Energy prices and our broken economy

There’s no doubt that the global economy is broken. It has been for a long time. Just think back over recent decades and remember all the economic shocks that we’ve had to experience, and then it’s up to governments and the world bank to come up with strategies and bail-outs to rectify things. Well, we’re back in the same situation right now with energy prices. Another obvious sign of the broken economy is that about 45% of all the money in the world is owned by only 1% of the richest people. Crazy, but we’re told this is ok. The outcome of the current global economy is that extreme greed is rewarded and even idolised. That’s just wrong – we have a broken economy. With the current “crisis” in energy prices we’re in another farcical situation that proves that the economy is broken. We need a new approach, let’s examine why.

High energy prices

High commodity prices (particularly for energy) have come about because of fears that there won’t be enough supply to meet demand. Because we have a highly praised “global economy” we have what is often called a “market rate” for these commodities, but a “market rate” is anything but benign. To have a market rate means that there’s a system of globally auctioning for the highest bidder. It’s not a market rate, it’s the value of the highest bid made by the most desperate people who have enough money. Then we’re told “sorry, but that’s the market rate”, and the commodity is sold to those most desperate people no matter what it means for other people in the world. Of course, the company selling the commodity is happy because they are “increasing shareholder value” even if they are simultaneously creating misery for vast numbers of people. If it cost you 1 unit to gather the commodity from the Earth (it’s everyone’s Earth equally, by the way) then you’d think getting 2 or 3 units back for it would be an excellent return for the shareholders, so why hang out for 50 or 100 units just because you can? What ever happened to ESG concerns? Oh, that’s right – we can hide behind the concept of a “market rate”.

Some telling examples

Let’s consider a couple of extreme examples just to make the point.

Imagine a commodity company in the UK that extracted the commodity from within the defined territory of the UK. Now imagine the “market rate” energy prices have gone so high that the UK cannot afford to buy what they need. There’s some other country on the other side of the world that will pay 50% more than the UK can afford in the global auction to the highest bidder. Because the company has a “duty to its shareholders” they put the commodity on ships and send it across to the highest bidder. What’s the result? Tens of thousands of people die in the UK from cold and hunger. Is that what a company based in the UK should do? Sure, it would never get to this as wars would start well before.

Thinking this through even further, what about the shareholders also based in the UK? Would they prefer to have heating during winter or the additional “shareholder value” made by selling the precious commodity to the other side of the world? It’s hard to hide from the issue now, isn’t it?

Even further, what if the company that is sending all the commodity to the foreign highest bidder has chief executives living in the UK – do they keep some of the commodity for their own personal use? Wow, it gets complicated.

What’s happening today?

The extreme examples above won’t happen, but they show that our broken economy is really having problems. We are some way into these issues already with the current crisis in energy prices. Because of the projected shortage of crucial commodities, everyone buying energy has to pay the “market rate” (highest bid by the most desperate) for all similar commodities, even if they are not using the expensive commodity. How crazy is that? In the UK, burning gas generates less than half of the electricity and even if people are deliberately purchasing renewable electricity, they must pay the higher price of the gas electricity because it’s the “market rate” for electricity. How can we think this is ok? It’s just so crazy.

Imagine being an electricity supplier of any type in the UK. All of a sudden, as the result of nothing they have personally done, they’re going to be paid 4-6 times what they used to be paid. There’s no difference in their costs (except for the “market price” of gas if they have to purchase it from someone else), but they suddenly make huge, unexpected profits. At the same time, huge swathes of people in the UK don’t have enough money to pay their new energy bills and buy food. All that’s really happening is a transfer of wealth from the general population to a lucky few, for no good reason. We have a broken economy. It couldn’t be clearer.

Solutions to crazy energy prices?

I heard one good solution yesterday being touted by the EU which goes something something like this. Because the renewable energy companies have no increase in their costs, put a limit on the profits they can make. Let them make a very good profit, but not an insane profit. Take the extra money they are paid back off them as some sort of tax and use this money to provide assistance for the most needy. At least that makes sense. It’s not going to solve things, but it would help.

In the UK, the new proposal by the government is to cap the electricity price from the consumers point of view, while guaranteeing the energy companies their huge prices (linked to the “market rate”) through huge government borrowings. Let’s read that another way. The government is going to give the energy companies huge amounts of public money to protect the consumer from the price rises. In the end, the average British citizen will have to bear the effect of this additional debt somehow. It’s a great option for the energy companies and they don’t have to do anything and their “market rates” are guaranteed and locked in. Why does this sound really bad to me?

We need a different way

Let’s forget the broken economy and look at this a different way. The world is short of a crucial global commodity. We could let everyone fight over it like spoilt school-children in the playground or we can recognise the fact and figure out the fairest way to deal with what we have. However, we’ve been constantly barraged with the line that a “free market economy” is the only way go and that everything will sort itself out if unregulated. That’s just not true. This is the line given by the super-greedy people who want our broken economy to keep working just as it is.

A true economy would put value on fairness and the welfare of all the people in the world. A perfect economy would ensure that everyone in the world has an opportunity to lead a pleasant and happy life, and would keep our means within the range the Earth can sustain. It wouldn’t allow some people to become so rich and powerful that they are the ones who regulate how the economy works (as happens today), so they can get even richer and more powerful (even though they don’t need it).

In a true, fair economy we would recognise that we don’t have enough energy supply at this time and we’d come up with a plan for sharing what we do have in a sensible way. We might have to ration the energy. We would help people and businesses use less energy. We wouldn’t pay “market rate” energy prices, we’d ensure that companies were compensated fairly and well, but we wouldn’t let things go crazy while in a tight situation.

Fairness and equity are very important and we can only get this if we replace our broken economy. Can we do it? Some countries won’t play ball, of course. Would enough countries get onboard to make an impact? Who knows? In the short-term we need to avoid the consequences of the crisis in energy prices. In the long-term, we need to ensure fairness of opportunity to all and to learn to live within the Earth’s means (which our broken economy ensures we don’t do today).

In order to replace our broken economy, we need a better option. The hardest part will be to convince the 1% that own 45% of everything (including political power) that we need a change.

Related Links – Energy prices and our broken economy

• Britain’s Electricity Explained: August 2022 – PDF report from the National Grid
• This Simple Chart Reveals the Distribution Of Global Wealth – from Visual Capitalist
• Doughnut Economics – by Kate Raworth
• They need us more than we need them – from Use 10 Percent Less
• Lockdown and Private Jets – from peterwhiting.net
• Everything must change