Hoping For A Warm Winter

There are dire forecasts for the winter in Europe. The forecasts aren’t about the weather, specifically, but more about the ability of Europeans to stay warm and European factories to operate when the temperature drops and energy supply problems reach a crisis point.

An article recently published in Fortune outlines the issues. Many European countries made the decision to rely on Russian natural gas as one of their primary energy sources. When it invaded the Ukraine, Russia provided 40 percent of the natural gas for the 27 countries in the European Union. Some European countries then responded to the invasion by stopping purchases of Russian natural gas, while others were cut off by Vladimir Putin.

Obviously, losing 40 percent of a primary energy source–natural gas is the second most popular energy source in Europe behind oil–puts a dent in your energy policy. And, as the Starks are fond of saying, “winter is coming.” Prices have skyrocketed to historical record levels. The cost of electricity has already tripled in some places, and governments are scrambling to reopen coal-fired and nuclear power plants that were shuttered in moving toward “green” energy. The EU countries also are looking to other, non-Russian sources, but they don’t yet have the infrastructure, such as pipelines and processing terminals, needed to use the alternative suppliers. Building that infrastructure can’t happen overnight.

That means there is an immediate energy crunch, and the experts consulted by Fortune paint a bleak and alarming picture of what might happen when the snow falls. They say that world energy supplies are so precarious right now that any increase in demand could cause even bigger price spikes, mandatory rationing, and mass shutdowns of factories and businesses, “devastating European economies with a wave of unemployment, high prices, and in all likelihood public unrest and divisions between European nations.” That’s petty scary stuff. Some European factories have already stopped or reduced operations, and some countries have already instituted some energy conservation policies to try to preserve supplies in advance of the winter. The rubber won’t really meet the road, however, until the cold weather hits and energy demand increases in response.

So let’s all hope that the European winter is mild, and our friends overseas aren’t left to shiver in the cold and dark. But praying for warm weather isn’t exactly sound energy policy. What has happened in Europe should cause our government, and every government, to take a careful look at their energy policies and focus on making sure that energy supplies are secure. That means reducing dependence on unreliable energy sources–like Russia–and taking steps like building nuclear power plants and pipelines to provide domestic sources of energy that won’t be turned off when winter comes.

Californinomics

Inflation has affected everyone in the country this year, but it has had a particularly acute impact in California: according a recent article published by a local Los Angeles TV station, food prices are up 13.5 percent and energy prices, including gasoline, have shot up 25.6 percent. With price increases like that, it’s not surprising that the article also reports that inflation is a significant and growing concern for citizens of the Golden State.

California has come up with a very California-like response to the inflation problem. The state is sending out what state legislators are calling “inflation relief” payments pursuant to a tax refund program that was enacted over the summer. All told, some 23 million Californians are expected to receive payments that will range in size from $200 to $1,050. The total cost of the inflation relief package is $17 billion, which will come from a state tax surplus fund. Governor Gavin Newsom said the payments will result in “more money in your pocket to help you fill your gas tank and put food on the table.”

Is sending money out to millions of Californians with the idea that they will promptly spend the funds a good idea? Critics say the plan is “economic illiteracy” that will feed the inflationary spiral by stimulating demand–and, according to the law of supply and demand, when demand increases and supply remains static, prices will increase. If 23 million Californians suddenly are ready to spend their inflation relief payment, it’s not hard to see that having a meaningful impact on the demand side of that basic economic equation.

Inflation is a concern for everyone, but sending out checks doesn’t seem like a wise, long-term, sustainable approach to the problem. The latest inflation data, for a rolling 12-month period that includes September, is supposed to be released this week. If it shows that the inflation rate has increased, will California simply shell out additional payments?

“Quiet Quitting” And Labor Day

Happy Labor Day! On this day set aside to celebrate working people–and give them a day off, too–it’s worth spending a few minutes thinking about work and jobs and a supposedly recent development in the labor sector: “quiet quitting.”

