Labour’s Energy Halfway House

[00:00:01] Who manages the finances of a company is often busy. Very busy. Very, very busy. Conto is the all-in-one business account for managing your company. No matter if you are independent or are the finance department of a member of the company,

[00:00:18] Conto allows you to do everything in one app. The business account opens faster, it's done. The task management is done. The bookkeeping and reporting are done. Conto. The business account that suits you. The largest onshore wind farm in Wales. Who owns it? Sweden.

[00:00:42] Energy bills in Swansea are paying for schools and hospitals in Stockholm. The Chinese Communist Party has a stake in our nuclear industry and five million people in Britain pay their bills to an energy company owned by France. So we will set up great British energy

[00:01:00] within the first year of a labour government. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie. Well, he's in. He has the mandate and he's promised to make changes to the structure of the UK energy industry within a year from now.

[00:01:17] But does it go far enough? Is the plan for great British energy really tackling the weak point in the delivery chain? He wants to tackle power generation, but what about distribution, which is also run by a lot of foreign money invested interests? And what about all those retailers?

[00:01:32] Privately run, confusing us with power bills that could be a lot simpler, particularly for those on low income. As the case with a lot of Kirstarmers agenda, does it actually go far enough? That's this week on the Debunking Economics podcast.

[00:01:52] Well, in the UK, the Labour Party manifesto has the idea of the great British energy, which sounds pretty good. I mean, they say they're going to set up great British energy to cut bills for good. Energy independence from dictators like Putin,

[00:02:06] 650,000 new high quality jobs, warmer homes to slash fuel poverty, water companies forced to clean out rivers, all sounds good. But how is the question? And Steve, I wonder if a bit like their approach to the nationalisation of trains, the renationalisation of trains,

[00:02:23] where the actual rolling stock is still going to be rented from the private sector. Whether this is also a bit of a half-hearted attempt to try and fix a deep rooted problem. So for a start, I think as I understand it,

[00:02:35] and there's a lot of specifics missing so far, but hopefully that'll all become clearer, they are involved in energy production with partners. And it seems like a lot of those partners are with people like Octopus Energy, who are retailers currently buying from other energy production companies.

[00:02:53] So that seems like a conflict of interest, doesn't it? So I guess the question is, if the government's going to play a role in trying to make energy more efficient and trying to move us to renewables into a greener future,

[00:03:07] what part of the chain should they be involved in? Yeah, well, I'd go for them being at the base of the train. Not necessarily building the power stations, but financing the building of the power stations. Because that's where the major costs come from.

[00:03:25] And a large part of the cost is simply compound interest. If you look at building a... We talk about nuclear power stations taking decades to build, which can be true. Equally coal fired or whatever else you're going to build, they take a long time to construct

[00:03:40] and the same thing for putting our networks out there. And if you're borrowing money on the private markets to do it, then you get compounding impact of the interest because while you're building and getting no revenue, you borrowed the money in the first place.

[00:03:52] The money compounds on the compounding long before you actually get a cash flow to pay it off. And then when you start paying it off, what you're paying off mainly is the financing costs, not so much the construction costs. So if the government funds this sort of stuff,

[00:04:06] it can fund it by creating the money. And this is the point I'm almost sick of laboring that the MMT makes as well, that the government creates money when it spends. It doesn't have to pay interest. The bonds that it puts out to finance

[00:04:21] that are not necessary for creating the money itself. They're there to stop the Treasury's account of the central bank going into overdraft. But equally, if you had a sensible system, the bonds could be issued by the Treasury and bought immediately by the central bank

[00:04:37] and there's no requirement for the Treasury to pay interest to bonds owned by the central banks. That would eliminate the interest argument and of course also the compounding. So you could have, you know, 40 to 60% or more fall in the cost of building these power stations

[00:04:54] and distribution systems just by financing it by government money creation. And that's an advantage, you know, sublime demand. It can't beat you when you've got that sort of cost difference. Plus also, you don't have companies competing with each other to market different looking

[00:05:09] and different color and different speed electrons. Yeah, it's all the same, ultimately, but it's not the wall. It's all the same. So you don't even need to be a, you know, a supporter of modern monetary theory actually to just accept the fact that if the government borrows,

[00:05:24] it can do it at a much better rate than you could, you know, even an individual company. And, you know, you could say, well, okay, they create, they can create the money and they don't need to worry about the budget going into deficit.

