The great ideological battle between the US and the USSR that began after the Second World War is slowly fading from memory, or at least the general public’s consciousness. Except in small fiercely protected bunkers at universities, the debate about the merits of state control vs. free markets is pretty much over. The biggest nails in the coffin were the collapse of the Soviet Union and China’s embrace of a market economy; after those events few people on the planet were willing to insist that a government could run a market better than individuals. The ones who still carry that torch have only one poster child left in North Korea, and that sorry bone does not make a lot of soup.
On the other hand, even though markets are demonstrably more efficient they are not particularly free, because the engine of capitalism has to be harnessed to meet various government policies and social programs. Most people except the Koch brothers find this to be a reasonable trade off.
It all works reasonably well as long as the flow of capital is free enough to keep all the engines going. The world needs the productivity and innovation brought about by capital markets. It needs it for several reasons: to keep 7 billion people alive, and to generate enough growth and tax revenue to offer even a hope of paying off the indescribably large mountains of debt accumulated by the world’s governments and institutions.
The latter point was driven home by the 2008 US housing fiasco (which should have been a manageable market event whose effect was multiplied a hundredfold by artificially low interest policies and poor policing). The US government bailed out the entire financial system with trillions in debt, and the only hope of ever making a dent in the pile is through market-driven growth.
What does this have to do with energy? While capital flows obviously affect all industries, the energy business does provide a clear illustration of a debilitating problem developing with industrial progress: the difficulty that capital is having in getting to necessary activities.
On one hand, there is a strangulation of development activity. Energy is produced in certain regions, and largely consumed in others. Hence, it must be able to move. That is a simple fact that is not only unavoidable but also constantly changing. As years go by, certain energy sources develop while others fade from significance. Fifteen years ago, large-scale plans were underway to import natural gas into the US because conventional sources were drying up. Within a few short years the import plans became export plans due to massive development of shale resources. This is but one example, and the ability to change direction helped ensure that, at least in part, the world’s resources continue to be used efficiently.
As time goes on however, this flexibility is being strangled. It is incredibly difficult to build anything anymore. We can’t just credit that to the war being waged against fossil fuels either; green energy projects are also being thwarted at every turn.
Endless regulations, consultations, town hall meetings, social pandering, and successful NIMBYism are hobbling almost any project regardless of size. Pipeline projects offer the starkest example, with years being spent on the nearly impassable approvals process, and then the whole thing can be derailed by the smallest of groups that imagine the biggest of problems. And again, the problem is not just fossil fuels – power line construction and solar farm installation also face huge battles to bet build. Even wind farms get vetoed on such absurd grounds as aesthetic reasons, which is frankly almost unbelievable – that someone can thwart a power generating project simply because they don’t like the looks of it.
There is an equally distressing sidekick to this strangulation – the current habit of governments to drive capital spending towards inefficient and impractical projects, all for a “social good” which is very close to pointless. This is in reference to the huge sums being used indiscriminately to subsidize green energy. It is understandable and important that some funds be directed to certain key technologies; cheap fossil fuels won’t last forever, so those are very wise investments.
But does that extend to debt-strapped governments subsidizing car purchases for 5 figure sums, simply to have one less fossil fuel-powered vehicle on the road? And even that is dumb: Those who buy hybrids and electric vehicles most likely drove high mileage vehicles before; they aren’t likely switching from full-size pickups. Cars like Tesla’s are feel-good statements for the rich, and those who own them most likely live in huge houses (or several huge houses), and throwing ten thousand to them just for purchasing is indicative of a system that’s lost its mind.
We have abandoned common sense to follow what is trendy. That is fine in the world of fashion, where what was cool ten years ago now looks stupid, and what is cool now will look stupid ten years hence. Those are small feel-good investments people make for whatever reason. But on a national or international level, we need to be a bit more discriminating.
As an example, does it make sense to spend incredible sums, as governments do, to encourage people to buy electric or hybrid vehicles? Consider as that is happening, enough coal-fired power plants in development and under construction worldwide are enough to exceed the safe limit of global temperature increases (that citation had to come from an environmental journal, as no one else will attempt to make this fact sound so scientific). So what good will those hundreds of millions of dollars of subsidies really do? It’s like washing the street in front of your house so that your car won’t get dirty this spring.
Western governments need to be careful they don’t wind up like Greece, where a battered industrial base can’t afford to foot the bill for all the social programs. The country is kept on life support because of it’s strange Siamese-twin relationship with the EU, but it is the economic might of countries like Germany that allow that to happen.
What foots the bill around the world is the flow of capital to worthwhile projects, and none of that happens without cheap reliable energy that can move where it’s needed. That goes for oil, for natural gas, and for power. Green energy can’t yet foot the bill for anything; it is a drag on economies that should be nurtured and subject to substantial R&D. But no one should pretend that 7 billion people could maintain (or grow) their standard of living unless capital remains productive, and that efficient capital requires cheap energy. Lastly, everyone should also remember that debt is not capital, no matter how it’s sold.
Thanks to a wise intellectual outlier whose observations provided the genesis of this post. Don’t fight your crankiness, it’s cathartic and contagious.
Read more insightful analysis from Terry Etam here