The UK's Brexitory government continues its economic idiocy that is bankrupting the economy. The latest idiocy is its plan to cap the revenues of low-cost, electricity generators, such as those using alternative energy sources like wind and solar power. It is fully in keeping with the reactionary, petty-bourgeois ideology that seeks to hold back capital accumulation and economic growth, by penalising larger or more progressive forms of capital, via taxation and so on.
The basic position is this. Firstly, global energy prices have risen, because NATO has boycotted Russian oil and gas supplies. By taking out that large amount of supply - though it hasn't actually all been taken out, as the Russian supply has simply taken alternative routes via China, India and elsewhere, before re-emerging at higher prices, as seen by the burgeoning revenues going into Russian coffers - the EU was forced to meet its demand from much more expensive sources, primarily oil form the US, and gas via imports of LNG. EU gas wholesale gas prices have been extremely volatile rising by over 1,000% at some points.
Although, Britain buys only 6% of its energy requirements from Russia, and produces nearly 50% of its own gas requirements from the North Sea, it cannot escape the effects of these much higher global energy prices, especially as North Sea oil and gas is some of the highest cost production in the world, and is becoming more so as the fields become exhausted. Global oil and gas companies operating in the North Sea are going to sell their output to where they can get the highest prices for it, and so if Britain wants that supply, which it does, especially as it has very little gas storage capacity, it has to pay those highest prices too.
In the 1980's, Thatcher, desperate to defeat the miners at any cost, initiated the "dash for gas", by which electricity generation was switched from coal to gas. As global gas prices fell dramatically in the 2000's, and countries signed up to reduce carbon emissions, switching power generation from coal and oil to gas, gave an easy win, as an interim to being able to produce sufficient electricity from alternative sources, such as wind or solar. So economies continue to be reliant on gas, and, indeed, in may places coal and oil too. Its these fossil fuels, and particularly gas that is the determinant of the costs for electricity generation.
As the NATO sanctions have massively pushed up global oil and gas prices, that has, therefore, also massively increased global electricity generation costs, and electricity prices to consumers, alongside massive rises in gas prices to consumers, and higher petrol prices. Initially, governments did not see this as a bad thing, for two reasons.
Firstly, a bit like with Iraq in 2003, NATO's strategy against Russia seems to consist of wishful thinking, which is also then the foundation of its propaganda war, but as countries and politicians then believe their own propaganda it feeds into further wishful thinking. So, basing themselves on their experience of the last 30 years, they thought that by flexing their military muscles in Ukraine, and applying economic pressure, Russia would buckle, but it didn't. They have continued to hope it would, or that Putin was going to be removed, and so on, but he hasn't. Instead, he's simply consolidating his position in Eastern Ukraine, which was always the goal, and over the Winter months, that consolidation will be completed, whilst his military continues to fire at NATO/Ukrainian command and control and infrastructure using long range missiles and so on.
Secondly, governments have been alarmed that as soon as lockdowns were relaxed, economies leaped forward, and, in particular the demand for labour grew rapidly. That demand for labour pushed up wages, which, in turn fed back into demand for wage goods, which meant that firms had to accumulate capital to meet this additional demand - especially as profit margins are currently at historically very high levels - which meant that the demand for capital rose, causing interest rates to rise. Higher interest rates cause asset prices to fall, and, because the ruling class now owns all its wealth in the form of these assets, that is the one thing that the state has been trying to avoid for the last 30 years.
So, again, conservative social democracy (neoliberalism) based its strategy on wishful thinking, which determined its propaganda, and fed back into its wishful thinking. They assumed, again, that the conditions prevailing over the last 30 years would continue. So, they assumed that, if workers found that their household incomes were all being used up to fund higher energy and food bills, and higher mortgage costs, as interest rates rose, they would simply suck it up, and spend less on other things, thereby, slowing the economy and demand for labour, so that wages would not continue to rise, interest rates would not need to rise further, and so the perpetual rise in asset prices could go on, increasing the paper wealth of the ruling class.
But, the conditions of the last 30 years have gone. The financial crisis of 2008 was actually the sign they had gone, and it has taken herculean efforts to undermine the real economy since then to prevent that reality asserting itself. In conditions of labour shortages, wages continued to rise, and workers sensing their renewed strength, started joining unions in large numbers, and taking action to get even bigger wage rises to compensate for the higher costs of living from energy, food and mortgage costs. Firms responded by raising prices further, and central banks did their bit by increasing liquidity so that prices could rise, but that just leads workers to demand even bigger rises, and with still high levels of profits, firms continue to expand, and hire labour, and pay higher wages.
Despite all the talk of recession, the fact is that in the US, labour markets are extremely tight with two vacancies for every unemployed worker. And, the same is true in Britain, with the unemployment rate now down to its lowest level since 1972. Firms do not employ workers to sit and do nothing, let alone to actually reduce the amount of new value being produced. So, these increasing levels of employment and falling levels of unemployment are an indication that there is no recession, and output continues to rise. The falls in GDP are not an indication of recession or falling output, but of rising costs of constant capital causing a tie-up of capital that appears as a reduction in revenues.
