“If Governments Handle Scarcity Badly… Almost Everyone Pays”

Exploding gas prices, devastating droughts, inflationary storms, food shortages… combined with economists and especially politicians constantly revealing how little they understand the essence of economics. The world copes with scarcity badly, writes Dirk Barrez, and everyone suffers.

From gas supplies to stocked store shelves, from sufficient income and the price of money to truly sustainable management of all that the earth offers in air, water, food, energy and materials, the economy – much broader than stock markets or corporate output – is too important to that anyone can leave it to economists or politicians alone, let alone bankers. Moreover, many citizens understand better than most of these ‘specialists’ what economics is, namely everything to do with the creation, promotion and distribution of wealth and well-being. Economics is the focal point for our needs and aspirations, both for people and society. It is about using limited resources as best as possible to meet legitimate needs and aspirations. Economics is therefore a matter of choice: choosing which needs are met and which ambitions are pursued and which are not. The social art of managing scarcity in all domains is crucial in this regard. It must be done in a socially and environmentally responsible way.

Exploding gas prices

Many European countries have long ago energetically left their citizens out in the cold. Not only has the transition to renewable energy been inexcusably slow and poorly managed. An additional burden is that a basic existential rule has been violated, namely to manage stocks or supplies with great care when they depend on others. Excessive reliance on fossil fuel gas, low gas reserves, extensive reliance on a proven unreliable major supplier, also little storage capacity for renewables… that’s already an unfathomable amount of policy mistakes.

Political Europe must stand in front of the mirror and wonder how it is possible that it suddenly pays unimaginably more than Asian countries for gas imports

If Russia invades Ukraine and cuts the gas supply, the already extra vulnerable Europe will appear like a headless chicken. Blindly, people now only want to see one thing happen: the gas supplies must be filled. But stimulating demand when supply is falling and can’t come from other producers quickly can only lead to one result: exploding prices. Political Europe must stand in front of the mirror and ask itself how it is possible that in a globalized market – for which it has always advocated and even set the pace – it is suddenly paying unimaginably more than Asian countries for gas imports. In addition, has it been taken into account or taken into account that many citizens and companies will hardly or not want to consume the expensive energy because it is unaffordable for them?

In the precarious situation, it was and is advisable to buy collectively in Europe to avoid the price-increasing effect of each individual purchase, and to share the scarcity: who can consume what and when? The gas reserves would also be replenished this way, possibly a bit more slowly, but considerably cheaper. Citizens and businesses would have fewer nightmares about unpaid bills: for them, the price of political economic ignorance is sky high.

There are no mandatory supplies for food

Disappointingly, this ignorance does not occur once, but turns out to be a fixed cost. There are still politically mandated reserves for energy. For food, which is much more essential to all human life, there are not even mandatory supplies. However, the entire global food economy has long been one of the most globalized; at the same time one of the most concentrated with huge market shares for a handful of global concerns, e.g. in grain trading; most awkward, she is also one of the most vulnerable. The war that Russia started against Ukraine, halting grain exports for several months, resulted almost immediately in rising food prices, shortages and subsequent starvation in many developing countries.

But that is only the tip of an iceberg. That for more than half a century the world has promoted a food system that brings less food security to more and more people is of the greatest irresponsibility. It creates hunger, and even more obesity. It consumes most of all fresh water and massively destroys fertile soil. It causes climate change and cannot resist it. It relies on an astonishingly reduced number of species and causes the disappearance of fauna and flora en masse. Diseases, droughts, floods, wars and transport hazards are just as many pitfalls for a worldwide secured food supply. How long before governments ensure adequate food supplies? Not doing so is inexcusable for politicians who had to experience how Russia’s aggression led to actual gas and food extortion.

Much more fundamentally, considering the art of scarcity that we must master: When will the politicians monitor the fertility of the lands that produce our food? As well as sustainable use of water and other natural capital? When will they ensure a completely reliable food system? Of course, governments need to be involved – much more than now – with energy, and especially in the transition to a reliable renewable energy system. But it is incomprehensible that they are hardly or not at all concerned with our primary energy, food. And too little with something even more important: water! But the world is learning the hard way and fast the importance of dealing with the scarcity of water and everything to do with food. That this is by no means a political priority of the highest order illustrates the deep political gap with reality.

First central bankers don’t see inflation… and now they don’t see the crisis they are creating

Money then. In principle much less existential than air, water, food or other energy… But in our economic system endowed with enormous power. The managers are the so-called independent national (and one European) central banks. In fact, they belong to the – political – sphere of governments. They are well paid, too well, because without quality is guaranteed. They also manage the asset assigned to them, cash flow, remarkably poorly. They are almost the last to understand that inflation is back after many decades and that it is not a passing phenomenon. That delay is inexcusable because they bear the responsibility of generously spreading cheap money for far too long… it was initially necessary because of the corona pandemic, but that crisis also caused the global economy to develop a supply problem. Then continuing to add purchasing power for goods that are not there or too few can only lead to higher prices. There are warnings about inflation coming from a seasoned economist, from a seasoned investor noting that companies can easily pass on their rising costs. Who doesn’t immediately understand that inflation must come from this? Well: the national banks. It takes them much longer to do so, the European Central Bank remains an inflation denier for a very long time.

First central bankers don’t see inflation… and now they don’t see the crisis they are creating

Again, the price for so many mistakes is sky high for many citizens: they pay the bill. First about the rampant inflation, caused in part by the lax mismanagement of the national banks. And soon also of their excesses in the other direction. Because the last one to admit that there is inflation after all has the power to make a drastic change in course that will cause massive casualties. The national banks are now quickly making money more expensively. Although they only saw inflation yesterday – a serious mistake – they now have only one goal: to suppress inflation, which is largely self-inflicted, at any cost. By suddenly moving into the other extreme of very expensive money, central banks will put many economic sectors in serious trouble. Once again they fail to see the disaster they are causing themselves, now a very serious financial crisis. And again, not they will pay the catastrophic cost of their stupidity, but billions of others.

vital lesson

Whether it is the supply of gas, the price of money or the fertility of the soil that provides our food, politicians, central banks and governments must manage the availability, price and quality of vital goods with extreme precision. With many global systems deeply fractured, we are less able than ever to accept their bad governance.

Dirk Barrez is editor-in-chief of PALA.be and author of 11 political follies. 50 years of culpable neglect by our politicians and Transition. Our prosperity tomorrow

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