The week of May 29, 2023: Net-zero, the minimum wage, the debt ceiling, Adam Smith, and much, much more.
The week of May 29, 2023: Net-zero, the minimum wage, the debt ceiling, Adam Smith, and much, much more.
T he decarbonization of our economy does not appear to be going very smoothly. Take this fun story that appeared in the Wall Street Journal the other day:
How many warnings does it take before the Biden Administration wakes up to the risks from its climate policies to the U.S. electric grid? The latest came this month from the North American Electric Reliability Corporation (NERC)…
NERC’s summer reliability assessment forecasts that no less than two-thirds of the U.S., including most everyone living west of the Mississippi River, could experience power outages. Texas and most of the Midwest should have enough power to meet demand—assuming they don’t experience any sizzling hot and still summer days.
Texas last summer narrowly averted a power outage by leaning on businesses to curtail operations. The state has since added enough solar to power about 200,000 homes. But demand has grown by even more, and the sun doesn’t shine at night. NERC forecasts a 19% probability of a grid emergency at 8 p.m. Do Texans feel lucky?
For details as to what NERC does, see here, although its full name gives something of a clue. Here’s an extract taken from its website:
The North American Electric Reliability Corporation (NERC) is a not-for-profit international regulatory authority whose mission is to assure the effective and efficient reduction of risks to the reliability and security of the grid. NERC develops and enforces Reliability Standards; annually assesses seasonal and long‐term reliability; monitors the bulk power system through system awareness; and educates, trains, and certifies industry personnel.
Translation: They probably know what they are talking about.
But back to the WSJ:
One new variable this summer is the Environmental Protection Agency’s recently finalized Good Neighbor Plan, which requires fossil-fuel power plants in 22 states to reduce NOx emissions. NERC predicts power plants will comply by limiting hours of operation but warns they may need regulatory waivers in the event of a power crunch…
The EPA claimed the rule wouldn’t jeopardize grid reliability, but then why would power plants need waivers to prevent blackouts? The Fifth Circuit of Court of Appeals this month stayed the rule in Texas, Louisiana and Mississippi. But it continues to be a wild card in determining whether the lights stay on in the Midwest and West.
Another growing concern is glitchy solar plant inverters, which convert DC to AC power. These have caused solar plants in California and Texas to experience concurrent outages when there has been a problem somewhere else on the grid. Solar plants have “exhibited systemic performance issues,” NERC recently warned.
Oh.
The WSJ:
Faulty solar inverters can amplify minor grid problems and trigger widespread power outages. But fixing the glitches requires a software update, which NERC reported in December was still in the “study phase.” Such technical problems could become a bigger threat to grid reliability as solar generation grows across the country, NERC warns.
So, finding a fix is still in the “study phase,” and yet we plow on.
One state that hasn’t learned from California’s green-energy folly is New York. A new state regulation will force 627 megawatts of gas and oil “peaker” plants—which can rapidly ramp up to provide power in a pinch—to shut down this year. That’s enough to power 470,000 homes. This year’s state budget requires the New York Power Authority to retire all peaker plants by 2030. New York plans to compensate by building more offshore wind farms, but they face permitting challenges and don’t provide reliable power.
The NERC report is an alarm about the Biden Administration and states moving full-speed ahead on the green-energy transition.
Indeed, it is, but it won’t make any difference. Faith combined with central planning will make sure of that. Decarbonization is a top-down project, a massive exercise in central planning. The problems that are inherent in central planning are familiar enough (not least the “knowledge problem”). But one that’s often overlooked (although it’s a common phenomenon) is the planners’ belief that the goal of the plan is so worthwhile and so sensible that the plan itself must work. Under this “logic,” all that the planners need to do is fill in the details.
This logic is no more than faith.
In the course of a fine article on central planning in The Critic, Harry Phibbs quotes the British politician Enoch Powell. Powell is most remembered these days for a highly controversial speech on immigration he gave in 1968, but before that speech, (and indeed, afterward: He was early to warn of the dangers of a single European currency) much of his focus was on economics (he was Financial Secretary to the Treasury in the late 1950s). He was an early monetarist, and a defender of free markets at a time when (as now) both the Labour and Conservative Parties had little time for them.
