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Monday, 26 December 2011

Two basic problems: Energy Supply and 'Banking'

Supplies of electricity and of money are alike invisible, dangerous to tamper with and essential for modern life. The costs and benefits of both supplies are of huge concern to everybody, are regulated under the government and yet seem to elude effective overall management.

On December 23 the Church of England published a letter to the Ministers in the Department of Energy in which they challenge a shift in policy. Publication of the letter was coordinated with one from the National Trust so it must have taken many hours to prepare, during the period when churchpeople should have been focussed on making spiritual preparations for Christmas, which used to be one of the two greatest festivals of the year before the Grauniadistas secularised the organisation. The issue raised in the letter was economic: churches have installed hundreds of solar panels, and the National Trust has also invested significantly in the fashionable technology. The UK government provided subsidies to people and to institutions who install solar panels at their premises, and suddenly realised that these handouts were going to cost far too much. The previous Labour administration developed the scheme, under which an unrealistically high price was to be paid for any solar-generated electricity that is received by the national grid.

Either through their electricity bills or their taxes, buyers of electrical energy were expected to pay the miscalculated subsidies to the property-owners who opted to install solar panels. The customers also have to pay for the availability of alternative electricity supplies, when there is no sunshine; plus the generation cost whenever any alternative source is used. Windpower is similarly subsidised; and both solar power and windmills need to be fully backed-up by more reliable alternatives.  The more that energy policy focusses on 'investment' in windmills and solar panels, the more need arises for parallel investment in alternative nuclear or 'clean' fossil-fuel using power stations, and this need is urgent because entirely serviceable coal and oil-fired stations have been scheduled for demolition within a few years. The more money is thrown at on wind and solar systems, the higher the cost of the power supply  will be, due to the need to multiply supply facilities. The sleight-of-hand by which the excessive cost of this programme is split between taxes and the prices charged to users is further obscured when poor [and elderly] customers' bills are partially offset by payments through the state benefits system or by 'social tariffs' that further overcharge other customers to mitigate the cost for others.

The most absurd assertion that emanates from the green lobbyists in this connection is that solar and wind energy are 'free': with an implication that oil, coal and natural gas are not similarly free gifts to humanity from nature. Most members of the lobby also share an essentially-irrational opposition to nuclear power generation  The raw materials for all these sources of electrical energy are 'free': but due to both institutional reasons [taxes, patents, planning constraints, investment fashions, land ownership etc] and the limitations of all technological systems the price of electricity varies from time to time and from place to place. Oil prices in particular are volatile due to mismatches of supply and demand, to political interventions, to currency movements and to speculation: so the exploitation of alternatives to oil often seems attractive.

But investment choices by the energy industries are subject to constant political interference. Coal mining in Britain was devastated by the war between the Thatcherites and big trade unionism [which had fallen under the control of Marxist ideologues] in the early nineteen-eighties, to be almost totally wiped out subsequently by the influence of the greens. The abandonment of coal was accepted despite the massive investment that had been put into the extraction of a free resource that is still abundant beneath the British Isles; and the same sort of irrationality in energy sourcing has recently reached a new apogee where the small cost of building 'clean' coal-burning power stations was struck out of budgets that are still set to throw billions into windpower whose uncertainty is becoming ever more apparent while the durability of structures and moving parts in extreme oceanic settings is not proven.

Britain is merely one of many adherents to the irrational approach to energy sourcing. The lack of sense is blatant in both economic and political terms: the costing and pricing of energy is not consistent with any sane economic theory and the rise in bills is politically threatening. Germany is not notably subject to earthquakes and has no modern history of tsunami: yet in an infantile over-reaction the normally steady Angela Merkel announced the closure of all nuclear power stations following the incident in Japan. This lurch in energy policy incurs huge cost in decommissioning and demolishing the existing nuclear installations, the wholly-unnecessary cost of erecting alternative power sources and the compounded ludicrousness of buying-in Polish and French nuclear-generated electricity. Japan is still smarting from the recognition of failed risk-management in the siting of power stations and has hesitated to formulate a long-term energy policy. China and India have accepted dangerously increasing levels of air pollution and the odium of massive carbon dioxide emissions as part of the price to be paid for economic development. In all these cases - and in virtually every other country - energy supply is seen as being too important to be left to a market mechanism. In areas where a form of 'competition' is allowed, as in sales of electricity to firms and households in the UK and the USA, the 'market' is so heavily controlled that no pure-market theorist would pretend to recognise it. The regulations are manipulated to ensure that most suppliers in most years make 'profits' about which  opposition politicians and consumerist lobbies can inveigh to the limits of their loquacity. Energy supply is charged for at the point of use: so to that limited degree there can be said to be a market; energy supply is also accepted as a social, economic and military necessity and hence policy has to be made by government. Under the system of uncertain and constantly changing overall policy in uneasy alliance with the default option to allow suppliers to maintain a form of fake competition that enables them all to be profitable; and consequently prices have risen drastically. 'Fuel poverty' is affecting more households every month as the economy displays continuing weakness, with wages failing to keep up with the rise in prices. Governments have got their energy sectors into a real mess, all over the world: and none of them sees 'the market' as a route to solving it. So the lobbyists' field-day continues...

As it does in 'banking', where it is proposed to ring-fence 'necessary' banking [personal and corporate accounts, and payments into and out from governments] from 'casino' banking which leaves everything else lumped together. It is more important to distinguish essential finance: the issuing and exchange of shares, finding finance for 'real' businesses by issuance of bonds and other means, providing currency to fund transactions over frontiers and dozens of other economically essential processes, from the gambling known as derivatives, swaps and many forms of futures. 'Separation' of essential banking from 'the rest' will go a long way towards sparing individuals and firms from the risk of their banks failing. The assumption that it also reduces to insignificance the risk of a government being obliged to bail-out reckless financial institutions is unfounded. Separation combined with 'risk-based regulation' of non-core banking cannot stop trade and industry being disrupted, jobs being lost and economic growth being reversed when indefensible [but permitted] 'risk-taking' in derivatives or swaps will be the cause of a collapse in cybermarkets. A greater necessity than the separation of Mister Mainwaring banking from the rest of financial trade is a hitherto ignored, but essential, rigorous enforcement of a clear differentiation between gambling [casino] contracts and the necessary trade in financial assets that represent fractions of ownership of commercial and industrial and agricultural and mineral assets [which has featured in several earlier blogs in this series].

Neither electricity supply nor the management of financial instruments can be entrusted to uncontrolled market mechanisms: but it is blatantly clear that politically devised controls over both systems are pathetically inadequate. A new Political Economy is needed, and this blog will offer some signposts to the way forward in 2012 over the next few days.

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