Ed Miliband clearly sees himself as the Rev Audrey’s Fat Controller. The working parts of the economy are to be moved around at his insistence and desire:
Last month, Labour’s shadow climate change secretary, Ed Miliband, called for such a cap in the Commons, citing the figures from the Tony Blair Institute and Onward. “Why would we leave this money in their pockets when it could help pay for the action on energy?” he said.
This is with reference to the profits currently being made by the renewable energy companies. One possible reason for not being all Fat Controllerish over these profits is that “their” there. It’s their money, not some giftie to be allocated as Mr. Miliband desires.
But then we agree that private property is such an antiquated, even archaic, notion these days. So we’ll need to go one step further in our explanation. The truth here being that someone famously outwitted by a bacon sandwich might not have quite enough - we emphasise the quite, for it is only a falling short, not an absence of - intellectual capacity to organise, manage and design something as complex as the economy of an entire nation. We would also emphasise, as with Hayek, that no one has that sufficient intellectual capacity. The best that can be done is to set up the system, not direct the details. Or, in the end, the bacon sandwich always wins.
So, the system. As Caroline Lucas has told us renewables are now nine times cheaper than fossil fuels. As we emphasied only yesterday, capitalists are both greedy and lazy. They’ll go for the easy profits every time. So much so that when large profits are available they’ll over-invest in an activity or sector, thereby destroying the profits and moving the value add over into the consumer surplus.
What is it that we actually desire to be happening here? In fact, what is it that Mr. Miliband desires to be happening? That folk move away from fossil fuels, that much, much, more capital be invested in renewables.
This being why we use marginal pricing of course. It is true that the costs of producing renewable energy have not gone up in tandem with the costs of producing fossil derived. Yet the sales prices have followed, leading to those massive profits. Which is exactly as we desire it to be of course.
To set up a little model - as with all models it’s illustrative, not correct. We have two ways of doing something, System A and System B. At one set of prices they’re about equally profitable to the capitalists. Now the production costs of System B rise, considerably, output prices from both System B and System A rise. Because we’re using that marginal pricing - all output is priced at the level sufficient to produce that last unit, here from that now much more expensive System B.
What happens now? Producers using System A gain vast, humongous, profits. Which, given the greed and laziness of the capitalists leads to a surge of investment in new System A production. So much so that eventually we gain all of what we desire from System A, everyone using System B goes bust and leaves the marketplace. The marginal producer is now a System A one and prices, determined by that marginal pricing system, collapse.
This is what all desire - or all putting heads above the parapet at least. More renewables, more investment in renewables and consumer pricing to reflect that reduction in cost. Great, leaving those - admittedly humongous - profits with the renewables producers achieves exactly that. In fact, our experience of human nature over time tells us that this is the most efficient method of gaining that desired outcome. Allow the capitalists to gorge on profit and watch as it gets competed away.
The only reason this won’t work is if renewables are not nine times cheaper than fossil fuels. But that can’t be true because Ms. Lucas has told us. Or, perhaps, one other get out, that given irregularity of output some portion of the system must always be fossil fuels - but then both Ms Lucas and Mr. Miliband assure us that that’s not true either.
So, we’re left with that intellectual outwitting. We’ve already set up the system - one with profits and market prices - to deliver the desired outcome. We’ve also harnessed human nature to gaining it. The only possible reasons for this not to work are because the would be Fat Controllers are wrong in their assertions.
Which does, of course, mean that we should ignore the Fat Controllers and depend upon the system that works.