“Quiet quitting” has been the subject of a lot of discussion recently, in articles like this one. It’s a seemingly elastic concept that can mean different things to different people. For some, the notion is all about setting boundaries; you will work hard during the normal workday but not take on additional responsibilities that would intrude into your private life and produce burnout. For others, it means doing the least amount of work needed to avoid getting fired by an employer who recognizes that, in the current labor market, it may not be able to find someone better to fill the position. “Quiet quitting” evidently got that name on TikTok, where “quiet quitters” have been posting videos about their decisions.

Of course, “quiet quitting” might have a modern brand, but the underlying idea is nothing new. Anyone who has worked for any length of time has had “quiet quitters” as co-workers. I remember some from my first job, as a “bag boy” at the Big Bear grocery store in Kingsdale Shopping Center circa 1973. They were the guys you didn’t want to get matched up with on a project, like retrieving abandoned carts from the parking lot so the in-store supply was fully stocked. You knew they would retrieve a few carts at a deliberate pace, but you would do most of the work so the two of you wouldn’t get reprimanded by the boss. I quickly decided that I didn’t want to be a “bare minimum” guy, always at risk of getting canned, but since then I’ve also been fortunate to have jobs in my working career that I found interesting and well worth the investment of some extra, “off the clock” time.

Is “quiet quitting” a bad thing? I don’t think it is, but in any event it is a reality. The labor market, like the rest of the economy, is subject to the law of supply and demand. “Quiet quitting” is a product of the invisible hand at work; it reflects the fact that the demand for workers right now exceeds the supply. There is nothing wrong with sending a message to an employer that employees won’t put up with having new responsibilities piled on their plate without fair compensation–that’s one of the signals that allows the invisible hand to work.

But “quiet quitting” also has a potential cost, and a potential risk. The cost might be the impact on your self perception and your reputation among your co-workers, as well as the chance you might be developing the habit of settling rather than going out and finding a new job that is better suited to your interests. The risk is that the balance of supply and demand in the labor market shifts–giving the employer the option of upgrading the workforce, leaving the “quiet quitters” without a job and, perhaps, without a recommendation as they look for a new one.

Stimulation Follies

High gas prices these days are a continuing shock to drivers. But what’s even more shocking, in my view, is the fact that some lawmakers propose to deal with the skyrocketing pump prices by sending more “stimulus” checks to residents, who can then use the money to pay for the expensive gas.

In Congress, Democratic lawmakers have proposed a bill that would send as much as $300 per month to families as long as the average price for gas in the country exceeds $4 a gallon. And in California, which has the highest average gas prices in the nation, Governor Gavin Newsom proposes to send $400 in direct payments per vehicle, capped at two vehicles, to all Californians.

We’ve apparently gotten to the point where the reflexive political response to every problem is to send checks to people. You can argue about whether such “stimulus” checks make sense in the face of a recession, or when people lose their jobs due to government-ordered pandemic shutdowns, but does any rational person actually think they are a sensible way of dealing with high gas prices?

Elementary economics teaches that commodity prices respond to the law of supply and demand and are a classic example of Adam Smith’s “invisible hand” that guides the setting of prices. The best way to deal with high gas prices is to increase the supply (something that will necessarily happen, in the absence of restraints on production, as producers seek to cash in on high prices) while letting the high prices have their inevitable dampening effect on demand. Consumers can modify their behavior to minimize their need for gas–by car pooling, by using public transportation, by consolidating their trips to the store, and by cancelling that driving vacation this summer, among others–and if they do so the “demand” side of the equation will fall. With increased supply and reduced demand, the “invisible hand” will move prices lower.

Stimulus checks to deal with high gas prices therefore are a colossally bad idea, because they artificially interfere with the “demand” part of the pricing equation. Consumers who get the checks will be less likely to engage in those possible methods of minimizing their use of gas, demand for gas will remain high as a result, and the demand pressure will help to keep gas prices at an elevated level. Sending stimulus checks as a way of dealing with gas prices is akin to smashing the fingers of the “invisible hand.”

Outside of California, it isn’t clear that the gas price-stimulus check proposal will get much traction; there are signs that Congress may recognize that such spending makes no sense under the circumstances. It remains to be seen whether Governor Newsom can convince the California legislature to adopt his approach–but if he does, Californians can expect to be dealing with high gas prices a lot longer than the rest of us.