Capitalist greed for the win once again

There’s a rather larger story behind this little tale:

But after a once-in-a-generation shake-up of the supermarket rankings saw Morrisons ejected from the “Big Four” club, executives at CD&R may be wishing they’d swallowed their pride and walked away.

For two decades, Britain’s supermarket industry has been dominated by the same quartet: Tesco; Sainsbury’s; Asda; and Bradford-based Morrisons. However, in a stunning changing of the guard that will rock the sector, Aldi has toppled Morrisons to take fourth spot, according to the last figures from data provider Kantar.

Go back just a little more than a couple of decades and there were interminable inquiries into the supermarket oligopoly. Highly paid consultants placing little triangles over maps to see where local monopolies existed. Where one or t’other of the Big Four owned not just the shops but all the likely places where a shop could be put.

There was good reason to at least think about the problem too. For margins for supermarkets were some of the highest in the world. We seem to recall 6% being bandied about as a number.

Today those same Big Four are lucky to be making 2 or 3%. Share prices have - relative to their earlier real values - declined sharply. Why?

Because some foreigners saw those profit margins and saw that they were good. Aldi and Lidl invaded and competed. The effect has been to lower the returns to those - possibly - oligopolistic capitalists who used to own the system. The beneficiaries have been the consumers.

We don’t know of a specific study on the effects of Aldi’s irruption but by analogy. The “Amazon Effect” has been studied and it applies to the online irruption rather than just to that one company. But it’s said that it has led to a 0.1% to 0.2% shaving off the inflation rate each year for a couple of decades now in the US. That’s 2 to 4% lower prices now, against what they would be without that irruption.

Note that’s of all prices across the economy - the impact upon those things actually supplied or delivered by online sellers is higher.

Now, we’d not say that Aldi and Lidl have had exactly the same effects as online but just for the want of some other number to use, imagine that it has been. That’s somewhere between, in the £2.2 trillion economy here, a £44 and £88 billion saving a year to British households.

The cost has been to the capitalists of the earlier generation of groceries suppliers. The benefit has been partly to the new capitalists and hugely greater to consumers. For no one at all is thinking that Aldi and Lidl shareholders have been enriched to the tune of £44 billion by their British adventures alone. That even before we get to the point that the benefit to consumers is an annual £44 billion saving, while any valuation of A & L is a capitalised one, a once off sum instead of an annual one.

What was the solution to the earlier supposed supermarket oligopoly and their high margins? Competition. Competition driven by capitalist greed to appropriate some of those profits to the incomers.

So, once again, capitalist greed in markets with free entry for the win then. Funny how reality has this neoliberal bias, isn’t it?

If this is true then the climate change problem is solved, isn't it

Green hydrogen could counter energy crisis, says British firm

ITM Power, which makes electrolyser machines, says splitting water using renewable energy has become more cost-effective than gas

Now, of course, that’s a company touting their own products so take with the appropriate amount of salt.

But if true - if true - then that solves the entire problem. We don’t have to rebuild the grid to charge electric vehicles, we don’t have to insulate every house in the country - trying to put cavity wall insulation in a house with no cavity walls is difficult - and we can stop worrying about aviation entirely.

Not because hydrogen can or even should be used in all of those sectors. But because if we’ve got cheap and green hydrogen then we already have the technology - have had for a century - to formulate that up into the sort of liquid fuels that all those extant technologies can use. Cheap green hydrogen - again, if it’s true - plus Fischer Tropsch gives us cheap, carbon neutral, hydrocarbons. Which we can then feed into our extant networks of fueling stations and into our extant technologies of cars, ‘planes and, if we prefer methane, into the gas network.

We’re then done.

Which is why it’s so lucky that we dealt with the problems of climate change in the right way. We didn’t go out trying to pick technologies. No bans on anything, we just set the incentives - anything carbon neutral works that is - and allowed the market to get on with sorting it out.

We did do that, right?

Safety rules need to be technologically neutral

We might sometimes give the impression that we’re entirely against any form of public regulation. This is not so. We’re pretty happy about the effective ban on private armies for example - no one really did enjoy the Wars of the Roses, the last time such were generally allowed. Our arguments are more about we don’t want this regulation, or that type of them.