[00:05:38] Of course, if you're unhappy with that, I mean, a lot of countries would say, well, this is an off-budget item because it's an infrastructure investment that's ultimately going to pay back. So we're not going to count it as part of our operational finances.

[00:05:53] And, you know, and that I think is quite an accepted accounting practice in many parts of the world. It is, but again, it's an accounting practice. We don't need to practice it. Again, one of these things, kind of, that are believing the government is actually taking money away

[00:06:07] from the private sector. I'm doing a regular blog post now and this sort of stuff. And even when you look at how it's taught on the textbooks, what they learn in the textbooks, and this is why they continue making the same mistakes. And this is quoting Mancure.

[00:06:23] And it says, consider the effects of an increase in government purchases. The immediate impact is to increase demand for goods and services. But because total output is fixed by factors of production, the increase in government purchases must be met by a decrease

[00:06:37] in some of the category of demand. Therefore, the increase in government purchases must be met by an equal decrease in investment. Now that is garbage. That is typical textbook belief. Now believing the market for loanable funds is where everything comes from. It's all applying a supply and demand

[00:06:55] in a place where the sun don't shine for supply and demand. And it doesn't do well on its own basis anyway. But that sort of ignorance is why they think they've got to go and borrow. So how do you say... So it sounds like what you're describing, though,

[00:07:09] is pretty close to what the Labour Party is proposing to do as I understand it. So they provide the finance. The corporate sector builds the stuff because they've got slightly more experience than the government in building wind farms or solar plants or whatever. So I've got an opportunity

[00:07:25] to build a large solar farm and it's going to cost me a fortune to borrow the money. I just go to the government and say, well, here's the plan. Can you fund it for me? And let's work out the business plan.

[00:07:39] You'll get paid that back at some point. Is that the intention? But it's going to be in effect on a zero-interest loan, basically from the government. Well, that's one feasible way. I mean, at the same time, if the government finances it and the private sector...

[00:07:57] If it is the case, then that's what's actually happened after 40 years of running down the public sector. You no longer have the engineers in the public sector who can plan this sort of thing. And that used to be the case back in the 50s and 60s.

[00:08:09] If you don't have the engineers, then they're gone to the private sector. Those of them that haven't got into the finance markets instead and are making, you know, being rocket-citers keeping asset prices higher rather than actually making assets. That's the feasible thing. If you're going to say,

[00:08:25] okay, the government will pre-go their finance, the private sector which now has the expertise or build, and it then comes back as one to own and operate by the government itself after it's paid the private sector to do the construction. So in that case, you're actually saying,

[00:08:37] well, maybe it isn't private enterprise that's coming up with the plans in the first place or the government is just commissioning out? Is that what you're saying? Yeah, I mean, the thing which people... When you apply... You know, there's some typical supply and demand theory

[00:08:51] is wrong in the markets to which it's applied anyway. But when you look at this particular market, the thing... What do you think... What do you want most really about electricity? Do you want it to be cheap or do you want it to be reliable?

[00:09:03] Yeah, you want it to be reliable. You want it to be reliable, okay? You don't want to pay, you know, one cent a kilowatt for this stuff if it cuts out every 30 minutes. And therefore, reliability is absolutely the essential characteristic of a power system.

[00:09:17] Now that means that the so-called price advantage is that the price advantage is that the price advantage is that the so-called price advantages which are put across for privately created systems, you know, lower price, higher output, etc., etc. That's not the important question.

