“Europe does not need to be this reliant on Russian gas. A look back at the last 20 years reveals a series of decisions — notably by Germany, but also by decision-makers across the continent — that created the present-day vulnerability. While some of these choices can’t be undone, Europe can still learn from history to reduce its vulnerability to energy-market manipulations driven by geopolitics. Just as the United States during the 1970s invested in emergency oil reserves to insulate itself from the effects of Middle Eastern oil embargoes, Europe should do the same with natural gas. The lesson of that era is that it’s not just the amount of energy supply that matters; countries also need to invest in resilient systems to fall back on when a crisis occurs.
What’s more, energy security doesn’t have to come at the price of climate goals. Contrary to what some commentators have suggested, this isn’t the time for Europe to revert back to its own fossil fuels. Instead, by continuing to invest in renewable energy while prioritizing a system that can withstand shocks, Europe can do both: keep phasing out fossil fuels and weaken Russia’s hold over its foreign policy.”
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“Three critical decisions in recent years made Europe dependent on natural gas and, therefore, vulnerable to Russian machinations. The first was Germany’s momentous decision to phase out its nuclear reactors in the wake of the 2011 Fukushima disaster. Eliminating nuclear energy, which does not emit greenhouse gases and has an impeccable safety record in Western Europe, put enormous pressure on the rest of Europe’s energy supplies. Had this choice not been made, Europe’s energy system — which includes the electrical grid but also other components, like the energy used to heat buildings and fuel transportation — would be less dependent on imported natural gas.
The second key set of decisions, by Germany and the EU, was to allow the Nord Stream 2 pipeline to be built. The natural gas pipeline, which connects Russia to Germany directly, is not yet operational, and the German foreign minister has explicitly threatened to block it if Russia invades Ukraine. Still, Scholz has yet to say the same, and Nord Stream 2 has some powerful backers, including former Chancellor Gerhard Schröder, who sits on the board of directors of multiple Russian oil and gas companies. Anticipating the pipeline’s completion, the rest of the German system has made investment and planning decisions that curtail the amount of other energy available.
Germany’s moves took place as the EU was trying to lower the cost of gas by increasing market competition. One tactic was to make it easier for global suppliers to compete by favoring “spot markets” with tradable contracts over long-term, fixed contracts. As intended, the policy lowered the average cost of energy in Europe. The unintended side effect, however, has been to make the natural gas system more fragile and vulnerable to manipulation.
The third key decision was a failure across Europe to invest sufficiently in natural gas storage and pipeline interconnections that could serve as a buffer in the event of an emergency. Storage tanks and pipelines can hold reserve energy to make up for a shortage, while pipeline interconnections can resolve shortages in some parts of the system by temporarily flowing natural gas from others. Both are expensive to build and maintain, though. True, some real progress has been made increase interconnections, as energy expert Andreas Goldthau points out. But the system remains vulnerable in case of emergency: In mid-December, Europe had roughly 690 terawatt-hours of gas stored, but one analysis suggested that under certain conditions such as an extreme winter, it could need more than twice that amount. (Fortunately, this winter has been relatively mild so far.)”
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“It is true that the gradual transition from fossil fuels to wind and solar creates more demand for “bridge fuels” like natural gas or nuclear power. But energy security is not at odds with climate ambitions, so long as a country invests in sufficient emergency supply capacity to ride out potential market manipulations like Russia’s.
How do we know that gas vulnerability could be solved this way? Because the same thing happened with oil in the 1970s. Then, the West was vulnerable to oil embargoes, just as Europe’s gas supply is vulnerable now. Before 1973, oil-exporting petrostates regularly used embargoes or boycotts to try to coerce target countries to make geopolitical concessions, with varying degrees of success, as I discuss in my book Partial Hegemony. But after the massive disruptions of the 1973 oil crisis, the United States and Western oil consumers got serious about oil storage. The United States created the Strategic Petroleum Reserve, which still exists — in fact, the Biden administration released oil from these reserves to ease an energy crunch in the fall. Japan, Germany and the other members of the International Energy Agency (IEA) also created oil reserves in the 1970s and agreed to coordinate with the United States on how to use them. The effects were dramatic: Petrostates immediately stopped trying to enact embargoes, and major oil consumers have not faced import shortages ever since.”
“The latest package would issue sanctions on two major Russian banks and on the country’s sovereign debt, meaning it can no longer raise money from the West and trade new debt on U.S. or European markets, the president said. Starting tomorrow, the U.S. will also impose sanctions on Russian elites and their family members, he added.
Biden called the moves “the first tranche” of punitive measures the U.S. is prepared to take, and he said they would go far beyond the steps the U.S. and its allies took in response to Russia’s invasion of Crimea in 2014.
