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Smoking chimneys in Baden-Württemberg: The objection that such a gas price brake could only encourage people to consume energy again without worrying seems absurd
Photo:
alf bollard / avanti / IMAGO
What a twist.
When Isabella Weber pondered at the beginning of the strong inflation that it can make sense to control prices in such unusual times, Nobel Prize winner Paul Krugman railed at what nonsense that was.
The judgment of the commercially available guardians of the Grail in this country was no less harsh when the scientist from the University of Massachusetts Amherst followed up shortly afterwards.
Together with Sebastian Dullien from the IMK Institute in Düsseldorf, she designed a gas price cap for Germany that sets a maximum price for basic needs in order to absorb the impending shock to people and the economy.
That was barely eight months ago.
The federal government has now decided to introduce such a cap.
In the meantime, even the Federal Minister of Finance, who always tends towards market liberals, speaks of a necessary intervention - and Paul Krugman also finds such price limits to be no longer so impossible.
Crazy - isn't it?
Of course, such a change in mood doesn't mean that the idea is automatically right.
That will be shown in practice.
There's just a lot to be said for it.
If only because the counter-arguments that have been put forward for months seem anything but convincing on closer inspection - rather supported by an old, knee-jerk aversion to state intervention in the market.
Which in turn is a bit reminiscent of the clamor before the introduction of the minimum wage, which in retrospect proved to be completely out of place - and made many a former economic pope look old.
According to the usual critics, the "fine game" of the market is supposed to lead to the best price, via supply and demand, in this case of gas.
Just don't intervene.
A cap on gas prices only gives false incentives that energy is no longer saved.
It would be better, they say, to compensate (only) the poorest with lump sums instead of all gas consumers, including the wealthy ones.
There is criticism as to why only gas consumers should now be relieved - just because they happen to be using gas instead of other heating sources.
And the whole thing is just a scam anyway, because the cost of the cap has to be borne by the state - and sooner or later it will fall back on us anyway.
Basta.
It's just not all that convincing.
It takes a lot of imagination to describe what is happening on the gas and energy markets as a fine game.
When prices shoot up so much from week to week - and then down again in between - it has little to do with the gentle balancing of supply and demand, but rather with the fact that there is war and the pandemic is having an impact;
and with the fact that market players react in panic or with great speculative zeal to the turmoil of war and Putin.
Which leads to the deeper problem in energy markets that it is not so easy for consumers there to quickly reduce or replace gas consumption - once such a gas system is in the house.
Also, the offer cannot be exchanged immediately if it depends on pipelines that cannot be converted so quickly.
Even in the most generous models, gas would remain more expensive than before the crisis
If supply and demand do not react as the models envisage, extreme price swings will occur.
Summoning doesn't help, how well it all works in fair weather.
It's just war.
And the pandemic is having an impact on supply chains.
In such exceptional situations, according to Isabella Weber's argument at the turn of the year, price controls should temporarily be considered to avert worse things.
The objection that such a gas price brake could only encourage people to consume energy again without a care seems correspondingly absurd.
Bizarre.
Even in the most generous braking models, gas would still be significantly more expensive than before the crisis.
Just no longer in such a way that it brings the country and its people to the brink of economic collapse.
Absurd notion of an incentive to save.
In addition, the announced model deliberately only provides for a cap on the price for basic consumption.
Which also proves that this objection is nonsense.
The incentive to save remains – with every consumption that is above the threshold, the extremely high market prices would still apply.
The other major concerns are proving to be similarly shaky.
Of course, it makes sense to cap gas prices in a targeted manner – in addition to electricity – when it has been proven that the greatest of all energy price shocks is taking place here.
Why should people who are lucky enough not to use expensive gas be relieved?
And why shouldn't those people who are not among the poorest, but who do not have enough to easily put up with inflation and therefore see their standard of living endangered, also be relieved via the gas price brake?
dampening inflation
Putting a price cap on basic gas consumption therefore seems to have something quite targeted - if only because it gets closer to the causes of the disaster than to the symptoms, as would be the case with energy price flat rates to compensate for a price shock that had already hit before.
What's more, capping consumer prices also dampens inflation, which in turn helps against the acute panic.
According to the first cautious estimates by the economists at Deutsche Bank Research, inflation could only be seven percent instead of nine percent in 2023 thanks to the gas price brake - and then ease off all the faster.
Which could also protect us from further panicked interest rate hikes by our central banks, which currently only threaten to make the recession worse.
That leaves the matter with the supposedly only shifted load.
Sure: The relief should be financed by the state via a special fund.
And this could then be counteracted by greater burdens in the future.
Only the relief here and now is actually quite helpful: In better times in the future, such a balance can be borne more economically than it is now, where the price shock threatens to intensify the crisis spiral - as well as people's displeasure.
It wouldn't be good either if, out of sheer housekeeping, many more people in Germany would soon vote for right-wing populists who only take advantage of such displeasure.
It is still unclear what exactly the gas price brake should look like, and from when which price will apply to whom.
The expert commission is to present its proposals on Monday.
Even now, one can only guess that the market doubters of the past few months could be in a similar position as they were after 2015, when the minimum wage was introduced in Germany.
At that time, too, it was said how the state can intervene in this way.
This will take revenge and destroy hundreds of thousands of jobs.
Are you kidding me? Are you serious when you say that.
The prophecy turned into one of the most drastic misinterpretations of the then still very dominantly conservative German economists.
Then as now, it was about markets that just didn't work the way the beautiful models intended.
Because supply and demand in the labor market that are too free to play can also lead to excessively large low-wage sectors.
And that is why minimum wages have now become a common demand from labor market experts internationally.
When energy markets produce completely absurd price swings in pandemics, wars and crises, it is just as absurd to declare interventions taboo.
The Germans could have saved themselves the weeks of romantic market rhetoric – and, like the French or the British, could have put the brakes on long ago.
Expensive cult.
That doesn't mean that all market economies don't work.
Of course she does.
It just means that when markets aren't working well and threaten to tear societies apart, you can't help but take a closer look.
Then a gas price brake is also needed.