[00:09:35] You want something which even if it costs you more, it doesn't break down. And anybody who thinks that's a silly idea would you like to fly on your own in a Boeing airplane somewhere sometime soon? I wouldn't join you. I mean, this... I don't want cheap aeroplanes.

[00:09:51] I don't want to be a pilot in the sky. And if you have the type of motivations that take over the Ponzi scheme style private sector where you have these days, you'll get a plane which is really cheap to build and really cheap to crash.

[00:10:05] And power's not quite so brutal, but if you have the power system cutting out, particularly for people who are the large users of power in the industrial sector, cuts out 30 seconds later you've got to scrap your capital equipment. So you just want reliability,

[00:10:19] so is the planning function part of the government or is that part of the part of the private sector? It's time. Again, this comes down to time because you can't... Supplying electric power isn't like supplying bananas and even if you could produce bananas locally which you can't.

[00:10:41] But bananas is a useful choice given the fact that the UK elections think everything has gone bananas. But you can't easily change the supply and you therefore can't say, oh, demand's gone up by 5%, let's build 5% more nuclear power stations this week. You know, it is long term.

[00:11:01] Everything about power screams, long term reliability matters far more so than short term price savings. Yeah, and the reason I asked that question, I might have mentioned this on the podcast before, you've got to... You know what your energy demands are going to be in 3, 5, 10, 20 years time.

[00:11:17] Because you've got an idea of where the population is going and how consumption patterns are going. And therefore if you're moving to renewables you know what the supply is going to need to be. I was hosting an event in Paris last year and a whole load of people

[00:11:33] who were different providers of various forms of renewable energy all very good, all very innovative. And I raised the question and said, now what happens if there's some total everything that you're doing and everything everybody else is doing really only accounts for half of what's needed.

[00:11:49] Where does the other half come from? It still has to come from fossil fuels, doesn't it? Because there's nobody planning to scale up. You're just doing what makes sense to you to a point where it's economically beneficial to you. How do you...

[00:12:03] You've got to have that planning to say, well okay, this is how much is needed in 5 years time. We've got to build to that. And it may be that the commercial sector doesn't want to go that far for whatever reason. It might become more expensive

[00:12:15] once you get to a point. Yeah, it's a short term planning. If you're living on a 3 month reporting cycle and you've got a 5 year corporate planning cycle, you're not going to be thinking about 30 year and 50 year power stations or 80 year power stations in the short term.

[00:12:31] How do you get over that then? How does the government get over that? You need a government that realises it has that role and this is like I've mentioned a few times in the last year's book on the public-private divide. Where do you draw a dividing line?

[00:12:43] And I think it's slightly more complicated than Avner puts across in that book. But your basic point is you want something where the investment horizon of the party makes sense. And if you're looking at power where you want to have stuff

[00:12:57] which is going to be reliable for half a century and longer then you don't want the 5 year planning horizon of the corporate sector to be making those decisions. They'll simply ignore the long term stuff because it's not in their interest to do it.

[00:13:09] So in that case you're saying the government is owning it all, the government ultimately is saying we're going to build these power plants and we're going to own them and we're going to operate them. We might put them out to tender to companies

[00:13:21] to manage them for us because we're not very good at it but we know that we need them it's not going to be privately owned it's just going to be, it might be privately operated but the government owns that's what you're saying.