“This is a flagrant violation of international law, and it demands a firm response from the international community,” he said of Putin’s decision to send Russian forces into the territories.
Biden also said the U.S. would continue to provide defensive assistance to Ukraine in the meantime, and said he has authorized additional movements of U.S. forces and equipment already stationed in Europe “to strengthen our Baltic allies — Estonia, Latvia and Lithuania.””
“Immigrants frequently fill jobs that native-born Americans are reluctant to do. Unsurprisingly, the largest gaps in the labor market tend to appear where immigrants make up a larger share of the workers. According to the Bureau of Labor Statistics, in 2020 “foreign-born workers were more likely than native-born workers to be employed in service occupations; natural resources, construction, and maintenance occupations; and production, transportation, and material moving occupations.” Foreign-born workers make up roughly 17 percent of the U.S. labor force. In each of the struggling sectors mentioned above, more than 20 percent of the workers are already immigrants.
This dynamic isn’t just affecting low-wage jobs. According to Bloomberg, the U.S. is currently experiencing its worst health care labor shortage ever. An estimated 2.7 million immigrants are already working in hospitals. In October, 16 percent of American hospitals reported that they were critically short-staffed and the situation has only gotten worse. These essential jobs need to be filled so desperately that health officials are allowing staff infected with COVID to stay on the job. Many health care workers are experiencing burnout, and immigrants have already proven they can step in and get the job done.
Immigrants won’t solve every labor shortage in the U.S., but letting more people come here for an honest and well-paying job would be a great place to start. The sooner we see more immigrants allowed into the U.S., the sooner we’ll see more milk and meat at the supermarket.”
“many economists say that the foundering supply chain has played a heavy hand in driving up prices”
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“it’s become clear to many economists that American inflation isn’t just a supply chain issue: Our economic response — namely, the trillions of dollars of COVID-19 stimulus paid out over the last 24 months — appears to be a meaningful differentiator.
A good way to tease this out is to look at Europe, which has faced similar supply chain issues and an even worse oil shock, as it is more dependent on foreign oil than the U.S. And yet, European countries have experienced lower inflation, perhaps due in part to their smaller government response.”
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““If you look compared to Europe, in the United States goods consumption is higher, and services consumption is higher than what it is [in Europe].”
One reason for that higher consumption is government spending. In 2020, a divided Congress under former President Donald Trump passed two separate pieces of legislation — first the $2 trillion CARES Act in March, which doled out $1,200 checks to most single adults and even more to families, then a $900 billion package in December that, among other aid, issued $600 targeted checks. But then in March 2021, Democrats passed another round of government stimulus in a $1.9 trillion relief package — including $1,400 direct payments to individual Americans — which some experts warned at the time might cause inflation.”
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“Furman stressed to me that inflation likely would have been high even without a COVID-19 relief bill, however, because of a reopening economy and base effect distortions. Moreover, rising gas prices — one of the most tangible ways in which Americans process inflation — likely have nothing to do with the American Rescue Plan and much more to do with the dynamics of global oil. There is at least some evidence, though, that government spending has caused inflation, beyond the explanation that it’s merely been a supply chain issue.”
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“not all government spending has the same effect on inflation. In fact, historically government spending hasn’t usually led to inflation. A 2015 paper in the European Economic Review found, for example, that the effect of government spending on inflation post-World War II was “not statistically different from zero.” But Bill Dupor, a co-author of that study and vice president of research at the Federal Reserve Bank of St. Louis, told me that the size of the intervention matters — and that could help explain why government spending today has spurred inflation but hadn’t in recent memory.”
“With American consumers spending freely and many supply chains still snarled, year-over-year inflation may have notched yet another four-decade high in January.
The factors that have accelerated prices since last spring remain largely in place: Wages are rising at the fastest pace in at least 20 years. Ports and warehouses are overwhelmed, with hundreds of workers at the ports of Los Angeles and Long Beach, the nation’s busiest, out sick last month. Many products and parts remain in short supply as a result.
And reports indicate that the expiration of stimulus checks and other government aid has yet to slow Americans’ appetite for shopping.”
“Far from embarking on a new correct path, Deng was trying to turn back the clock. He wasn’t out to create a new economic system; he sought to restore the planned economy that had existed before the Cultural Revolution. The program he tried to implement after 1978 was based on the “Four Modernisations” Zhou Enlai had introduced in 1963 to revive the countryside after Mao’s disastrous Great Leap Forward. During the Cultural Revolution of 1966 to 1976, the party’s radical elements encouraged renewed collectivization campaigns. Deng sought to reverse those extreme policies, not the planned economy itself.
