Since the Great Recession, the Fed has transformed itself into an entity more and more responsible for asset prices. This was the stated goal since 2009 as the Fed adopted a new philosophy called the "Wealth Effect." The thinking behind it was simple: growth in asset prices would translate to an increase in consumer spending and hence demand itself. It was a 'trickle down' economic philosophy an increasingly financialized economy.
This backdrop has defined our post-2009 era which stirred certain pathologies that were reflected in the greater culture and politics. It was the time when 'finance became a culture' and actual-productivity plummeted across most developed economies, especially the United States. But somehow in spite of the accumulating dysfunction across most key areas, everything kept trudging along, partly thanks to investors being satiated with record returns.
While the near-zero interest rate regime may now be ending, it is worth considering how much of the water we were all swimming in excused poor state capacity, distorted economic fundamentals, and how it even kept a lid on the dysfunction potentially blowing up in our faces. Now that we have to reckon with these realities, it may be wise to ask how many worldviews were simply products of the the cheap money regime - which is now, in a shock to many, coming to a close. Whether or not it will easily be let go, however, is another matter.
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Is this feasible within a relevant time-window? Production today is not based on yesterday's decisions, but instead those decisions made 3, 5, and 10 years ago regarding regulatory, investment, and infrastructural resource allocation. Thus, decisions being made today about production infrastructure and investment shouldn't be based on today's needs for more/less gas, but on estimations of the need for gas in 3, 5, and 10 years. The price, on the other hand, reflects demand today, irrespective of future or past projections or investments. Thus, the two are far less related than one might ordinarily suppose. Insofar as they reflect a broad-based general trend in demand, yes, prices are a good spur to investment and future build-out. However, when there is a lag in build-out's ability to ramp up production in the short term, and the price spike is caused by a short-term or otherwise exceptionally unpredictable event like a natural disaster or war, then the price is likely not a good guide to what the future may require.
This is why it's reasonable to discuss price caps for this kind of black swan event; it's not the kind of thing that could reasonably have been anticipated within the timescales necessary to ramp production, and no action taken today is able to reduce the price through increasing supply within a reasonable timeframe (or even one that reasonably guarantees the black swan effect's will still be applicable at the end of the preparatory period). Thus, it's proper to take into account the societal effects of a sudden and unearned windfall profit vs the costs to the citizenry who see prices spike uncontrollably.
Black swan? Inflation was entirely predictable - right wing economists and even just common sense lay people were screaming warnings about the trillions of money printing that was going on for years. What was the response? Memes about “heh money printer go brrrr”.
Yeah, the administration has no excuse for forgetting basic rules about money and inflation. This could have been entirely avoided
As many have said before me in other contexts, if someone has predicted inflation for years, then they haven't predicted anything. It's like Marxists constantly predicting that revolution is coming.
And, by "black swan" event, I take OP to be referring to the developments -- COVID, etc, that led policymakers to take steps to increase the money supply. Note that M2 steadily increased for years without causing inflation, so those who for years said that those increases would cause inflation appear to have been wrong. OTOH the increase in M2 during COVID was much sharper than in the past but even that did not cause inflation until after personal consumption recovered. Given that drop in consumption and the concomitant risk of recession, anti-recessionary money policy was the correct move. The hard part was, as it always is, figuring out when and how quickly to reverse course, but those who warned of inflation "for years" have nothing to say about that.
They were only predicting it for the last couple of years, and to be fair it was eminently predictable - you print money recklessly and you cut supply then you get inflation. It’s pretty basic stuff.
Aren’t we now in a recession? One we can’t print our way out of due to aforementioned inflation? Seems it wasn’t the right move after all.
The claim was not that they were only predicting it for the last couple of years, and in fact they have been predicting it forever.
No, we are not in a recession, not by the measure used by the popular press nor by unemployment nor by other measures used by the NBER.
As an aside, I never know whether people who say "printing money" (rather than "increasing the money supply") mean that literally or figuratively. Those who mean it literally are, of course, not to be taken seriously, given how little of the money supply is composed of currency.
I disagree. Inflation fears were never a major concern until recently. This is obvious to anyone paying attention.
You mean the leftist media? The one who edited the Wikipedia definition on what counts as a “recession”. Sorry I don’t take this view seriously, I take the conventional view on what counts as recession, no matter how damaging this might be for Biden
They have been a major concern for the "right wing economists" that you referred to in your original post, "for years." (Your emphasis)
No, not the "leftist media," which you would know if you had bothered to click on the link, which was to real GDP, which is precisely "the conventional view on what counts as a recession" to which you refer, and to which I was referring.