[00:13:31] That sort of thing, I mean because again the market obviously plays a role and if there's a junior like a new let's say something strange comes along like let's call it AI and suddenly massively increases the energy needs then you've got to have the capacity

[00:13:47] to expand that over time and maybe the government is going to be slow and realising it's got to increase its extra capacity but it's a horizon, a rolling horizon of in terms of decades rather than weeks and that's where you want the long term decision

[00:14:01] making and you want the low, you don't want compounding costs of paying interest on literally borrowed money which is not what the government does but if the private sector wanted to build something at the scale of a nuclear power stand then yes you'd need that that government focus

[00:14:17] rather than the private sector the important point you think is innovation in the sector and that's where a lot of the private maybe private innovation will work better with things like smaller power stations smaller nuclear power stations distribution systems and so on

[00:14:33] you want to tap into that innovation but you don't want the long term costings to be built by the same private sector because I think the UK Labour plan is really just let's provide support almost like an infrastructure bank

[00:14:49] let's provide you low cost loans so that you can build so that we get more of these more of these power plants developed without the government owning it hence my point that is a bit like the intent to nationalise the railways but they are not nationalising

[00:15:05] I mean the government already owns the track I'm going to talk about the national grid in a second because that's the equivalent obviously but the rolling stock in a way are almost like the power plants aren't they? and the rolling stock the government intends to lease out

[00:15:21] it doesn't intend to own the rolling stock and yet after the track for operating a railway the two key components ticketing and all that sort of stuff they are just selling what you've got let's not worry about that it's the actual operational stuff but the thing is

[00:15:35] look how well the private sector has innovated and developed the quality of a British rolling stock over the last 40 years I mean where else in the world can you go and have a Harry Potter experience while getting transported from Manchester to Galagambon but it's the same isn't it

[00:15:53] for the government to say well okay the power plant will give you a loan so that you can do it more cost effectively great but ultimately if they don't own it do they have to own it I guess is the question now I think they do don't they?

[00:16:07] Yeah well see again there's the huge cost of marketing that come in when you have the private sector owning facilities like that because it makes eminence sense though the private sector being the one that comes out with new vehicles and new bicycles and new computers and so on

[00:16:21] because what you want is a diversity what the innovation and diversity that goes with that but if you have fundamental infrastructure like electric power and you have companies competing to get you to get their electrons rather than rivals electrons all coming off the same bloody grid

[00:16:39] you get enormous marketing costs out of that and that was Rory Sotland was complaining that economic theory that admits consideration of marketing as if marketing is unnecessary or marketing costs are zero neither are true marketing is vital to get your product being recognized

[00:16:55] and it costs a bloody bomb to do it and so if you go from a government sector which we're selling something like really diversified like electrons then you don't want to have people marketing say my electrons are better than your electrons with the enormous cost that involves

[00:17:11] and all the cost increase in going from government ownership of things like electric power to private is huge and that's what we've seen plenty of countries that do on the privatization route now have more expensive less reliable power so we've had 40 years of doing this stuff

[00:17:27] and seeing how it doesn't work it's time to go back and drop the ideology but the hard thing for anybody in doing that is they've got to drop their little supply and demand framing they use for everything and they think oh that's not going to work

[00:17:39] well I'm sorry the supply and demand framing is simply wrong for this sort of industry before we take a break though some people would say and you touched on marketing there about going along the whole supply chain right into people's homes but some people would say

[00:17:51] right at the beginning the electricity generation is something that could for the, you mentioned it yourself for innovation is perhaps the thing that should be left to the private sector feeding into the national grid which is currently owned by the government and then being sold to the consumer

[00:18:09] perhaps through the government as well and we'll visit that in a second but that first stage that innovative stage could be left to private enterprise so long as they are just they're selling to the government in effect yeah I mean you want innovation taking place but as Mariana

[00:18:31] Mazokuda combined with Bill Janeway give you the argument that there were two major groups in society that can afford to innovate for government and they're very wealthy now if you have both sets doing innovation I mean for example let's consider you want to

[00:18:47] do something on Naples where people communicate with other people around the world maybe call up the internet who do you think came up with that idea first and I guess as well the willingness to innovate is not there if you've got assets

[00:19:01] that you can just sweat and that's the issue isn't it so if you've got if you're a fossil fuel company and you're still digging stuff out of the ground you're not going to innovate very quickly unless you have to unless there's a massive cost advantage