Deng embraced reforms conservatively, after events on the ground had already made state restrictions obsolete. Upon taking control of the party, he endorsed private ownership of small plots but forbade dividing up collective land to individual households. It was only in 1982, four years after he took power, that households were officially allowed to contract production rights on collective land. He raised the price of grain that farmers compulsorily sold to the state by 20 percent—a substantial concession, but hardly evincing the kind of vision that the title “Great Architect” implies. Indeed, the year after the “great turning point” in April 1979, Deng and the party leadership ordered those who had left the communes to rejoin them.
The planned economy was undermined and subverted from below well before the communes were officially dissolved in 1983. Decollectivization occurred not because of Deng’s vision but because ordinary people, under cover of the Cultural Revolution’s chaos, left the communes. Several years before Mao died in 1976, it had become common for people to strike out on their own in search of economic opportunities. The party’s leadership lamented that the countryside had “gone capitalist,” but it couldn’t reverse that trend. By 1980, half of all production teams in Guizhou province and more than half in Gansu were under household contracts. This system gave farmers secure tenures of collective farmland, which significantly increased both their productivity and health. One cadre in Anhui province likened household contracting, as reported by the historian Frank Dikötter in a 2016 article in The China Quarterly, to “an irresistible wave, spontaneously topping the limits we had placed…it could not be suppressed or turned around.””
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“Deng was not changing history; he was swept away by it. As the historian Kate Zhou wrote in her 1996 book How the Farmers Changed China: “When the government lifted restrictions, it did so only in recognition of the fact that the sea of unorganized farmers had already made them irrelevant.” Ordinary people, not Deng Xiaoping, resisted and reformed the planned economy.
To understand how the party’s control of economic activity slipped, one must look to the history of the Cultural Revolution. Mao’s “Great Leap Forward” of 1958–1962 had devolved into a Great Famine, killing tens of millions of people. While they starved, the party ramped up grain exports to fellow socialist countries in order to increase its international prestige.
This forced farmers to circumvent the state’s orders—one had to lie, cheat, steal, smuggle, or trade on the black markets to avoid starvation. Apart from the party’s loyal hacks, only the lucky or enterprising survived. In the early 1960s, even Mao had to acknowledge that the Great Leap Forward had failed. The Central Committee introduced a few paltry safeguards against extreme collectivization. Villagers were thus allowed to cultivate private plots, but only in their free time.
But Mao soon saw this as backsliding, and he launched the Cultural Revolution to secure his hold on the party. Revolutionary committees took control of China. The People’s Liberation Army was ordered onto the streets, and the Soviet-Sino border conflict was used as a pretext to reassert control over the countryside. Private holdings were once more collectivized on a massive scale. But the party tore itself apart in the process; its organization was vitiated by factional infighting.
The Cultural Revolution broke the party’s apparatus of control—it lost much of its capacity to coerce people’s everyday behavior. During the turmoil, people took back some of their lost freedoms. They expanded private lots, left communes, sold produce for private gain, moved to the cities, and even opened underground factories. It is here that we find the true origins of China’s modernization.”
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“Villagers established private firms and factories throughout the country. For example, the rate of industrialization in the countryside of Jiangsu province in the early 1970s far exceeded the rate of industrialization there under Deng. And it was these rural industries that fuelled China’s GDP growth. Prosperity came not from the cities or from the state-owned enterprises, but from the countryside. The people who worked in these factories had often left the communes on their own initiative, not on party orders. When Deng became paramount leader in 1978, the silent revolution was already well underway.
Not only were factories established, but markets linked rich and poor provinces. And in the coastal province of Guangdong, traders revived overseas trading links, especially once restrictions were eased in 1972. Deng is said to have begun the process of opening up China, but as early as 1974, the amount of money reaching people in Guangdong from overseas was twice what it had been in 1965. Black markets existed everywhere, and although the state maintained rigid monopolies on several key products, almost everything was sold openly on the markets.”
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“Deng recognized that certain changes were inevitable, but his reforms were little more than legalizations of already occurring practices that he was shrewd enough to claim credit for.”
“Warren could hardly have picked a worse industry to use as an example: Grocery stores consistently have among the lowest profit margins of any economic sector. According to data compiled this month by New York University finance professor Aswath Damodaran, the entire retail grocery industry currently averages barely more than 1 percent in net profit. In its most recent quarter, Kroger reported a profit margin of 0.75 percent, during a time in which Warren claims that the chain was “expanding profits” due to its “market dominance.”
In actuality, for much of the last year, grocery stores have seen enormous boosts in revenue, but not increased profitability, for the simple reason that everything has been costing more: not just products, but transportation, employee compensation, and all the extra logistical steps needed to adapt to shopping during a pandemic. Couple that with persistent inflation—which Warren also recently blamed on “price gouging”—and it is no wonder that things seem a bit out of balance.”