The comment Phibbs quotes is this:
Lift the curtain and ‘the State’ reveals itself as a little group of fallible men in Whitehall [the heart of British government], making guesses about the future, influenced by political prejudices and partisan prejudices, and working on projections drawn from the past by a staff of economists.
The critical idea contained in that sentence is the influence of ideology on the assumptions underpinning the planners’ work. Those assumptions are supposed to be anchored in objective reality, but all too frequently that’s far from being the case.
If we look at the “planning” going into Western decarbonization, much of it appears to rest on assumptions that the unworkable will work. These go unchallenged within the institutions where those plans are made because to challenge them is heresy. Besides, any delay is unthinkable. Climate crisis, race to net-zero, and so on. Running through everything is the notion that the cause is so important that a little inconvenience (such as, say, the absence of reliable power) is a price worth paying (no omelet without breaking eggs, you know how it goes) or, maybe, given the religious strains running through some climate thinking, it is simply a penance worth paying.
In the same article, Phibbs referred to Ordeal by Planning (1948) as “an obscure volume by John Jewkes long since out of print,” which had apparently influenced Mrs. Thatcher. Interesting. Jewkes had a promising Wikipedia entry, and Ordeal by Planning is online, so I took a quick look. I’ll have to see where the book ends up, but the first few pages were enticing, if bleak. Britain in the late 1940s was not a happy place for free-marketers.
After blaming economic central planning on the Germans (“it seems to have originated, as many evil ideas originated, in Germany in the war of 1914-18”), a somewhat dubious proposition, but Germans were not too popular in Britain at the time, Jewkes quotes from a letter written by Lenin:
‘Couldn’t you produce a plan (not a technical but a political scheme) which would be understood by the proletariat? For instance, in 10 years (or 5?) we shall build 20 (or 30 or 50?) power stations covering the country with a network of such stations, each with a radius of operation of say 400 versts (or 200 if we are unable to achieve more). . . We need such a plan at once to give the masses a shining unimpeded prospect to work for: and in 10 (or 20?) years we shall electrify Russia, the whole of it, both industrial and agricultural. We shall work up to God knows how many kilowatts or units of horsepower.’
For some reason, reading those words brought to mind the way in which decarbonization is being managed.
And so did the comment Jewkes made just after quoting Lenin:
This was the embryo of the idea, with its already well-established characteristics of political cynicism, slap-dash economics and obsessions with the spectacular, which has grown up so quickly and threatens to cause so much trouble in the world.
That the dominant strain of the climate narrative is, like Leninism, one of the countless varieties of millenarianism that have plagued us over the centuries is no coincidence.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 121st episode, David is joined by Mark Skousen, economist extraordinaire and fellow Adam Smith disciple. The two of them unpack Adam Smith on the 300th birthday celebration of the great moral philosopher and defend his legacy as the father of classical economics.
No Free Lunch
Earlier this year, David launched a new six-part digital video series, No Free Lunch, here at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy….
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
The Economy
As the nation heads toward a debt-ceiling breach on June 1, both policy-makers and the American populace have understandably focused on the state of the federal debt, currently standing at $31.8 trillion. What’s been lost sight of, however, is a private debt crisis that is almost as severe…
Regulation
Those on the American right so preoccupied by the damage caused by “market fundamentalists” (whoever and wherever they may be) must find a lot to admire in Britain’s Tory party, which, at different times and in one way or another, has been in retreat from free markets (and the idea of a state that knows its place) for close to two decades now…
International
Last month, Angela Merkel (remember her?) was awarded Germany’s highest civilian honor, the Grand Cross of Merit first class, special issue. It has only been awarded to three people, all former chancellors. The first was Konrad Adenauer, in many ways the father of post-war West Germany, the second was Helmut Kohl, who, for all his faults, ensured that Germany was reunited in 1990, and the third, despite doubts among her own party, has gone to Angela Merkel.
To Merkel, the chancellor, who, a Brezhnev of sorts, presided over a long period of stagnation, who bungled the refugee crisis, who mishandled the euro-zone mess and the threat of Brexit, who wrecked her country’s energy system, and who left Germany dangerously dependent, firstly on Russia and then, adding an extra layer of strategic stupidity, on China…
Trade
The best approach to handling our economic relationship with Beijing must be (this ought to be too obvious to need saying, but . . .) shaped by the understanding that under the current regime China is not America’s friend, and that’s not something that is going to change any time soon.
