As policies designed to ensure that self-destructive Western countries “win” the “race” to net zero ratchet up, the toll they will take on economic growth will start to make itself felt in ways that cannot be blamed on other factors, however much climate policymakers will try—and they will. Their efforts to do so will be made all the more difficult by other irritants—to use too mild a word—that this race to disaster will involve, from the war against gas cookers, to the war against cars, to the war against meat, to the war against lawns, (the list of wars goes on and on) to power cuts, to high energy bills, the last an important contributor to the greenflation that even climate warriors admit will be around for a while.
As economic growth falters, governments are likely to start paying a heavy political price. And, where, as in many parts of the EU, all the major political parties have backed net zero, that price might include significant political turmoil, unless some of the establishment parties that have been pushing net zero manage to change their position in time.
In the Netherlands, a new (2021) protest party, the BBB or BoerBurgerBeweging (Farmer-Citizen Movement), formed in response to the disastrous effect of environmental rules on Dutch farmers and became the largest party in the 75-member Dutch Senate after elections in March, winning over 20 percent of the vote and taking 16 seats, up from zero.
I wrote about that result here, and my comments included this:
The BBB owed its success to more than its opposition to the nitrogen rules, and (from what little I know about it) the party is not anti-green; it is merely paler green than its opponents. Voting for it was one way of signaling general discontent with the Rutte government. Nevertheless, that it was the vehicle chosen by so many Dutch voters to show their unhappiness means something…
It will be interesting to see what happens next. In the meantime, politicians in France, Italy, and (above all) Germany who are concerned about what electric vehicles could mean for their auto sector and for those who work in and for it must be feeling a little nervous.
And so to Germany. To attribute the recent rise in the polls of the far right AfD solely to net zero would be a bad mistake, but it’s worth reading what Ralph Schoelhammer had to say in a recent article for Unherd on this topic. The AfD is currently running at around 20 percent in the polls (about double its score in the 2021 general election). At 20 percent, the AfD is polling at roughly the same as the center-left SPD, the largest party in the ruling coalition. The center-right partnership between the CDU and CSU (in opposition since Angela Merkel’s now unlamented departure) stands at 28 percent, and the Greens (another party in the governing coalition) have seen their position in the polls collapse from a high point of 23 percent in August last year to 13 percent now (to be fair, that’s only two percentage points below their vote in the 2021 election).
The German economy has entered a recession, and it doesn’t help that, as Schoelhammer notes, electricity and energy costs remain high—with generating costs of 10 cents per kW/h, compared to three cents per kW/h in the U.S. and four cents per kW/h in China.
Schoelhammer:
Predictably, energy-intensive industries are now considering offshoring their production. What’s more, Roland Farnung, the former CEO of energy giant RWE, expects prices to reach 15 cents by 2030, making Germany even less competitive. Yet, despite this outlook, both the German government and the EU are planning to make heat pumps mandatory, without knowing where the electricity will come from.
Central planning is what it is.
Schoelhammer:
As the investor and analyst Alexander Stahel has pointed out, Germany’s grid has been systematically starved of excess electricity, and it is likely that the once major electricity exporter will become a net importer.
Consequently, the coalition government has now gone back on its claims that the focus on renewables will lead to cheaper energy and an abundance of electricity at low prices. In fact, economy minister Robert Habeck wants to reduce German energy consumption by 25% before 2030 — something that cannot be achieved without reductions in living standards.
So much, at least for now, about that prosperous green economy we keep being told about. And among the sections in German society that are likely to be most affected by falling standards of living—if that is what the country is looking at— are skilled industrial workers, who will face another green punch if imports of Chinese electric vehicles do significant damage to the vital German auto sector. (Spoiler: They will.)
There is a great deal that’s wrong with the AfD, including (a detail worth noting for those interested in the geopolitical consequences of Western climate fundamentalism) a distinct lean in Putin’s direction. Nevertheless, quite a few Germans, even if they don’t share the party’s climate skepticism, appreciate its support for nuclear power and a more pragmatic energy policy at a time when energy costs are high and industrial jobs are under threat.
In Italy, meanwhile, the right-wing governing coalition has been pushing back (without too much success) against the EU’s plans to ban the sale of new internal combustion engine cars (ICEVS) from 2035 with one exception, carved out, tellingly, by Germany, for ICEVs that run on e-fuels. Unsurprisingly, the government is worried about what Chinese competition could mean to the Italian auto sector.
In 2022, Italy had nearly 270,000 direct or indirect employees in the automotive sector, which accounted for 5.2 percent of GDP.
The European Association of Automotive Suppliers (CLEPA) has warned that switching to all electric cars could lead to more than 60,000 job losses in Italy by 2035 for automobile suppliers alone.