Within this is an insistence that any form of regulation must be technologically neutral. For example, one of the messes being made over climate change is that bans and subsidies and so on are not neutral. Certain methods of doing something are preferred, others lambasted, rather than what should be done - certain results being preferred or lambasted. It’s energy/emissions that is the importance, not whether this is done by windmills, solar, biofuels or whatever else. The structure of the system should be, should have been, technologically neutral as to what produced the energy/emissions trade off set.

So it is here with seismic issues:

Truss told to increase earthquake limits to kickstart fracking revolution

Current restrictions prevent ‘a proper test’ on whether the UK's resources are commercially exploitable

No, we don’t need to increase limits. We just need to have the one set of limits for all technologies which might produce quakes - or, more likely given the subject, quakelets.

Current rules require drilling to stop if it causes tremors of 0.5 or more on the Richter scale.

Experts say tremors at this level occur naturally and often, at a magnitude so low it is imperceptible to people above ground. The current limit blocks any realistic possibility of exploiting shale resources commercially.

Fracking companies want parity with other industries, for example geothermal energy, which is allowed to create earthquakes of higher magnitudes than 0.5. In the US, fracking-related tremors of up to 4-magnitude are allowed.

Yes:

Professor Richard Davies, a leading petroleum geologist at Newcastle University, said fracking had thus far “not been a major source of earthquakes” and that coal mining had caused “many times more”.

And yes and quite so.

The perceived problem is earthquakes. OK, so there should be a limit on activities which produce earthquakes. We’re fine with that. But that limit should be technologically neutral. It matters not whether the quake is produced by the Eden Project going geothermal (and they did produce a quake which blew through that fracking limit), Cornish Lithium extracting that metal from geothermal waters, someone mining for copper or tin, any other form of underground mining or fracking. Earthquakes are earthquakes, they’re what should be regulated.

At which point, if we stick with this 0.5 limit for all activities then we have no mining - no, none at all of the underground type - nor geothermal. And, clearly, no fracking. Or, we have a limit that allows those possibly “good” things like geothermal but that necessarily means that the limit will also allow fracking.

Whatever the rules are they need to be technologically neutral. Otherwise they’re just politics playing that favourite game of picking losers.

Growing alfalfa in the desert just isn't sensible

One of us here was writing about this very problem 25 years ago. The solution being obvious, simple, correct and politically impossible:

Agriculture – mainly alfalfa – consumes 80% of the Colorado River’s dwindling water supply, prompting calls for conservation efforts

Alfalfa is a distinctly low value crop. It’s glorified hay. It’s worth very much less than the water used to grow it.

The solution is, obviously and correctly, to have a market in water. People buying and selling the rights to that irrigation water from the Colorado River. The water will thus be sent off to its highest value use. Perhaps almonds, maybe for Angelinos to have showers.

Or, in a more theoretical analysis, you cannot have a shortage if you’ve a free market. Because, by definition, that free market price will be the one which balances supply and demand. Of course there will be plenty of people who would have demand if the price were lower - but that very action of allowing the price to, erm, float is what ensures that what water there is is devoted to its highest value use.

California water rights were allocated largely on a first come first served basis a century and more back. It can be illegal for people to buy and sell such rights at that market value. The problem is not the lack of water, it’s idiot public policy over the allocation of it.

Just allow those - for one of those proofs is that it doesn’t matter what the initial allocation is, markets still optimise distribution - who own the current rights to sell if they wish at whatever they can get.

Of course, there are people who get entirely the wrong end of this stick. Here’s The Guardian, on the same day, talking about largely the same place (locals would insist that the Inland Empire and Imperial Valley are entirely different, from this distance that’s just locals being locals):

Over the past decade, once bucolic Ontario has become one of the biggest US hubs for the e-commerce industry. In addition to the 4.1m-square-foot Amazon facility under construction, three other Amazon facilities as well as a sprawl of warehouses for FedEx, Nike, and other companies stretch to the east of Jaime’s farm. Another 5.1m-square-foot logistics center will soon be constructed down the road.

Mucky fields and cattle feedlots around Jaime’s home have been paved over to make way for clean, gray box buildings and herds of 18-wheeler delivery trucks. “You can hardly smell the cow manure in the air any more,” he said.

Folk not farming with the limited local water supplies is bad too apparently. But that land issue is that resource being applied to its highest valued use. If the same were done for the water then that problem would be solved too.

