German gas and the problem of knowledge

It rarely happens that politicians openly admit that they have failed to realize what they thought they could design. Unfortunately, just because they admit this doesn’t mean they stop designing.

Being a German citizen today offers a great opportunity to study firsthand what can happen when governments take over things The German government, perhaps with the best intentions you can imagine, went ahead and revolutionized the energy market. They wanted to get rid of these dirty fossil fuels that we all hate and turn Germany into a green economy instead. A lot of solar power, a lot of wind power. However, the sun doesn’t shine 24/7, and the wind doesn’t blow whenever you might need to charge your phone, fry your schnitzel, or do laundry. What you need is dispatchable power generation. In light of the famous German outrage, German politicians banned the use of (indeed incredibly safe and climate-friendly) nuclear power plants, but also technologies like fracking. This led to a certain dependence on gas. Russian gas.

And now, since the Russians are no longer the friendly trading partners they have always promised to be, German society is in dire straits. So what to do now? Maybe the government should intervene to deal with the situation. This is at least what many politicians think, and it has already been translated into action. German Minister of Economic Affairs Robert Habeck has created a scheme of government aid for energy companies. This is to save the companies needed to supply Germany’s energy from bankruptcy. However, it soon became apparent that the scheme was not well thought out. Taxpayer money will also go to companies that currently bank. In a curious concession to the knowledge problem, Habeck explained that “we really didn’t know how involved the gas market was.”

Admitting one’s faults is commendable. Even if you are a politician. Being honest and admitting mistakes will put you in a difficult position as a politician when journalists, intellectuals and political rivals will happily emphasize the failings that you yourself admit.

What concerns the political economist, however, is the conclusion drawn from these admitted errors. Looking at the collapse of the German energy market and the dangers of regulating it (quoting Israel Kirzner who generally analyzed regulation) the conclusion should be humility. Politicians should be very humble about the things they believe they can design. And they should honestly ask themselves: “Maybe it’s better not to interfere? Because I don’t understand what’s going on here.”

Looking at German and European politics, that doesn’t seem to be what politicians have concluded. Instead, there are cries for price controls, excessive (or perhaps disastrous) profit taxes. The maxim seems to be: if your intervention fails, you must intervene again, and this time harder. This is the recipe for mixed economy dynamism that Sanford Ikeda so cleverly describes.

Politicians suffer from ‘policy myopia’: they rarely see that they are the cause of most of the problems. And then they move on strongly – and cause more problems. It may be that under certain circumstances (often produced by previous government intervention) governments must act. This may apply to the German energy market and the recent nationalization of Uniper But even if true, the general lesson must be that future governments should refrain from bold acts like ‘Energiewende’ (energy transition). What they should focus on is what the (German) ordoliberals call fixing the rules of the game. Don’t interfere in the drama.

Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty, Prometheus Institute and the Austrian Institute.

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