Italian environmentalist groups disapprove of attaching too much weight to such considerations. Workers in the auto sector are unlikely to agree, raising the possibility of a political fault line opening up in that country too on class lines. And if the economic effect of net zero proves to be as baleful as some suspect, those divisions will not be confined to the auto sector.
Meanwhile, in an article for the New Statesman, Michael Lind looks at the now fashionable idea of the fifteen-minute city. As Lind writes, this idea has set off plenty of conspiracy theories. Most of them are nonsense, although, unlike Lind, I would not entirely dismiss the idea that at least some on the left (and not just the left) see climate policy as a way of achieving long-held sociopolitical aims rejected by voters.
Lind explains that the fifteen-minute city is a concept that has been embraced:
…by many on the centre-left, including the C40 Cities Climate Leadership Group, comprised of nearly a hundred city governments around the world: “In a ‘15-minute city’, everyone is able to meet most, if not all, of their needs within a short walk or bike ride from their home.”
Where such “cities” evolve organically, the idea is nice enough, but there are plenty of reasons why they should not be imposed, some of them rooted in a basic understanding of what a city is for, both economically and socially. However, disappointing it may be for environmentalism’s degrowth wing, we are no longer in premodern Europe, where cities were compact and mixed-use was a natural state of affairs. The issue of fifteen-minute cities will be a topic for more detailed discussion at another time, but what’s striking about Lind’s article is the way that he has looked at this concept (which has been around for a long time, but owes its latest revival to climate policymakers) through the lens of class:
The idea of the 15-minute city sounds appealing. Who wouldn’t want to have everything they need – work, healthcare, education, shops, leisure – within a short walk of their front door? But only brief reflection is needed to demonstrate how impractical the idea is. Consider work. The majority of Americans in the private sector work for companies with more than 500 employees. Some of these firms, such as coffeehouse and drugstore chains, may have establishments in many neighbourhoods, but other jobs require employees to commute to a central office or warehouse or store. Even if more firms adopt a hybrid model, allowing employees to often work from home and sometimes requiring them to join colleagues in a physical office, that hybrid office is unlikely to be within walking or bicycle distance of most workers.
Mere access to public transport is not enough. A Brookings Institution study found that only around 30 per cent of potential jobs were accessible to American urban residents using mass transit – even with 90-minute commutes each way. Experimental voucher programmes by the US Department of Housing and Urban Development showed that low-income workers with access to cars were twice as likely to get jobs and four times as likely to remain employed. Except in a few of the world’s densest cities, such as New York, Tokyo and Paris, public transport is no substitute for the speed and convenience of point-to-point travel in an individual vehicle.
Then there is retail. There is a reason why, in the US and other countries, big box stores with bargain prices are located on cheap suburban or exurban land. You may be able to walk to a grocery or chemist in your city, but thanks to high land prices and property taxes, the local corner store is likely to have limited space and fewer, more expensive goods. Housing space, too, will be limited in a 15-minute city. No matter how much urban journalists glamorise micro-apartments and minimalism, most people in Western democracies prefer commuting to their workplaces and shopping centres and having bigger homes with more room to accommodate children, relatives, pets and possessions.
Of course, possessions are prominent on the long list of things that many environmentalists regard with suspicion. Like their forebears in many a faith, they fetishize asceticism. We have too much “stuff,” you see, but I digress.
Lind:
The car has become a symbol of the low-intensity class war between the metropolitan overclass and the mostly suburban, multi-racial working class in western democracies. Elite professionals and managers can live without cars of their own in major cities, relying on walking, biking, public transport, or taxis, including Uber and Lyft. I was one; for three decades I did not own a car when I lived in upscale neighbourhoods such as Chelsea and the Upper East Side in New York and Adams Morgan in Washington DC.
But my car-free lifestyle was possible only because my profession and my income permitted it. Many working-class people, from repair technicians to delivery drivers, must have the use of their own vehicle or a company vehicle during business hours. In Britain “White Van Man” has become a symbol of a segment of the working class.
In the 20th century the factory was the site of the most intense class conflict. In the 21st century it is the automobile. In France the longest-running protests since the Second World War, those of the gilets jaunes, began in 2019 with a nationwide protest against a fuel tax hike – itself a symbolic gesture that would do little to alter climate change but imposed real costs on suburban workers and businesses.
My suspicion is that the anger over net zero, particularly (but not only) among those who can afford its costs least will eventually be widespread, and it is easy to see how the future of the auto could become one key flashpoint, if not the sole battleground. Firstly, the current rushed, forced switch from ICEVs to EVs is likely to push the cost of cars, including ICEVs, up so high that some lower-income drivers may be forced off the road. Secondly, as mentioned above, the switch to EVs is opening up the European car market to Chinese competition, with, in all likelihood, very painful consequences for workers in the European auto sector (and, in time, their counterparts in the U.S.). Thirdly, it’s clear that the switch to EVs is only a part of a wider attack on car use in urban areas. That’s not going to play well among voters unable to afford alternative solutions of the type referred to by Lind. And I suspect that the discontent won’t only be confined to them.