We really do insist that prices work

As with our insistence yesterday, prices really do work.

We don’t need a government plan simply because we’ve already got a plan. Those prices work because prices do work. If soaring energy bills hitting wallet by wallet don’t incentivise people to insulate the loft - those few who haven’t done that already - then nothing will. It’s precisely because energy bills are soaring that we don’t need any more or other government plan.

Today’s example runs the other way:

Soaring energy costs could threaten future of electric cars, experts warn

Well, yes. One of the things we know about humans is that they, we, do less of more expensive things and more of cheaper.

Until recently ownership of electric cars had been gaining in attractiveness as the cost of petrol rose. But since recent rises in electricity prices – in Germany of around a third compared with a year ago – the price differential has shrunk.

That is the way the world, we inhabitants of it, work. It is entirely true that as electricity prices rise then electric cars become less enticing and so fewer will buy them. Just as it is also true that as energy prices rise then people will undertake actions to reduce their energy consumption. Turn down the thermostat, wear a jumper, insulate the house, fiddle with the boiler and all the rest.

It really is true that prices work - which is why we do not, in fact, need grand plans forcing action upon people. Because prices have already changed to incentivise exactly those changes.

We may well need to do some work on aiding people dealing with the extremes of those incentives and prices - but the rush to change behaviour is already underway.

Queen Elizabeth- the one constant in a changing world

During a history class in my first year at a state grammar school, the imposing headmaster, Colonel Thomas, swept in wearing his gown and mortar board. He announced to the class, “I think you should know that at six o’clock this morning, His Majesty King George VI passed away. I think we should all rise for a minute’s silence.” We duly did so, and Colonel Thomas left us. As we sat down, one boy asked the teacher, “Please Sir, who’s dead?”

For the next 70 turbulent and changing years, his successor, Queen Elizabeth II, was the one constant that kept the nation united when it faced different challenges and new opportunities. It was under her first prime minister, Winston Churchill, that many of the wartime restrictions were abolished, including rationing and identity cards. I remember the glee with which I threw away my hated rationing books, though I kept my ID card for years as a souvenir.

After the Suez crisis of 1956, the country realised that it was no longer powerful enough to exercise sway in the world without allies. We used to tune in to half-hourly news bulletins and the BBC, then the monopoly radio broadcaster, introduced them for the first time to cover the crisis. 

The Queen then presided over a remarkable shift away from a British Empire and into a diverse Commonwealth of Nations which cooperated together to achieve joint objectives. It said much for the nation and its monarch that this was one of the few empires in history which achieved its dissolution largely peacefully. Queen Elizabeth was very much the cement that held the Commonwealth together. She valued her role as its head and exercised her influence to have it as far as possible share common values. I kept my school geography book that showed large parts of the world coloured pink, memories of a bygone age.

The monarchy was one of the few bright spots in Britain’s long slow decline into the economic chaos of the 1960s and 70s. The country sought to halt this decline by joining the European Economic Community, which it saw as a free trade area. The Queen visited many of the European capitals and leaders, and became a very popular figure on the European continent. 

Queen Elizabeth had an easy relationship with most of her 15 Prime Ministers, including Margaret Thatcher, the one who overturned the postwar consensus, and turned Britain around from being the sick man of Europe into being one its powerful and leading members. The retaking of the Falklands after the Argentinian seizure gave the nation a new feeling of self-confidence. I was in Covent Garden when I saw on a TV screen in a shop window that the Union Jack was now flying over Port Stanley. The Queen was now at the head of a nation that felt it had a new role defending freedom and democracy, and which was prepared to commit resources to that end.

The Queen presided over the dismal years of the 1970s when trade union leaders seemed to exercise more power than the monarch, or, indeed, Parliament. That ceased when Mrs Thatcher brought the unions within the law, so they were now subject to the rule of the Queen in Parliament. I still have the portable gas cooker and gas lamp that I used during the power cuts to which we were subjected by the union bosses.

Throughout her reign, the Queen took a delicate apolitical stance, wishing to be seen to not be interfering in politics. This was a major factor in having the whole country unite behind her, regardless of any individual views they might hold. Twice she gave a discrete but delicate nudge that may have indicated her own position. Just before the Scottish referendum on independence, she said that she hoped the people “would think carefully” before they voted. 