Honestly, your references to the "leftist media" and failure to engage with the evidence I presented in response to your query causes me to infer that you are only interested in waging the culture war, which does not interest me. You asked a question, and I answered it, with evidence. If the answer is inconvenient for you, I'm sorry.
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To be fair, Austrian Economists have been harping on it for decades.
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Higher prices aren't just about encouraging quantity supplied, they are about reining in quantity demanded.
Higher gas prices mean consumers will attempt to avoid using gas where they can, and less-productive uses of gas in industry will fall by the wayside. This is as true of gas as it is of every product. This is an important function of prices in an economy.
Also worth pointing out: "russia invaded a country so we aren't taking their gas anymore" is not a black swan, being as it is an entirely logical outcome of modern Russian warmongering. "We could hardly have foreseen Russia invading their neighbors again" is unpersuasive.
But it only makes sense for potential suppliers to build ways to take advantage if they will be able to profit from such speculative preparations when prices spike.
I would amend this slightly - "Russia invaded a country NATO and the EU cares about, so the EU is willing to nuke their own industries to spite the Russians" really is a black swan. No-one cares about invasions or ethnic cleansings qua invasions or ethnic cleansings; no-one was calling for gas boycotts over Transnistria or Ossetia/Abkhazia or even Crimea. Hell, Azerbaijan is currently in the process of waging a minor ethnic cleansing campaign against Armenians in Nagorno-Karabakh (which they took in an offensive war earlier this year) and no-one serious in Europe is asking to shut down Azeri petrochem transfers - instead they're desperately trying to use them to try and make up the Russian shortfall.
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Well yes, certainly. The Narrabri gas project I'm thinking about has been delayed for years now. Indeed, we're reaping the reward of regulatory decisions made years ago.
But imagine if you told Stalin in 1941 that production of T-34s and rifles was based on the previous Four Year Plan and couldn't easily be scaled... You wouldn't even get to the end of your sentence because you'd be whisked off to a factory in Siberia, working 12 hour days while the factory was built around you, sleeping in holes in the ground. I'm not asking for a Herculean effort, just an acceleration of gas production. The US started to gear up its armaments industry, giving them some kind of contract where they buy munitions at any price, just to speed things up. If you want more of something, you should try to offer some kind of incentive. If we're not going to whisk gas executives to a well-used interrogation room if they don't meet quotas, we should pay more for our energy. As long as there's no hoarding, we should stick with market economics and interfere via subsidies for consumers if necessary. We should allow gas companies to drill for gas and simplify all the red tape. I appreciate that there are stakeholders who will be affected by gas companies drilling near them. The rest of the country is being affected by high gas prices, along with the rest of the world! We are all stakeholders.
We're 10 months into this war by now. Decision-makers should have been thinking about a gas shortage as soon as the Europeans decided to stop buying Russian gas. I believe they announced this in February. It really doesn't take that long to drill a gas well, 6 months maximum (onshore of course, but that's what I'm talking about). I could buy that there are problems getting the capital, piping, tools in the right places, connecting up the pipes. But we're not even at that stage, our government still wants yet more regulatory approvals before exploratory drilling can begin! This after demonizing the whole fossil fuels sector for years now, signalling that their time is over. If we had acted quickly to increase production in February, we would probably have more gas if not now than in 2023, when the effects will be felt most severely I believe.
Consider also that state governments are livid about price caps taking away some of their royalties, they want to reimbursed by the Commonwealth. There's no consistent application of the 'sudden and unearned windfall profit' mechanism. In my mind, people who are providing gas deserve it more than governments who are making it harder to extract.
But on the other hand, what does it matter whether we put price caps on or not? There's clearly no willingness to fix the root problems in the regulatory sector. We may as well take a Panadol and ignore our unbandaged wounds.
Yes, and those T-34s were made to such shitty quality control standards that they often couldn't even get more than few dozen kilometers before breaking down (leading to more paranoid Stalin memos about imaginary "saboteurs"), and had truly horrendous loss-ratios against theoretically-inferior German equipment (crews killed by armor spalling/bursting due to improper heat treating, ammunition exploding in the barrel due to poor quality of either the casing or the gun itself, failure to include waterproofing so that all the electronics shorted whenever it rained/snowed/dewed heavily, failure to include optics to specification leading to crews not knowing where they were going or what they were shooting at, etc.). There's a reason why Russian armor crews - particularly T-34 crews - had such abysmal survival rates when compared against other allied (or even non-T-34-armed soviet) armored units. Rushing things under duress doesn't magically make them appear in the ways you'd want.