Meanwhile, via the Daily Telegraph:
The US is unprepared in the battle to compete with China on electric cars, the boss of Ford has warned.
Bill Ford, chairman, said the Chinese electric car market had developed at a rapid pace and that the company was now taking “an all hands on deck” approach to prepare for a flood of foreign imports.
Mr Ford, who is the great grandson of the company’s founder Henry Ford, said: “They’re [China] not here but they’ll come here, we think, at some point, we need to be ready, and we’re getting ready.
“They developed very quickly, and they developed them in large scale. And now they’re exporting them.”
China is poised to overtake Germany as the biggest car exporter in the world with overseas shipments of cars made in China tripling since 2020 to reach more than 2.5 million last year.
Tick tock.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 124th episode, David was joined by Kevin Williamson for a long riff about the new Right; why liberty and virtue are not at odds; why many people who claim they are anti-market are really quite pro-market (personally); and what the Fed, the WTO, the sexual revolution, and so many other things all have to do with the current moment.
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy…
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
Antitrust
Microsoft would like to gain a foothold in mobile video games by purchasing Activision and its popular titles. The video-game industry now surpasses the movie and music industries’ earnings combined. Mobile gaming is the largest and fastest-growing segment of the broader video-game market, with $92 billion of revenue in 2022.
But the FTC frets that the world’s fourth-largest tech company won’t allow competitors, such as Sony or Nintendo, to offer Activision’s popular games. In a press release at the beginning of its opposition to the deal, the FTC wrote that the acquisition “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”
Never mind that Microsoft has already offered to remedy those FTC concerns by pledging to offer Call of Duty on Sony devices for ten years, possibly much longer than the game will remain a top pick among users…
Yesterday’s “lawsuit is the first time that the Federal Trade Commission” under Lina Khan’s chairmanship “has taken Amazon to court,” but this is not the first time Khan has taken Amazon to task. Khan branded herself an enemy of the online marketplace in her 2017 Yale Law Journal article “Amazon’s Antitrust Paradox,” in which she proposed “breaking up parts” of the company. Her past criticisms of Amazon raise concerns that the current case against the firm is not a disinterested one. But at least the facts of the case verify its legal and economic substance, right?
Not so much…
Commercial Real Estate:
As Tabby Kinder, the writer of the FT’s report notes, in the city’s financial district, some office towers have been changing hands at a quarter of the price at which they were being marketed “three years ago” (presumably that’s a reference to pre-Covid prices). Potential bargain hunters evidently don’t have much confidence in their ability to price in how much further the sell-off has to go. There’s an old adage in financial markets that you shouldn’t try to catch a falling knife (meaning that a sudden decline in a security’s price does not necessarily mean that it’s cheap) and real-estate investors seem to be looking at San Francisco and seeing a lot of falling knives. They may well be right…
Transportation
It’s not yet entirely clear what the agreement says about automation (the agreement is not yet public, and the details we have are from leaks). We know that a more aggressive union proposal about manning requirements for non-automated terminals has not made the final agreement. But there are no indications that this deal is an exception from the general trend: The PMA agrees to higher wages in exchange for piecemeal automation. That’s a recipe for very slow adoption of new technology, which is part of the reason why America’s West Coast ports are so globally uncompetitive…
Manufacturing
Contrary to the political narrative that manufacturing employment is in terminal decline, total U.S. employment in manufacturing has been increasing gradually since the end of the Great Recession. After an interruption due to Covid, manufacturing employment is roughly where it would have been had the trend continued. The Biden administration wants you to believe that it engineered a massive boom, but like its other “job creation” claims, it’s really more of a reversion to trend after the pandemic-induced crash…
Municipal Finance
Municipal-finance expert Mark Moses recommends that city leaders “take inventory of what they have taken on” and that they “shed, not double or triple down on, ineffective policies.” “For each municipal activity,” he says, “city staff should ask the following questions: Why has the organization taken this on? Do these reasons constitute a legitimate current justification for continuing the activity?”
But taking this advice is challenging when activist constituents use public-comment opportunities at governing-board meetings to demand action on diversity, equity, and inclusion or on climate change and other allegedly existential threats…
Electric Vehicles
I don’t drive a car very often (living in Manhattan and all that), but when I do, it tends to involve driving for very long distances in the emptier parts of the southwest, mainly New Mexico, for fun. That means that the “range anxiety” associated with electric vehicles (EVs) is something I can understand. And for a little while now (in my darker moments), I have imagined arriving at the car-rental building at Albuquerque’s airport only to be told that, although I had ordered my usual, uh, frugal (conventional) sub-compact or compact, I had been “upgraded” to an electric vehicle (EV), and, no, there was nothing else…
Trade Unions
The Supreme Court decision Janus v. AFSCME is five years old this month. It said that a public-sector worker cannot be forced to subsidize union activities unless he or she “affirmatively consents to pay.” No longer would workers be coerced to pay dues or agency fees to a union that they may or may not support.
