Friday, March 29, 2024

Why Europe’s Energy Crisis Isn’t Going Away Anytime Soon

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European governments are playing with economic fire as they actively consider all manner of policies intended to get their respective nations through an , raging inflation and tremendous political uncertainty. (RELATED: The Energy Crisis' Silver Lining – Brought to You by Eco-Socialists)

It's a dangerous trifecta of problems that is leading them to make matters much, much worse:

These policies (e.g., ) cannot solve the underlying problem: is structurally short energy. Moreover, they will create their own problems, which will result in panicked reactions that will create new problems. Wash, rinse, repeat. The whole thing is doomed to collapse. In tears.

There is no better illustration of the European failure to come to grips with their real problems than some of the recent proposals surrounding LNG. One is to cap the price of imported LNG.

Brilliant! That way you'll have even less gas, and the marginal value of power will go up! Yay!

Er, the LNG market is a world market. Yes, Europe collectively is large enough to have some monopsony power and thus can reduce price: but one exercises monopsony power by cutting purchases. That is, less gas will flow to Europe. Europeans will consume less electricity, and they will substitute higher cost ways of generating it. The shadow price (the opportunity cost, i.e., the real cost) of electricity and gas will increase, not fall.

Were they not so desperate, Europe's leaders could look to our own past dalliances with price controls in the 1970s to see how disastrous the results can be. Worse, such blatant interference with the price mechanism only spurs further government interference, exacerbating already wretched conditions. As Cato's Gene Healy wrote on the 40th anniversary of Richard Nixon's wage and price control regime:

As Nobel Prize‐​winning economist Milton Friedman correctly predicted, however, Nixon's gambit ended “in utter failure and the emergence into the open of the suppressed inflation.” The people would pay the price — but not until after he'd coasted to a landslide re‐​election in 1972 over Democratic Sen. George McGovern.

By the time Nixon reimposed a temporary freeze in June 1973, Daniel Yergin and Joseph Stanislaw explain in The Commanding Heights: The Battle for the World Economy, it was obvious that price controls didn't work: “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”

The late George Schultz said the lesson learned from this experiment was  “that wage-price controls are not the answer.” They still aren't the answer. Some (but not nearly enough) in the political class on this side of the Atlantic still know this. Europe is going to have to learn the lesson themselves. And it won't be pretty – for them, or the global economy.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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Norman Leahy
Norman Leahy
Norman Leahy has written about national and Virginia politics for more than 30 years with outlets ranging from The Washington Post to BearingDrift.com. A consulting writer, editor, recovering think tank executive and campaign operative, Norman lives in Virginia.

5 COMMENTS

  1. We have so much NG we could really help Europe. It’s probably too late this year because if we’re going to power the world like we feed the world, we need pipe lines, more drilling, LNG production facilities, more tanker able to carry LNG, more fossil fuel infrastructure. With democrats in charge, that’ll never happen.

  2. President Trump was right again. He told them not to rely on Russian oil and LNG. Now they are paying for it in shortages… They actually LAUGHED AT President Trump, when he was addressing the UN. NOW WHO IS LAUGHING ALL THE WAY TO THE BANK, RUSSIA. THEY’RE pipeline is costing Germany and the rest of those clowns that thought they new better. THE SAME HERE RIGHT NOW. SO DON’T GET TO HAPPY ABOUT GERMANY. TRUMP WAS ALSO RIGHT ABOUT US. CLOWN Obiden has it so fuxked up right now, we are in trouble for more than 6 years to clear it up.

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