Intellectual Blackout Too

Email Print

With a delicious irony, just before the rather embarrassing power failure in America last week — something which reduced Buffalo car salesmen to the impotent fury so often displayed by the Baghdad camel traders now subject to the same government’s misrule — the official measure of US industrial production had been somewhat uncritically lauded by stock market pundits for a monthly gain which, on closer inspection, had much to do with — oops! — a 3.8% jump in utility output.

But, whatever the proximate cause of this failure turns out to be, let no one say there has not been a long record of the neglect, as well as of the misdirection of what investment there has been, in the US power industry for years.

Thus, we have but one example of a shortage of a critical, but specific, factor of production amid a low overall capacity utilization number; one, moreover, which cannot possibly be addressed by easy credit alone, since Chairman Greenspan, much like Governor Mervyn King, has yet to demonstrate the ability to conjure up a generator or a high voltage transmission line at will.

This alone should underline the point that neither the Fed nor the BoE are justified in their blithe assumptions that all specific examples of industrial excess and current-price overproduction can be painlessly remedied by the ongoing credit expansions — however much more widespread these presently are than would be the norm, thanks to the follies of the New Era.

Now, before the schadenfreude overwhelms us Brits, we must remember that we, too, have a less than healthy power system, where government interference and credit bubble malinvestments are in danger of combining with the dying years of North Sea oil and gas to reduce us to a Third World condition of brown-outs and black-outs ourselves.

Nor will First Citizen Antoine RobespiBlaire’s green dreams provide much of a solution according to a Times article which says that City types are calling on the Government to underwrite the proposed 12 billion of investment in wind energy or face the possibility that it may have to scrap its ambitious plans to have four million homes (rather than just 659 parliamentary places) powered by wind by 2010.

The system is to be reviewed again in 2005 and financiers are concerned that this will be in the direction of lower prices and they are also fretting lest the Neuearbeitspartei should be thrown out on its ear at the next election and the whole scheme becomes little more than hot air in the hands of the unenthusiastic Tories.

Incredibly though, what the bankers want is a guarantee that prices of what are effectively penalty notices called ROCs — instruments designed to goad generators into compliance with the envirofascists — will not be allowed to fall should there actually be a surplus, rather than a deficit, of windmills built; which means the bankers are seeking a glorified put option which they insist is needed to help prevent them from becoming victims of their own cupidity should they overlend to this industry just as they did with the likes of Enron and TXU in the field of traditional power!

Free markets? What are they?

But, it’s not just roads, railways and power stations which we seem to have messed up over here in the Windsors’ Safari Park.

The Telegraph reports that water bills could be sharply higher from April 2005 because of the need for billions of pounds of investment by the industry.

Senior industry executives say that in a worst case scenario there could be “double digit increases” in real terms to fund modernisation of the pipes network and an EU-mandated need to improve environmental standards.

One such source told the paper: “In recent years fewer pipes have been replaced than should have been. It has been a case of make-do-and-mend. There is a feeling that [price regulation] last time round was driven by the desire for price reductions and that some short cuts were taken when it came to funding for infrastructure renewal.”

Another water boss added to the gloom:

“We are underfunding the underground assets. We have 19th and 20th century assets trying to serve 21st century expectations."

“We have leaking pipes and, in some places, sewerage systems that cannot cope with climate conditions…the focus on meeting EU quality and environmental standards probably means we have not been allowed enough money to spend on maintaining the assets.”

Philip Fletcher, the director general of regulator Ofwat, has acknowledged that bills may have to rise, but told the paper:

“It is too early to say by how much bills will go up… Overall I think prices will go up,” he said. “It will not be malevolent or benevolent. It will be what it needs to be — neither more nor less.”

Once you allow financial speculation free rein to distort price relations everywhere and you compound this ill by introducing arbitrary government interference into decisions which should be left to those with genuine, saved capital to invest, you always find that such longer-term assets begin to degrade since no-one has the means or the incentive to look after them properly, or to plan for their eventual replacement.

That sort of process is how societies ultimately decay and it looks like we Brits are in increasing danger of getting a taste of that old Latin American medicine of higher inflation and falling services before very much longer.

Just pray RobespiBlaire doesn’t come back from the Caribbean with a US Marine honour guard, mirror shades, gold braid and a peaked cap covered in fruit salad, ready to subsidize a GM banana crop or two in his constituency, or it’ll be time to dig out the Graham Greene and the Joseph Conrad for a few tips on how to survive the remainder of Il Presidente’s reign.

Sean Corrigan [send him mail] writes from London on the financial markets, and edits the daily Capital Letter and the Website Capital Insight. He is co-manager of the Bermuda-based Edelweiss Fund.

Sean Corrigan Archives

Email Print