Guess Russian Tsar Vladimir Putin has an ounce of ideology, that is, he doesn’t just act out of self-interest, but he genuinely thinks the “West” is decadent and evil, and can destroy Russian civilization. save mankind In that case, there’s good reason to believe he can’t really lose the war he started in Ukraine.
The reason is that even if his army loses on the battlefield, as could very well happen, the Russian czar has, in the meantime, pushed many Western governments to dramatically increase their own Caesarian powers. The European Commission has just put together a plan to redistribute the energy industry’s “surplus profits” between consumers and intermediate users of (natural) gas – since Russian state-owned Krany Gazprom has cut almost all sales of that commodity to Europe. The plan is likely to be adopted at a meeting of energy ministers on September 30. (See How EU Wants to Collect ‘Windfall Profits’ from Energy Firms,” Economist, September 15, 2022; “EU Wants to Raise $140 Billion in Clawback Energy Profits,” The Wall Street Journal, September 14, 2022; and “EU targets €140bn from windfall tax on energy companies,” financial bar, September 14, 2022.)
As the plan stands now, the government will capture a portion of the profits that typically lead energy companies to risk investment losses in the hope of future additional profits. It is as if the government limits the “surplus price” paid to producers, discouraging them from producing more. On the other hand, by using foregone profits to limit consumers’ energy spending to what they spend now, it will encourage them to use more than they otherwise would. Increased scarcity requires just the opposite: more production now and in the future and less consumption now. Furthermore, gas and electricity price caps are already in force in some countries and may become more stringent. A real planning mess!
The economic consequences will likely prove disastrous. Governments (EU governments and national governments) will need corrective interventions in cascades, becoming more deregulatory as they try to solve the problems they themselves create. The phenomenon is well known: as central planning fails, the argument is made that more central planning is needed. “Energy Caesars”, clean or dirty, will gain power in the bowels of Western leviathans. Energy markets will be blamed for being ripe with “market failure”.
EU governments will say these are all temporary emergency measures. But as usual, once an emergency is over, state power is unlikely to return to its pre-emergency level. It will continue to grow, one emergency after another. (See Robert Hicks, Crisis and Leviathan [Oxford University Press, 1987].)
It is a mistake to think that the rule of law, individual rights, and “political rights” can survive the end of economic freedom. Milton Friedman’s classic Capitalism and Freedom (University of Chicago Press, 1962), published 60 years ago, is required reading on the subject. In order to protect their subjects from excessive prices, politicians and bureaucrats will accumulate additional power over them. The West would go further down the “road of slavery”. It would be surprising if the US government didn’t follow suit. The West will be truly decadent and evil. Whether or not the old Russian tyrant is still alive by that time is immaterial from our point of view.
I am not arguing that nothing should be done. I am arguing against central planning. The worst case solution (thus, the best one) would be to subsidize families whose plight is deemed unacceptable or breaks public resistance to Putin’s imperial tyranny; And let price and profit play their signal role of adjustment without coercion as in a free society. (See my recent EconLog post “Efficient and Inefficient Rationing”.)