So, seeing that rising living costs are actually feeding into rising wages, and more threateningly rising levels of unionisation and industrial action, by workers, governments have been led into trying to make superficial attempts to hold down the costs to consumers of energy, whose price had soared because of those governments' own actions in imposing sanctions on Russia. Pressured by US imperialism, as shown in its blowing up of the Nordstream pipelines, European governments, including the Brexitories in Britain, have been loathe to do the obvious thing, and scrap those sanctions. Instead they have come up with one hare-brained scheme after another to massage those higher prices away.
The decision of the UK and EU governments to cap energy prices to consumers, and, so to have to hand over billions in subsidies to energy producers, has blown a hole in budgets, sending borrowing soaring further, and so sending interest rates soaring further too. As central banks again sought to do their bit, by printing even more money tokens, to add to the oceans of liquidity already inflating prices, that caused global inflation to take yet another leg higher, causing workers to demand even higher wages, firms to seek to compensate with even higher prices, and so led central banks to respond, not by reducing liquidity, but by instead raising their interest rates further, in the vain hope of slowing economies, which given the massively negative, in real terms, levels of those interest rates, they can never do.
And, the UK Brexitory government added fuel to this fire with its own insane petty-bourgeois, budget based upon the tax cutting ideas of Reagan's Voodoo Economics that was so disastrous in the US in the 1980's. As UK borrowing soared, global financial markets took fright, and showed to the Brexitories just who did have control of the UK, and it wasn't Truss and Kamikwarzi Kwarteng. So, now, they have to try to fill the hole in their books, and they don't want to adopt the Liberal/Labour policy of a windfall tax on energy producers. More correctly, they don't want to be seen to be adopting it.
As I've set out before, a windfall tax itself is a very bad idea anyway, and itself simply an application of petty-bourgeois interests. It amounts to a form of rent. Rent arises because, the market price of commodities is determined, as Ricardo and Marx set out, by the marginal producer. If demand can only be satisfied by the supply provided by the least efficient (highest cost producer), then, in order to get these producers to apply their capital, prices must be high enough to provide them with the average industrial rate of profit. But, that means that other producers, who have lower costs of production, will make more than the average industrial rate of profit, at those market prices, and this surplus profit is then the basis of rent.
Rent, then is not an additional cost, which raises market prices, but is a deduction from profits, and, in the case of this differential rent, from this surplus profit. However, as Marx describes, what rent does is to slow down capital accumulation and innovation. If firms were able to make the surplus profits, then those surplus profits would invest additional capital, as they do in industrial production. They would increase supply, and push out the less efficient producers. The result would then be that the market price of the given commodity would itself fall, and the surplus profits would disappear. This was the great drag that landed property continued to exert on economic development, Marx set out.
A windfall tax has the same effect, as does all those other measures aimed at subsidising the small inefficient producers at the expense of large-scale capital. But, the Brexitories new plan is not to implement a windfall tax, but to cap the revenues that the low cost energy producers obtain, as a result of the high gas prices that NATO's sanctions have created. Either that is a windfall tax by any other name, or its effects will be quite different to what the Brexitories intend.
Firstly, although the massive increase in gas prices has caused electricity prices to surge, and along with it, the mass of profits of electricity producers, its not clear that for those that use gas, their rate of profit has actually risen. In other words, what we have is c + v + s, and let's assume c consists entirely of the gas used to produce electricity. We can assume that v and s remain constant. If we start with c 100 + v 100 + s 100, and now as gas prices rise we have c 500 + v 100 + s 100, then, the rate of profit will actually have fallen from 50% to 16%. In fact, because prices are based on prices of production, the price will rise to try to restore the average rate of profit of 50%. So electricity prices would rise from 300 to 900, and whilst its true that this means the mass of profit rises from 100 to 300, the rate of profit does not rise at all.
So, a windfall tax on these producers would actually reduce their rate of profit below the average causing them to slow capital accumulation, and move capital to other spheres where a higher rate of profit is available. In fact, given that they have to compete with the other lower-cost energy producers, its likely that they may not have been able to even raise their prices enough to maintain the average rate of profit, despite obtaining higher masses of profit as a result of higher market prices.
But, if we look at what the effect, then, of apply a cap on revenues for the low-cost producers is, it is even more devastating for the higher-cost producers. If the low-cost producers face any "excess revenues", whatever that may mean, being taken away from them, then they would, indeed, have an incentive, to reduce those excess revenues, by reducing their prices for electricity. However, that means they would then undercut the high-cost electricity producers, who would also have to cut their prices. That is no doubt what the Brexitories want, but the effect will then be that the high-cost producers will not only see their rate of profit collapse, leading to them moving capital to other spheres, but may also see them reducing their existing production.
So, the consequence would be that electricity supply would fall, at a time, when OFGEM is already warning that electricity supply may be disrupted over Winter. In fact, the high cost producers might find, not only that their rate of profit fell drastically, as the low cost producers cut their prices, but that their existing profits turned into actual losses. That would put them in a similar position to all of the energy supply companies that went bust over the last year, because the costs of the energy they bought was higher than the prices they could charge to consumers. That led to the government having to step in to subsidise other energy suppliers taking on the customers of those failed companies, again leading to government spending rising to fund it, which causes borrowing costs to rise further.
Everywhere you turn its like a game of whack a mole, with no coherent strategy, and each idiotic response simply adding to the confusion and mayhem.
No comments:
Post a Comment