Maxford Nelson of the Freedom Foundation, a conservative union-watchdog group, has crunched the numbers and found that 733,745 workers have left the four largest public-sector unions since the Janus decision, which is a decline of about 10 percent…
Fiscal Policy
President Reagan proposed ending the deduction for state and local taxes, which he described as a subsidy by low-tax states to high-tax ones. But the idea failed in Congress. It took more than three decades for the deduction to be capped, in a tax-reform law signed by President Trump.
Why did Reagan fail on this issue while Trump succeeded?
Free Markets
Unable to continue as governor due to term limits, and on poor terms with Arizona’s increasingly crazy Republican Party, it’s good to see Ducey remaining in politics in what could be an influential role. Much of the anti-market sentiment on the right is concentrated in Washington, D.C. Conservative governors and state legislators still largely hold to free-market principles and act upon them, attracting new residents fleeing big-government blue states. Ducey knows how that works and did it better than just about anyone else, so he’s a natural fit to lead an organization that advocates those principles…
Some on the right want conservatives to pursue more activist industrial policy. The think tank American Compass, founded by former Mitt Romney economic adviser Oren Cass, has been among the leading organizations calling for this change. In its recent publication, “Rebuilding American Capitalism: A Handbook for Conservative Policymakers,” the section on industry demonstrates poor economic reasoning and would be a recipe for failure…
Inflation
Napoleon famously said that when China wakes, the world will shudder. Now that China, the world’s second-largest economy and largest commodity consumer, is economically faltering, Napoleon, if he had been an economist, might have said that when the Chinese economy stumbles, the rest of the world will get a deflationary shock. The silver lining to such a shock is that it would help relieve the Federal Reserve and the European Central Bank from having to raise interest rates further to regain control of domestic inflation…
Protectionism
Alex Tabarrok has a post at Marginal Revolution commenting on a comparison between American and Canadian ketchup. A viral video on TikTok has noted that American Heinz ketchup is made with high-fructose corn syrup, but Canadian Heinz ketchup is made with sugar. Same brand, same product, neighboring countries, different ingredients. Why?
As Tabarrok writes, trade policy plays a major role. The U.S. has sugar quotas, where imported sugar is heavily taxed. A handful of U.S. sugar companies benefit greatly from the protectionism. The price of sugar in the U.S. is roughly double the global price…
Infrastructure
As I’ve written before, Americans should be more upset about infrastructure inefficiency. Many things are out of policy-makers’ control, but the speed with which public infrastructure is built is entirely up to them. There’s no inherent technological reason that projects have to take forever. Building a highway overpass should always be done in two weeks. It’s really not that difficult, especially in the richest country in the world.
Developing countries, which don’t yet have the luxury of expansive highway networks, understand why speeding up construction is important.
Shareholder Rights
Michael Ryall & Siri Terjesen:
Deregulation and financial innovation during the latter half of the 20th century led to more widespread stock ownership among the middle class. Although widespread asset ownership within a society is generally a good thing, it raises a new barrier to disciplining self-serving managers: the dilution-of-ownership problem. When ownership is diffused across thousands of small investors, it is very difficult to coordinate action against managerial opportunists. Only “takeover artists” such as Carl Icahn and T. Boone Pickens could halt the conglomerate craze by taking majority ownership — thereby increasing shareholder concentration — then firing managers, selling off unrelated businesses for a profit, and moving on to the next takeover target…
Economics
Whether you agree or disagree with his conclusions, Sami Karam’s Populyst is always worth a read, and in a recent post he had an interesting response to an article by Janan Ganesh in the Financial Times on the enduring success of Europe’s luxury goods business.
Ganesh both disapproves and approves of this success, particularly in finding markets outside Europe. Aesthetically (and despite conceding that he is “no arbiter of taste”), he dislikes “the intrinsic ghastliness” of much of what manufacturers in this sector produce…
The Environment
This week the Biden administration closed the comment period on an innovative and potentially transformative proposal to allow for conservation leasing of federal public lands. Such a program could fundamentally improve the mechanisms by which federal lands are allocated to different uses. But in its current form, the proposed rule needs important revisions to realize the full potential of elevating conservation objectives…
Economic Growth
Richard Reinsch II & David Bahnsen:
The success of the supply-side school reignited the moral and popular appeal of free markets, the dignity of work, energy abundance, national independence. It also did something most needful: It restored in individuals the belief that their freedom, their choices, and their work matter and should be rewarded. The focus returned to the acting human person, and to the behavior and psychology of persons who desire to improve their condition and flourish as independent persons…
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