Just before the Brexit referendum, the Sun newspaper ran a story provided by someone at a private dinner party attended by the Queen that she had allegedly expressed support for Britain regaining its independence. The Palace, as usual, declined to comment on such matters. Having seen the United Kingdom enter into the European Economic Community some 40 years earlier, she now presided over its departure from the European Union.

She intervened personally during the Covid pandemic with a speech to the nation, reminding her subjects that normality would return, and that in the wartime words of Vera Lynn, ‘We will meet again.’ I took the vaccines at the first possible opportunity, and welcomed and agreed with her reassurances. 

I saw the Queen many times, but only met her once to shake hands and talk briefly. It was when I was an Edinburgh councillor and we held a civic reception for her, Prince Philip, the now King Charles and Princess Anne. She admired my Edinburgh graduate tie, and we all talked briefly about university life since Charles had also just graduated.

The nation must now move into an unknown and uncertain future, without the bedrock of stability that she offered during her reign of 70 years in which the modern world took shape. I was present throughout those years and the changes they brought. She was the one constant factor throughout them, bringing an aura of calm and stability to sometimes chaotic times. She will be sadly missed, but remembered with much affection and appreciation. 

Can we just remind, again, that prices do work?

Demands that the government must do something:

UK must insulate homes or face a worse energy crisis in 2023, say experts

Cutting heat loss from houses will be more effective in the long term than subsidising bills, according to analysis

The report itself:

An area that could make a real difference, but was entirely absent in the prime minister’s plan, would be tackling the UK’s energy efficiency problem. The UK’s homes and buildings are among the least efficient in Europe, which is making the crisis especially painful for households and businesses. Yet remarkably the Johnson government and now seemingly the Truss government have ignored this so far in their responses. The case for action is even stronger now that the government will be taking such large energy costs directly on to its balance sheet.

We agree, up to a point. Better insulation will reduce heat loss, of course. We would point out that a great deal of this has already been done. For example, the vast majority of houses without cavity wall insulation are those without cavity walls to insulate.

But the point where we disagree - that the case for government action is stronger now. No, it isn’t, the case for government action is ended. Because we’ve already that solution to hand - prices.

It is not true that if something needs to be done then government must do it. It is true that if something must be done then the incentives to do it must be properly aligned. So, the nation faces possibly bankrupting energy bills now and in the near future. They’re faced household by household too. Which means that every household in the country now has the finest incentive possible to find out about - and do - whatever insulation is possible.

We don’t need a government plan simply because we’ve already got a plan. Those prices work because prices do work. If soaring energy bills hitting wallet by wallet don’t incentivise people to insulate the loft - those few who haven’t done that already - then nothing will. It’s precisely because energy bills are soaring that we don’t need any more or other government plan.

We must be socialist so that we can be poor

Another entrant in that race to explain why we must stop having a successful economic system and move over to one that doesn’t work:

The climate crisis will spiral out of control unless the world applies “emergency brakes” to capitalism and devises a “new way of living”, according to a Japanese academic whose book on Marxism and the environment has become a surprise bestseller.

The message from Kohei Saito, an associate professor at Tokyo University, is simple: capitalism’s demand for unlimited profits is destroying the planet and only “degrowth” can repair the damage by slowing down social production and sharing wealth.

There’s a logical hole here - it’s entirely possible to have a static and capitalist society. Most of history was just that after all. It’s markets, free markets, which produce the growth. So, to stop the growth you need to stop the markets, not the capitalism. Stop people trying new ways of doing things and you do indeed stop that growth - for growth is new ways of doing things.

There’s also an incentives mistake here. The demand for growth isn’t driven by capitalist demand for profit at all. It’s driven by consumer demand for a better life. It’s us out here who rather like getting more for less of our sweat by hand or brain. Thus it’s us driving that desire for growth.

Finally there’s a simple factual mistake. Back when the IPCC started modelling the global economy, in the Special Report on Emissions Scenarios, it was made very obvious that a free market and capitalist world solved climate change better than a planned and social democratic one, let alone a socialist.

So there’s not a great deal of either logical or factual support for this idea that we must all be poorer. Nor that we should all be socialist.

Back a century the great claim of scientific socialism was that by replacing all that chaos and waste of markets with proper planning then we’d be richer. That was why we should be socialist, to be that richer. Didn’t work out that way as we know. So, now we’ve this demand that we must all be socialist so that we can be poorer. We must still be socialist, it’s the justification that has changed.