[00:19:15] and the question is can the government through giving interest-free loans and that sort of stuff and maybe subsidies can they provide that cost advantage but you still hit the question about even so are you going to have enough how do you make sure that the private sector

[00:19:29] is producing enough renewable energy to cater for our needs definitely yeah so with the private sector that's a classically important point right now there's not a change over from fossil fuels to non-fossil fuel energy but Mark's actually made the wonderful comment

[00:19:45] about the dead hand of the past reaching out and controlling the future if you've got all this money invested in fossil fuels you're going to continue defending that you're not going to write the investments off whereas if it's a government you say we've got to write it off

[00:19:57] you simply have to write it off because that's the socially responsible thing to do and ecologically responsible so the private sector is going to have invested interests in not innovating but the government has invested interest in doing so and the carrot and stick approach

[00:20:11] the Labour Party is saying that they're going to fund a lot of the investment that they make by windfall taxes on the existing energy sector your point is they actually don't need to do that because they can create the money but on the other side

[00:20:29] why the hell not it makes it more expensive to run an oil company and they are subsidising a renewable company then that's carrot and stick double whammy we win both ways you want the combination but fundamentally the big stop for getting any of this stuff done

[00:20:47] is the belief that the government has to borrow from the private sector and when you've got that locked in you're going to get all sorts of ridiculous extra cost out of it based on the myth obviously the fact even though they don't accept the fact

[00:20:57] that they necessarily can create the money they are saying well we are going to get it through tax and so we've got that money so we are going to spend it so it is going to be public sector money they're trying to be fiscally conservative

[00:21:11] while they're doing it but you know the slug of money coming from the energy sector to fund this new investment I want to move up the channel a little bit when we come back I want to look at because I'm not still quite sure

[00:21:23] are you saying that the private sector should be generating or the public sector should be generating or is it some sort of hybrid model that is the ideal so that we come back this is the debunking economics podcast with Steve Keane and Phil Dobby

[00:22:33] so we are looking at the government's plans the UK's Labour government plans to introduce a new system of energy they want to create a thing called the Great British Energy which you know the details are not entirely clear yet but it sounds like they are there

[00:22:47] investing in new infrastructure the question is how far towards the consumer will that go I mean if they own the electricity generation and they own the grid why not go all the way and actually sell to the consumer so we'll look at that in just a second

[00:23:03] but Steve I'm still a little bit unclear from our first part should the government be owning this infrastructure I think it should the absolutely overwhelming case at the moment because we have to go through a fossil fuel to non-fossil fuel transition

[00:23:19] if you have the private sector owning the stuff they are going to have the old we want to get a return for our investors we don't want to write this stuff off let's pretend global warming isn't happening that sort of behaviour and if you have a government institution

[00:23:33] you can say we've got to shut this down to avoid destroying the biosphere we'll shut it down and have to write that off which we can afford to do because hey we're the government so the capacity to switch direction

[00:23:45] is ironically in this case much more in the government's power than it is in the private sector and I guess if it's owned by the government right through to the plug in your wall then you get over this whole thing about wholesale pricing on the Nesta website

[00:24:01] which I think you've referred to them already it's a bit of a left leaning think tank they say the wholesale price of electricity is set by the cost of producing the last unit of electricity to meet demand and that almost always means going to a gas power plant

[00:24:17] with high marginal costs so electricity is more expensive than gas in the UK as a result of that so that's just an example of the distortionary effects but even so to your point if at the very beginning of the chain

[00:24:31] you've got a company that's trying to make a profit then that's already pushed up the wholesale price and you have to have all the legislation in controlling the behaviour of those companies as well to make sure they're not ripping us off

[00:24:45] and that's something really with the water companies that aren't putting any strange stuff into the waterways whatsoever are they around England again this is so many cases where at the point that the investment horizon of the private sector is too short for the types of investments you need

[00:25:01] for long-term infrastructure like water sewerage and electric power so get over the myth that the private sector will always do things more efficiently and cheaper one thing it won't do is do things more reliably because it won't avoid overengineering to increase profits what they see as overengineering