More to the point, the U.S. had a large reserve of literate and mechanically-trained workers, plus very large pre-existing civilian chemical and mechanical industries which could rapidly be converted to military production. Not quite the same situation as current gas-extraction regimes, where there is a limit on the supply and location of the relevant trained labor, as well as a lot of up-front capital costs necessary to the location, surveying, and ultimately tapping of new natural gas sources.
Yes, they should have. But the flows remaining cut off for years was not a foregone conclusion, either at the beginning of the war nor even when the Europeans unilaterally decided to stop buying directly from the Russians, so there's at least some excuse for them not doing so. Moreover, bureaucracies do not move quickly, so even if all the relevant political decision-makers had been unified on the need to expedite additional drilling permits back in March, I bet you dollars to donuts they would have been significantly stymied by civil service obstruction. That, plus the ideological resistance to ramping up fossil fuels production in the face of "climate crisis" activists gluing themselves to things and making life miserable for constituent-services staffers makes the current situation not all that surprising.
I completely agree that prima facie reasonable policies can be implemented from selfish, greedy, or malign motives, put into place poorly, or actively twisted to harm the putative beneficiaries. This is not good, and is reason to be mad at the implementing government agency/ies.
TBH....I can't disagree.
I suppose the T-34 issue is a matter of trade-offs. Reliability for throughput. The 1941 models were definitely poorly made, certainly, but they were at least there when they were most needed. At least the Russians had a card they could play, even if the Germans had the full deck of ground-air coordination, good training, veteran commanders, good NCOs and combined arms warfare... They needed to get all those things before they could start counter-attacking successfully and win the war.
The Narribri gas project I was talking about seems to be in our version of the 'fast lane'. But the actual gas wells haven't yet been drilled! There are apparently a few more hurdles to overcome. As you say, the civil service is still obstructing it.
https://12ft.io/proxy?q=https%3A%2F%2Fwww.afr.com%2Fcompanies%2Fenergy%2Fnarrabri-gas-project-cleared-by-native-title-tribunal-20221220-p5c7qk
The Narribri gas project pipeline has been designated 'critical infrastructure' as of December, 10 months late. They even managed to get the planning for the pipeline through, overcoming the native title issues in the tribunal. But 'critical infrastructure' doesn't exempt it from yet more environmental assessments:
https://www.dpie.nsw.gov.au/news-and-events/articles/2022/narrabri-gas-lateral-pipeline-declared-critical
What have they been doing for the last 10 years, if not environmental impact statements? It beggars belief that this is how we handle critical infrastructure! This project could supply half of NSW's gas needs, lowering prices considerably. We could then export more gas to our allies and make a lot of money in profits and tax revenues.
I agree with you completely about the civil service obstruction but the scale is just so egregious. Why haven't we learnt the lesson that spending 10+ years on regulatory nonsense isn't wise? Nobody is talking about this, not even on the right wing who is just ideologically against price caps as a knee-jerk reaction. There's just a debate about price-cap or no price-cap, how precisely we'll introduce the price cap. It's sucked all the oxygen out of the issue.
Oh I meant that right now the US is buying ammunition at whatever price, to refill arsenals depleted by their Ukraine aid. Not in WW2. There are certainly capital and skill problems but they're also rooted in the regulatory system. If you have to spend $1.5 billion on legal nonsense before you can drill, why leave capital here lying idle? I'd imagine the pipe manufacturers don't have much capacity either, for the same reasons. Much the same is happening with artillery shells, which are only produced by a single American factory IIRC.
This is a common argument, but I'm not persuaded by it. Surely there was something else that everyone involved in making, driving, fueling, supplying, transporting, and fixing those crappy 1941-1943-vintage T-34s could have been doing which was more productive than throwing away their time, resources, and lives into machines that either broke down before ever facing the enemy, or promptly exploded upon entering combat. That was a lot of man-hours, steel, fuel, transport capacity, and food/supplies that just got wasted, bogging down all the other, actually productive things that were happening around them.
Bringing the metaphor back to the energy space, I would argue that streamlining new projects is only useful is they're done right. Do it wrong, and you're not just gonna have to deal with sloppy externalities down the line; the productivity of the well may also suffer, or the transportation infrastructure won't be right, or...[fill in the blank].
I'm a Californian. We have to deal with CEQA. I sympathize.
Because no-one thinks in terms of "10+ years of regulatory nonsense"; they each think of individual discrete steps and safeguards, each of which have their own particular justification. "Oh of course you want an ecosystems expert to look at the hydrology report, because only they are best placed to know whether this well is likely to have downstream effects on habitat vital for any threatened or endangered aquatic species..." etc. ad nauseam. Each safeguard will have its own little list of sympathetic horribles associated with noncompliance, and its own constituency militating that any cuts made in the name of regulatory expediency should fall on someone else's department/subject matter. Each of these constituencies will care about their own little fief far more than the general public will care about the general issue of bureaucratic scleroticism and compliance costs, and so it will be rare that any of these requirements will be eliminated or even temporarily waived. It's the classic story about how motivated and organized minorities run circles around large, disorganized, unmotivated majority interests over and over and over.
