxim.
Having sabotaged our energy supply by limiting production, disincentivising investment, shutting down nuclear reactors and making Europe reliant on Russia, governments are now faced with an energy shortage.
Surprise!
The solution to the shortage, according to the politicians, is… to use less energy…
Now, if you ask me, the problem and its solution are unlikely to be the same thing. But, if you’re a politician facing high energy prices, you can simply “cut demand”. Well, you can demand that your proles do so, anyway.
The European Commission requested precisely that, demanding a 15% cut in gas use and a 5% cut in peak electricity use. They called these measures “voluntary”, meaning that governments could choose to participate or not. Nobody asked the people though.
The Swiss were a little more direct, with the Environment Minister suggesting that people shower together to save energy. At least we know what the agenda really was all along then… It’s a slippery slope from “shorter showers” to “cold showers” to “showers together”, isn’t it? The mind boggles…
But the consequences go beyond the inappropriate and the awkward. Europe’s economy was shutting down over unaffordable energy. Now it’s shutting down over a lack of it.
Barclays is warning that some European industries will struggle to recover, with no obvious cheap enough replacement for cheap Russian gas in sight. The Wall Street Journal reports that European manufacturers are moving operations to the United States.
The German economy minister is telling companies to shut down operations to avoid going bust over unaffordable energy and the French president is telling small and medium sized businesses not to sign electricity supply contracts.
The irony of this is so obvious that only politicians and central bankers can’t see it coming. Of course, that is why they didn’t see our inflation spike coming either.
You see, the consumer price inflation spike we’ve had come from somewhere specific: producer prices. These are the prices that companies pay to get the stuff they need to produce consumer items began spiking before consumer prices. That’s how Southbank’s own John Butler predicted the inflation spike we’ve seen, just weeks before it began to make headlines last year – and a long time before the Ukraine war.
But today, I want to point out something different and specific. Dealing with an energy crisis by cutting energy use is not going to solve the inflation crisis. It only transfers the problem of higher prices into other parts of the economy. Specifically, it hits hard in those places which don’t get the energy they need.
For example, if Europe were to shut down its metals and chemicals production over high energy prices, just hypothetically speaking of course, the consequences would be a spike in production costs for goods that use metals and chemicals.
On cue, German producer prices surged 46% in August. This is a record going back to the 1940s…
No doubt it comes as a complete surprise to those policy makers which have been urging economies to use less energy. As will the subsequent surge in inflation.
As they see it, if you can bring down inflation by crushing energy prices, that’ll solve the problem. But it will only move it – that’s my point. It’ll show up wherever has been hampered by the policies which brought down energy prices.
For months, those denying inflation have been pointing out that it is patchy. First it was only used cars that got caught up in the spike. Then it was energy as the Ukraine crisis kicked off. Today, it’s only some other sub-sector of the inflation basket that has gone berserk.
But here’s the thing. This is how inflation works. It is not a rising tide that lifts all boats. Money is not neutral. Inflation is chaotic and hard to grasp. Its effects are insidious.
And what government policies are doing is shuffling it around the economy. They’ve shuffled it from supply chain chaos to energy chaos and next to producer price chaos by way of shortages of industrial goods.
So, what is the solution to the latest form of inflation to rear its head? You guessed it! The Financial Times reports on the latest intervention measure to reshuffle the problem elsewhere again:
Brussels is seeking emergency powers to force member states to stockpile key products and break contracts during a crisis […]
The “single market emergency instrument” would give the European Commission, the executive body of the EU, ample space to declare an emergency. Brussels would then be able trigger a number of interventionist measures to ensure the availability of goods, for example by facilitating the expansion or repurposing of production lines, the EU said.
There’s nothing like forced stockpiling, broken contracts and repurposing of production lines to trigger investment in expanding productive capacity to actually solve the underlying crisis… or so the thinking apparently goes.
The underlying story here is an old one. Politicians and central bankers cannot resolve a crisis. But they can move it around. They can turn an energy crisis into an economic crisis. Or an inflation crisis into a financial crisis. Or a housing bubble into a sovereign debt bubble (by way of bailouts). Or a pandemic into a healthcare crisis (by way of lockdowns). Or a tech bubble into a housing bubble. Etc. etc. etc.
Tomorrow we look at another example – how to turn an inflation crisis into a financial crisis. But for now, you’re probably feeling a little pessimistic about all this. Which is why I’d like to show you something that can work even if I’m right about all this misery to come.
You see, one way to make profits from financial markets which are trending down is to take short term profits regularly. These are less reliant on the overall market’s direction. And you can get in and out of the market before the latest crash begins.
Find out how, in the Micro-Move online demonstration which went live at 7pm yesterday. Click here to find out more..
Nick Hubble
Editor, Fortune & Freedom
