The leader of the UK’s Labour Party, Ed Miliband, has promised a price freeze on energy if his party is elected. This, he says, will help people by keeping down the cost of living. He says it will save households £120 a year and businesses £1,800, costing the big energy companies £4.5bn.
In Miliworld the energy firms say something like “Oh dear. We’re making less profit now there’s a cap on prices. I guess we’ll just have to settle for less money.” In the real world investors say something more like, “Ah, I see we’re not getting the returns by investing in energy firms. OK, we’ll transfer our money to where we can obtain better returns on it.” And the boards of energy companies say something like, “The price cap means we’ll have to cut back on the development of new sources because we no longer have the resources. We’ll abandon that planned investment in exploration and development of new oil and gas fields.” The result is less investment in energy.
In Miliworld people like the fact that energy prices are kept down. In the real world cheap energy leads people to be less careful about economizing and to use more of it. Demand rises even as supplies diminish, and the result is power shortages, rationing and blackouts. In Miliworld when wholesale energy prices rise the big distributors shrug their shoulders and lose money. In the real world they find themselves outbid for supplies by bidders elsewhere who can pass on some of that price rise to their customers. Again, power shortages, rationing and blackouts.
This could be called the economics of the 1970s if it were any kind of economics at all, but it isn’t. It is economic ignorance so profound that it isn’t even GCSE level. One is left with one of two conclusions: that the people behind this policy are so depraved with power lust that they will happily accept future energy shortages as a price worth others paying if it gets them elected. The other is that they are complete and utter morons.
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