Beijing’s ambition is to replace what it regards as American “hegemony” with a Sino-centric world order, reshaped in a way that reflects its own priorities, an ambition that will not be blunted by closer trading ties. Indeed, the more those ties increase U.S. dependency on China, the greater the danger that Beijing will be tempted to speed up along its current course…
Shareholder Rights
Here’s David Bahnsen’s speech at the May 31 ExxonMobil shareholder meeting.
ESG
Despite reports that the effort is “backfiring” and has “few big wins,” at least eleven states have passed legislation this year to combat public-investment strategies that prioritize left-wing social and environmental goals over providing the best financial return for taxpayers.
Minimum Wage
The myth that raising the minimum wage reduces poverty will not go away, but it was at least dealt another blow by a recent National Bureau of Economic Research working paper by economists Richard V. Burkhauser, Drew McNichols, and Joseph J. Sabia. “Prior evidence suggesting large poverty-reducing effects of the minimum wage,” including a highly influential 2019 study cited in a Congressional Budget Office report on minimum wages and cited in congressional testimony by minimum-wage advocates, the trio of economists report, is “very fragile” and “highly sensitive” to the researcher’s choice of macroeconomic controls…
Law & Business
The Supreme Court decided three cases this morning. None was especially sexy in terms of the headline-grabbing things that sometimes occupy the Court, but all three were consequential. Two were lopsided victories for business, and the other set a standard that is not such bad news for companies. Two of the decisions were unanimous, and the third was 8–1…
[T]his case is a perfect illustration of the National Labor Relations Act’s pro-union bias. Unions have so many special privileges under the law that it wasn’t immediately obvious that they lack the legal protection to break stuff because they’re mad, and the nation’s highest court had to waste its time to restore common sense.
The Debt Ceiling
The House passed Kevin McCarthy’s debt-ceiling deal with Joe Biden tonight, and it wasn’t close. The final vote was 314-117, with 165 Democrats and 149 Republicans in favor, but significant dissent within both caucuses.
Politically, this is an unambiguous win for McCarthy and House Republicans, who were expected to get nothing, and an unambiguous defeat for Joe Biden, who promised that House Republicans would get nothing. It also shows that Democrats on the Hill are just bystanders now on any issue that requires the affirmative consent of the House.
165 House Democrats are now on the record for supporting “$1.5 trillion in deficit reduction, tougher work requirements on certain safety-net programs, clawing back unspent Covid-relief money, measures to speed up environmental reviews for major projects, and no tax increases.” McCarthy says that he sees this as a foundation on which to build future legislation.
That’s a significant win for Republicans, despite this deal not containing many of the provisions they would have liked.
Energy
Although the United States has massive resources of oil and natural gas, Americans now face energy scarcity, an electric grid that is less reliable, and shortages of natural gas and oil — all of which have imposed higher prices on consumers and the economy.
Worse, none of this had to happen. This is an entirely avoidable reversal of America’s energy renaissance, which began in the first decade of the 2000s. It transformed the United States from a net energy importer (of oil and natural gas) into an energy-independent and then energy-dominant state…
Office Property
Some of the holders of New York commercial real estate (or of some buildings anyway) appear to be throwing in the towel…
Fiscal Policy
“The CBO projected in 2022 that the debt will rise from 98% to 185% of gross domestic product over the next 30 years, far surpassing the levels reached during World War II,” writes Manhattan Institute senior fellow Chris Pope for the Wall Street Journal. “Outside rising interest payments, three-quarters of the CBO’s projected deficit increase is due to Medicare alone.”
In other words, the debt problem is largely an interest and entitlement problem, and the entitlement problem is largely a Medicare problem.
Electric Vehicles
The Financial Times’ Brooke Masters is very happy with her electric vehicle (EV) when it comes to her daily commute. She has a garage, which helps, and has installed a rapid charger, but when it comes to going on longer journeys, well…
Adam Smith
This year, Adam Smith, considered the father of economics, turns 300. How relevant is his free-market model today? Would he approve of trillion-dollar deficits, ever-growing regulations, the military–industrial complex, and the Federal Reserve’s unstable monetary policies?
Or would he be impressed that despite world wars, depressions, and government interference, his model has moved a long way towards achieving the “universal opulence” that he predicted?
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