Still, at least this is better than Jason Hickel’s latest demand - we should be poorer so that we can be socialist.

Of course fracking will work

The Guardian runs just one of many articles insisting that fracking will not work in Britain. The geology is wrong, it won’t change prices anyway, how dare they and that’s the end of that. We take a more cynical - as always, when viewing politics, we suggest “realist” is the correct description of unbridled cynicism - view of the matter. If fracking really won’t work in Britain then the effort to ban it on those spurious quake grounds would never have been attempted. It is precisely that insistence that it cannot be allowed which convinces us that it will work if it is allowed.

As to price, yes of course increasing supply will reduce prices. By how much is the question and that depends upon the capacity of the infrastructure to feed it out into wider markets. The more that can be exported the less influence there will be on the domestic price.

But leaving the issue there is a logical failure. For gas within the UK belongs to The Crown. Which means that the resource value, the royalties, flows to the government. So, assume that all fracked gas is exported for a moment - that means vast floods of cash into the Treasury from all those foreigners buying the gas. We will have achieved Monty Python’s tax nirvana, we are taxing foreigners living in foreign countries. As opposed to what happens now, which is that Britain’s use of gas imports enriches the Russian and Norwegian governments.

That is, even if fracking doesn’t change prices it still benefits us here - producing that river of money which can be used to pay for our own government.

There is that possibility that the geology is all wrong. But even then going fracking still does work. Because the universe is contrary and such assertions do in fact need to be tested. Possibly fracked wells will produce gas which we can use or sell to Johnny Foreigner - in which case we are better off. Or, perhaps the naysayers are correct, fracked wells will produce nothing but expensive holes in the ground. In which case we are still better off - now we know. Uncertainty is reduced and we can then stop the political fight and get on with adjusting to reality.

This, of course, being the important part of the “free” in “free market”. Folk get to try out whatever comes into their pretty little heads, free of restrictions by those who either insist it cannot work or would prefer it didn’t and that’s the way we find out what is technologically possible.

There simply is no way at all in which fracking will not work in this wider sense. Even if it never does produce gas we’ve still found that out - and at someone else’s expense to boot. For that’s the capitalism part of the system - Ineos, or Cuadrilla, or some others, carry the expense of drilling those holes. We’re not trying to allocate some limited amount of government or taxpayer resources. We’re simply telling the world’s assembled capitalists “Come on then, if you’re ‘ard enough” and then seeing what happens.

Other than those desperately hoping that it won’t work why wouldn’t we go ahead and do this?

It's necessary to really read some statements

Here, about more gas not lowering prices for example:

Producing more UK gas ‘won’t bring down prices’

Oh well, that settles it then. The Times has said so. No point in fracking now, is there?

Except read more carefully:

Maximising North Sea oil and gas production is crucial for security of supply, but it will have only a “limited” impact on prices, the industry’s lobby group has said.

That’s talking about North Sea production, not fracking. And no, the two will not be the same in their effects. For if they were then the American price of gas would not currently be below the European - which, of course, it is. What matters is the volume of gas produced as against the capacity of the pipelines to export it.

Full throttle fracking would overwhelm export ability so UK prices would be lower than the Continent - just as American are now. And why would North Sea producers want the price of what they can sell - North Sea gas being entirely substituitable with fracked gas - to decline domestically?

There’s also this:

Offshore Energies UK is backing wholesale power market reform that would prevent electricity from wind, solar and nuclear plants being sold at high prices set by gas-fired power plants. But it pushed back on the idea of reform to the gas market to cap the price of domestically produced gas and prevent it being sold at high prices set by the international market.

We bet they say that. For reducing the price of electricity from other sources will increase the price that must be paid for gas. High prices limit, reduce, demand. Lower prices for those alternative generation methods and, ineluctably, demand does not decrease. Raising the price of gas derived electricity, therefore gas itself. But, obviously, they also don’t want to be prevented from taking a higher international price if there is one.

It’s often necessary to work out who is saying it, not just what is being said. For only when we grasp the who - and therefore the why they’re saying it - can we fully grasp the detail of what is being said.

As Ms. Keeler said in one of those great insights into politics and human behaviour “Well, they would say that, wouldn’t they?”