[00:25:21] and overengineering might be making sure it's attached to the wings on the plane you're flying on so we have enormous issues with the reliability of long-term infrastructure and the best way to do that is say look this is dull boring and the government should do it

[00:25:35] my favourite bit of overengineering is the Sydney Harbour Bridge so many lanes built on that bridge which at the time must have seemed ridiculous but now look at it that's because the engineer behind it said populations are going to grow if the bridge works it will increase

[00:25:53] and people will try to use the bridge we need 12 lanes and that at the time there would have hardly been a four lane road anywhere in Australia at the time and here's a 12 lane road crossing the bridge overengineered

[00:26:05] but if it wasn't done there'd be two or three more bridges needed and the cost would be far far higher so yeah it's a classic case well the example is they then built a tunnel which was too late

[00:26:15] in each direction and there's almost always a queue going through it because of that I guess the advantage as well aside from the government being able to over engineer or whoever is providing it for the government the engineer for a 30 year lifespan rather than a 3 year lifespan

[00:26:31] yeah exactly because there's not that same profit motive to satisfy shareholders but also there was a study book by Cornwall Insights which was reported in The Guardian just last month shows that 63% of energy projects muted to go ahead in the UK were either abandoned

[00:26:53] refused planning permission or an application with through a drawn or ultimately expired this is between 2018 and 2023 because these are publicly owned companies applying for planning permission which for whatever reason the local council or whoever can get in the way steps in the way and says no

[00:27:09] no you're not going to build that wind farm here or you're not going to build that that energy plant here whatever form it's taking like a nuclear power plant for example I guess you know it's very difficult for the private sector if it's the

[00:27:23] government they've got more of an ability to say well actually you know hang on we're just going to do it you'd assume that they will have more say over planning controls yeah and also more capacity to look at different options apart from one with the private sector

[00:27:39] it's a high target piece of land to build something on they're going to fight for that piece of land the government says well you know we've got land in any of the many counties in the UK or we can do compulsory acquisition as well

[00:27:51] the government has more flexibility so again all the usual arguments that push the private sector in the case of long-lived assets and once we absolutely want reliability like electric power the case comes down in the favor of the government rather than the private sector

[00:28:05] okay so the government owns the power generation that owns the plants I guess we could say well okay it doesn't have to own all of it so if if somebody says well I can undercut you and you go cool connect to the grid away you go

[00:28:23] and it's also with you looking about internet and entertainment and stuff like that it makes an imminent sense to have optical fibre cables being laid by the government everywhere and that's the approach that South Korea took which is one reason we buy South Korean

[00:28:37] phones and South Korean television sets these days the government's decision to force all the private companies to come together and have one grid that connect everybody in the country with a T45 line then you say on top of that once we've created the public infrastructure

[00:28:53] let the private sector rip in terms of providing entertainment and other services that use that infrastructure so it's a division of labour it's not saying the government does everything it says the government does what the government does best which is long-lived resources where you want 100%

[00:29:07] reliability and let the private sector innovate where innovation is the most important factor so the building in the middle are those lines it's not the fibre it's the national grid it's the electricity power lines they're operated by the national grid it is a piece of monopoly infrastructure

[00:29:25] it is owned I mean it's the sort of semi-government run but it's owned of course by the private sector so the shareholders range from global asset management firms like BlackRock and Vanguard to public pension funds notably those of Norway the Abu Dhabi Investment Authority

[00:29:43] so that's fantastic isn't it we are one of the biggest oil producing countries they can be interested they can be after a renewable fuel so I mean that's a little bit crazy isn't it so there we have a whole load of foreign money operating

[00:29:55] the core of our network infrastructure and there are long delays in getting connected to the national grid so renewable energy providers that's one of the things they complain about we just can't get connected to the grid and that is because I guess