Yeah, it's not that there isn't the will to try and ameliorate a shortage; its that no-one foresaw the sudden surge in expenditure coming, and so didn't bother to keep backup production available, so now the whole supply chain has to be stood up.
Were T-34s from '41 to '43 that bad? By 1942 they had simplified production costs a lot and fixed some of the awful ergonomics. I heard that the Soviets did the numbers and worked out that they didn't need to be too reliable because they'd be destroyed quickly by the Germans anyway. What else could they do? Make more anti-tank guns and heavy tanks? That might be a competitive build in Hearts of Iron IV but I'm sure there's a reason everyone tried to have a staple medium tank. There are places heavy tanks can't go, issues with German airpower destroying tanks regardless of their frontal armour... Most academics seem to agree that the T-34 was the best tank of the war as an all-rounder. They can't just base that on the T-34/85 (which was pretty good), the '76 was alright as well.
I suppose I am arguing for the gas and assorted pipelines to be streamlined 'right' but is that really so hard? This is fairly old technology, we're the 5th largest gas exporter in the world. We ought to be capable of this. If we're not, we should aspire to be capable of this politically, legally and industrially. I think that you can and should streamline tank production in wartime, that we can and should have streamlined gas production.
True and sad, I suppose. We take these things too seriously. If there's a competition, you'd think Big Gas would be able to win. They have a big financial incentive.
Disturbing given the US has been writing all these strategic reports about the return of great power competition. Building up reserves of munitions is surely a good idea if you're worried about large-scale wars. What were they thinking? There are military planners whose whole job is to make sure things like this don't happen, that the US/NATO doesn't get caught off guard. I would've thought maintaining capacity for large scale production of munitions would be a no-brainer. NATO spends about 20x more than Russia on military spending, you'd think their arsenals would actually be larger, yet Ukraine alone was supplying about 10x more shells to Russia pre-2014 than America was producing overall, if this twitter fellow is to be believed.
https://twitter.com/spawnofKahn/status/1554705365383757824
By late '42 they had mostly figured the biggest production problems out, but legacy issues (like massively over-heating the armor steel, which caused significant interior spalling on impact and a lot of needless crew-deaths, and the absolutely nightmarish gearbox which required significant force to even get into 3rd gear, and would frequently break gear levers on attempts to get into 4th) remained for years.
I mean, maybe? But given that a lot of the problems that went into T-34 production actually caused significant combat-losses before even making contact with the enemy (breakdowns, fuel problems, lack of spare parts, defective ammunition, etc.), and also significantly reduced the performance of the tank in combat (i.e. made it much more likely that their tanks would be destroyed by "inferior" opposition), I doubt it.
Focus on logistics, and adequately supporting those numbers of well-functioning vehicles and units they had. That "Enemy at the Gates" meme that the Soviets didn't have enough guns to arm all their soldiers is false - they had oodles of materiel (admittedly, much of it outdated), but their logistics were so shit, and they were so myopically-focused on things which obviously looked good on paper (i.e. the number of soldiers, tanks, etc. in front-line units) that they completely failed to ensure that their soldiers and weapons at the front were able to actually fight. They were also getting thousands upon thousands of lend-lease tanks from the western allies, including many, many, many Shermans (called "Emcha" by Russian crews). So it's not like they were hurting for medium armor; they were just shit at designing and making it.
Every technician man-hour spent repairing shitty broken T-34 gearboxes could, and arguably should, have been spent fixing supply jeeps and rail systems. Every railway carriage ton dedicated to carrying badly-equipped T-34s to the front lines could have been used instead for food, water, ammunition, or other badly-needed supplies for existing front-line units. Etc., Etc.
Interestingly, a lot of big gas companies are staffed by the same PMC urbanites staffing every other ESG enterprise out there. And those folks (plus all the good ESG folks in major lending institution) took one look at projected fossil fuel usage charts which were super-optimistic about the "green transition", noticed that demand would allegedly be tanking in the mid 2020s, and stopped funding new infrastructure/exploration efforts, which wouldn't have enough time to make back their investment until fossil fuels were (allegedly) obsolete. Amazing, I know. But seriously, investment dropped by like 30%.
The Pentagon, which is the lion's share of that NATO spend, has never passed an audit, and after significant reform (and finding new ways to sweep things under the rug) still can only account for 39% of its assets. Shit's broken, yo.
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