The meltdown1/4/2024 A stategy would then be needed for the UKs reliance on imports. Putting all UK sources of energy for heating and producing electricity back to prices a year ago would stop profiteering. In times of war and profiteering you do not impose windfall profit taxes but you do impose price controls. She simply has not taken a wide enough viewpoint. “a free marketeer like Liz Truss wouldn’t be getting ready to spend £150 billion on a price freeze if she had any other choice” I certainly agree with this – the way the gas market price is determined and what it is used for have created enormous opportunities for proiteering that I have yet to see fully identified and quantified. But when this mechanism goes crazy it does more harm than good.” send price signals to even out imbalances in supply and demand. “In normal circumstances the market does what it’s meant to do - i.e. There is no cost-free response here, but that is precisely why we need a least-worst option. Rather than being forced into action as a last-ditch measure, governments need to develop a wider range of possible interventions. So we’re already in the field of extreme medicine. This too is a massive, and very expensive, market intervention. But don’t forget that right now western governments are planning to spend hundreds of billions on subsiding prices. Furthermore, it would come with its own major costs and consequences. Obviously, this would be an emergency measure only - the economic equivalent of declaring martial law. Governments should also form a buyers’ cartel to secure necessary supplies at non-insane prices. As in a banking crisis, chaotic trading should be suspended. As a matter of urgency, western governments need to coordinate a more effective response to energy market meltdowns. Similarly when vital markets go haywire, the only way forward is state intervention. When an immune system goes haywire, medical intervention is required to save the patient. A particular kind of over-reaction, called a cytokine storm, is thought to explain why so many young adults died during the Spanish Flu epidemic. However, there are life-threatening conditions, such as sepsis, in which the immune response massively over-reacts to infection - to the extent of damaging the body’s own tissues and organs. There’s a useful analogy that can be made with the body’s immune system. But when this mechanism goes crazy it does more harm than good. In normal circumstances the market does what it’s meant to do - i.e. For millions of households and businesses the resulting instability is unmanageable. Such convulsions go well beyond the normal up-and-downs of a properly functioning market. These look like evidence of panic on the part of energy buyers and speculative frenzy by sellers and traders. While the long-term increase in prices does reflect real world conditions, there’s no ignoring the series of insane price spikes that punctuates the trend. The energy crisis is real and a free marketeer like Liz Truss wouldn’t be getting ready to spend £150 billion on a price freeze if she had any other choice.Īnd yet we still need to ask whether the energy markets are over-reacting. Of course, even if this is his worst, it’s quite bad enough. As for Putin imposing further restrictions on the supply of Russian gas, current export levels are so low that he’s hasn’t got that much more room for manoeuvre. We’ll see this week how the markets react to the rapidly changing war situation, but Putin may have come close to doing his worst - at least in terms of gas prices. Alternative sources of supply are making themselves felt. European demand for gas is already down significantly on previous years. Zschaepitz declares that the “Kremlin strategy of weaponizing energy falling flat”. The extreme spike in gas prices we’ve seen since the invasion of Ukraine appears to be subsiding.
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