[00:30:09] again you know it's the old sweat the asset principle isn't it really oh you want us to do something we're just happy doing what we've got right now you want us to do something different well I don't know how's that going to change our bottom line

[00:30:19] it's a tall pretty marginals we're not we know why would we want to do that and that's the problem isn't it so long as that's owned not by the government but by a whole load of investors like that that is a the root of the problem I think

[00:30:35] yeah yeah so all the arguments people normally may have in the private sector when you apply it to this industry sectors like power it comes out saying well the government should do it and it's just the overall unwillingness to consider the government as a positive actor in society

[00:30:53] that comes out of swallowing an economics degree and most of our politicians have swallowed that rather than engineering degree then you get these roadblocks caused by people's inability to think clearly about an obvious issue so it's not unusual going back to the power generation

[00:31:09] so we say I mean we're basically saying the government should be responsible for power generation and power distribution and you know around Europe Sweden owns 100% of Vattenfall which is one of the largest producers of electricity in Europe Norway owns 100% of Stratkraft which is Europe's largest renewable energy producer

[00:31:29] Switzerland owns 100% of AXPO which is the largest producer of renewable energy for their country Iceland owns 100% of Lansväkundsjön their country's largest electricity generator almost certainly pronounced differently to that EDF is a French of course and they supply energy here they are 100% owned by

[00:31:49] the French governments so governments are taking charge of renewable generation it makes sense that we do the same here I'm just wondering whether actually the government is committed to doing that or whether they see if there's a sort of public-private partnership thing because they're not

[00:32:03] prepared to go all that way because the Labour Party is just not that radical even though it's not that radical because it's been done everywhere else No, I mean it's crazy what the political discussion in the UK describes as radical

[00:32:17] because as you say it ends up with a fast that large parts of the railways are owned by publicly owned European railways companies and they've got brilliant carriages in the European and garbage ones in the UK because why bother we already own the infrastructure let's

[00:32:33] get some profit out of UK commuters to improve the quality of trains in France it's just crazy how badly put together this whole pattern is We've got history haven't we so if you were to say well okay we're going to buy the national grid

[00:32:49] the government's going to buy the national grid we're going to control the national grid we're going to operate it so that it's easy to connect to the national grid we're not going to have any of these problems of delays

[00:32:57] that are being bought about by the people who own it that is a vast investment by the government a lot of money that needs to be created to pay off the holdings by all of these various investment vehicles I mean we're talking billions

[00:33:09] billions of billions probably I don't know a large amount of money plus what else needs to be invested to make it work probably so it's a massive undertaking Yeah which they'll shy back from I mean I've got very little confidence that

[00:33:21] the Starmac government will actually tackle any of these things in the right way a lot of attacking the way in the economics textbook says there's a good idea in it costing a down side more and having a large level of compensation that is justified and it wouldn't be

[00:33:33] but if they did have the gumption to do it say it costs 100 billion they go okay we're going to create 100 billion in new money to pay for this we're going to go 100 billion into debt however you whatever terminology you want to use

[00:33:45] it's 100 billion that's going to be pushed into the economy to buy out all of these players so that we now own the national grid I mean it's not inflationary is it? It's just sending a whole load of foreign money that was invested in this country

[00:33:57] back offshore to be replaced by new money which the government has created there's no inflation move happening there from all this extra new money because actually it's fleeing overseas Yeah well you have to have people with recipients of British pounds who own foreign corporations owning infrastructure

[00:34:17] they no longer have an operation for they're going to convert that into Euro let's say so you're going to be selling the pound and buying the Euro so you're going to actually possibly make the British mirror more competitive manufacturing because you're going to end up lowering

[00:34:31] the electricity prices of producing here and lowering the exchange rate at the same time. Beautiful there we are problem solved and then the final piece of the puzzle and I know that the Royal Party has been talking

[00:34:45] I think they're very good friends with the guy who runs Octopause Energy so they're a retailer so and we've had a whole load of companies that have gone belly up over the years selling retail and this is to your marketing point what is the point

