German gas and knowledge issues

Rarely do politicians explicitly acknowledge that they did not understand what they thought they could come up with. Unfortunately, just because they recognize this doesn’t mean they stop conceiving.

Being a German citizen currently offers a wonderful chance to study directly what can happen when governments take matters into their own hands. German governments, perhaps with the best intentions you can imagine, have gone ahead and revolutionized the energy market. They wanted to get rid of those dirty fossil fuels that we all don’t like and make Germany a green economy. Lots of solar power, lots of wind power. However, the sun doesn’t shine 24/7, nor does the wind blow every time you need to charge your phone, fry your schnitzel, or do laundry. What you need is dispatchable power generation. In light of the famous German angst, German politicians banned the use of nuclear power plants (actually incredibly safe and climate-friendly), but also technologies like hydraulic fracturing. This led to a certain dependence on gas. Russian gas.

And now, with the Russians no longer the friendly trading partner they always promised to be, German society is in dire straits. So what to do? Perhaps the government should intervene to remedy the situation. At least that’s what many politicians think, and it’s already translated into action. German Economic Affairs Minister Robert Habeck has drawn up a government aid program for energy companies. This is to save companies essential to Germany’s energy supply from bankruptcy. However, it soon turned out that the plan was not well thought out. Taxpayers’ money would also go to businesses that currently bank. In a curious concession to the knowledge problem, Habeck explained that “honestly, we didn’t know how intertwined the gas market is.”

Acknowledging its shortcomings is commendable. Especially if you are a politician. For honesty and admitting mistakes will put you as a politician in a difficult situation when journalists, intellectuals and political rivals happily point out those failures that you yourself have admitted to.

What worries the political economist, however, is the conclusion drawn from these recognized shortcomings. Looking at the debacle of the German energy market and the dangers of its regulation (to quote Israel Kirzner who has generally analyzed regulation), the conclusion should be humility. Politicians should be much more humble about the things they believe they can design. And they should honestly ask themselves, “Perhaps it’s better not to intervene?” Because I don’t understand what’s going on here.

Looking at German and European politics, that doesn’t seem to be what politicians are concluding. Instead, there are cries for price controls, for excess (or perhaps windfall) profit taxes. The maxim seems to be: if your intervention has failed, you must intervene again, and this time stronger. This is the recipe for the dynamics of the mixed economy that Sanford Ikeda has described so well.

Politicians suffer from “political myopia”: they rarely see that they are the ones causing most of the problems. And then they push forward – and cause even more trouble. There may be situations (often those produced by previous government intervention) where governments need to act. This may apply in the case of the German energy market and the recent nationalization of Uniper. But even if this is true, the general lesson must be that in future governments should refrain from undertaking such bold things as the “Energiewende” (energy transition). What they should focus on is what the ordoliberals (Germans) called setting the rules of the game. Not interfering with the game.

Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Freedom and Prometheus – Das Freiheitsinstitut. He regularly publishes with Der Freydenker.

James R. Rhodes