In the evolution of disastrous policy, there’s often a point where a smart public figure throws his or her lot in with the whole caboodle.
Think of eminent economist J K Galbraith solemnly telling us shortly before the Thatcher-Reagan revolution that big capital, big labour and big government were here to stay with us for ever.
The Financial Times’s economic commentator Martin Wolf has long been a serious fixture in the UK media, and one with an anchor in reality.
But the European energy crisis is creating so many challenges. And once you start down the path of tinkering, it just gets harder to stop.
Writing in the Financial Times, Wolf starts with orthodoxy:
“There exists a standard, professionally approved package. It is, as IMF staff have recently repeated, to allow price signals to operate freely and target the vulnerable.”
End of story? Not this time.
“A rise in prices that imposes such big costs on almost everyone, while giving huge windfalls to a few producers, is something else altogether.”
And targeting help is “very hard”.
Nonetheless it’s part of his answer: namely “to cap energy prices at below the current market rates”, paid for with government subsidies, while also “simultaneously targeting assistance at the most vulnerable”.
It’s hard to see what this adds to the orthodox solution except worse incentives, extra government responsibility, and different political targeting. And one guesses, more demand for another raid on energy producers to pay for it.
It seems inevitable that there will be a big contraction of demand at current sky-high prices – expect public libraries to be busy in winter. So, despite bold forecasts, no one has any idea what the market price will actually be.
The two key issues are to get some additional income to the groups who will have to make the most sacrifices (and by the way be happy when they spend it on more useful things than heating their bathroom) and also to remove blockages and disincentives to supply (for both the short-term emergency and for long-term security).
The risk of tinkering – even with the intelligence of Martin Wolf behind you – is that you start to believe that a bit more spin and distributional games with the voters will solve the deeper underlying problems.
More likely it postpones them. And as we have seen, invites more tinkering to fix the problems created by your initial tinker.
When someone as good as Martin Wolf gets his teeth into this approach, you might be a little worried.
Certainly it demonstrates the pressures on Britain’s freshly-minted new Conservative leader Liz Truss, who faces a big decision right now.
She has said that she doesn’t believe in windfall taxes. So you might hope she is not a tinkerer.
But the pressures are huge, the vested interests have been getting at her, and the smart money is starting to move in favour of – a Martin Wolf-style price freeze.
It was nice to hope that Truss might be willing to sweep away the multiple distortions and vested interests of the green energy policy to provide a market consistent with energy at reasonable and stable prices; security of supply; and a not-impossibly-expensive carbon reduction track.
But perhaps not right now.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton
“There exists a standard, professionally approved package. It is, as IMF staff have recently repeated, to allow price signals to operate freely and target the vulnerable.”
End of story? Not this time.
“A rise in prices that imposes such big costs on almost everyone, while giving huge windfalls to a few producers, is something else altogether.”
And targeting help is “very hard”.
Nonetheless it’s part of his answer: namely “to cap energy prices at below the current market rates”, paid for with government subsidies, while also “simultaneously targeting assistance at the most vulnerable”.
It’s hard to see what this adds to the orthodox solution except worse incentives, extra government responsibility, and different political targeting. And one guesses, more demand for another raid on energy producers to pay for it.
It seems inevitable that there will be a big contraction of demand at current sky-high prices – expect public libraries to be busy in winter. So, despite bold forecasts, no one has any idea what the market price will actually be.
The two key issues are to get some additional income to the groups who will have to make the most sacrifices (and by the way be happy when they spend it on more useful things than heating their bathroom) and also to remove blockages and disincentives to supply (for both the short-term emergency and for long-term security).
The risk of tinkering – even with the intelligence of Martin Wolf behind you – is that you start to believe that a bit more spin and distributional games with the voters will solve the deeper underlying problems.
More likely it postpones them. And as we have seen, invites more tinkering to fix the problems created by your initial tinker.
When someone as good as Martin Wolf gets his teeth into this approach, you might be a little worried.
Certainly it demonstrates the pressures on Britain’s freshly-minted new Conservative leader Liz Truss, who faces a big decision right now.
She has said that she doesn’t believe in windfall taxes. So you might hope she is not a tinkerer.
But the pressures are huge, the vested interests have been getting at her, and the smart money is starting to move in favour of – a Martin Wolf-style price freeze.
It was nice to hope that Truss might be willing to sweep away the multiple distortions and vested interests of the green energy policy to provide a market consistent with energy at reasonable and stable prices; security of supply; and a not-impossibly-expensive carbon reduction track.
But perhaps not right now.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton
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