[00:35:01] if you all you are doing is buying energy and reselling it the only thing you can do is market it at a price but it's the same product that everybody else is selling operationally you might be a little bit different you might be you might hedge better

[00:35:15] than others so you're providing a more cost effective or more profitable solution for yourself and that's why some companies failed because they just didn't hedge, the ones that survived did hedge so they're able to cope with rising wholesale prices but then the government sets limits on those retail

[00:35:33] prices so that the consumer isn't burnt what's the point of all of that why have all of you the classic I had some colleague in the Australian energy system and Leith Elda I think he's died in recent times and I've got to get in touch with his son

[00:35:51] and I'll keep on forgetting to reply to the email but Leith showed me data that showed effectively the volatility of the wholesale market is enormous and it's not due to rising marginal cost it's the energy squeezes that occur you simply have to

[00:36:05] have reliable energy and in that situation people bid up the price when there is a potential shortage and you got everybody wax on an air conditioner during the European summer English summer they weren't expecting and Bang you got a spike there

[00:36:19] said if they let the prices pass through to the retail consumer retail consumers could be bankrupted by turning on a two bar radiator for a couple of hours in a cold spot because of the sheer increase in price so what has happened this was

[00:36:33] it was an artificial market created by economic theoreticians who thought it would work better than the fixed price government system they ended up with incredible wholesale volatility and therefore they simply decided to shield the consumer from it so a lot of the bankruptcies we see for power

[00:36:53] suppliers and distributors is because there's sandwich between a wholesale price which is far too volatile caused by an artificial market and then retailers if you try to pass on people would be people would be going back to having an outdoor privy and things like this rather than using

[00:37:11] the energy it's so volatile that you cannot allow that market price system to hit actual retail consumers so it's a vast of a system and it should be shut down if the government needs to be replaced because we still need to have

[00:37:27] some people selling energy to us please but if the government is selling to the consumer and it's buying in effect buying from itself it's buying the electricity it's generated plus whoever else has entered into the market which the government may well be subsidizing the government would then also

[00:37:45] be buying if it did need to buy sort of like an interim period needed to buy fossil fuels from overseas on the international markets it's in a much better bargaining position than the whole chunk of individual companies trying to buy that power

[00:37:57] isn't it? It can and you know and it would be in a position to say well look you know if you want to charge us that much for fossil fuels thank you very much all you're doing is making the case

[00:38:05] for us to ramp up our investment in renewables so we're in both ways so it's they'd have the buying power which doesn't exist when you've got a fragmented market yeah and again this is think about where markets make sense for individual competition

[00:38:21] it's mainly where you have a highly diversified product space so you wouldn't want the government producing cars for example you'd get proberts coming out of that you want the diversity of the manufacturing sector to rule and a whole range of differentiated products servicing the same generic user case

[00:38:41] there's nothing differentiated about electrons whoever's electrons are vibrating on the line at the same as anybody else's electrons vibrating on the line so all you get is innovation how they bill you you don't get innovation in what they actually supply so we don't need this is one

[00:38:57] as an ex marketing person we don't need marketing people do we? basically what we want is the government to own the whole process from beginning to end from the generation well allow some competition obviously in the generation but the grid

[00:39:11] through to the delivery to your house who want it all to be one company great British energy with the tagline we provide you with electricity that's all they can do buy a popcorn somewhere else are they going to do that though? I think we...

[00:39:27] I'm not going to hold my breath but it makes sense good to talk Steve we'll see how the government does we'll see whether they become a you know and it's not that radical you just look overseas and think well actually this is the norm

[00:39:41] that's those damn foreigners isn't it? yeah those bloody foreigners exactly what do they know good to talk Steve catch you again next week okay bye the debunking economics podcast if you've enjoyed listening to debunking economics even if you haven't you might also enjoy the Y-curve each week Roger

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