1 00:00:10,360 --> 00:00:14,440 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:14,480 --> 00:00:18,560 Speaker 1: I'm Joe Wisntal and I'm Tracy Alloway. Tracy, we've talked 3 00:00:18,600 --> 00:00:23,400 Speaker 1: a lot, obviously about the big energy crunch in Europe 4 00:00:23,400 --> 00:00:27,280 Speaker 1: this year, in Germany in particular, but we haven't really 5 00:00:27,320 --> 00:00:30,360 Speaker 1: talked so much about, you know, what governments are trying 6 00:00:30,440 --> 00:00:33,360 Speaker 1: to do to ameliorate some of the pain, the specific 7 00:00:33,400 --> 00:00:37,080 Speaker 1: policy options, right, and you know, I think there seems 8 00:00:37,080 --> 00:00:40,600 Speaker 1: to be an acceptance or widespread view that at least 9 00:00:40,880 --> 00:00:44,520 Speaker 1: not everyone can be directly exposed to sort of the 10 00:00:44,560 --> 00:00:47,800 Speaker 1: market rate of energy. It's just too much, it's too 11 00:00:47,880 --> 00:00:51,560 Speaker 1: damaging to a lot of households, particularly lower income households. 12 00:00:51,600 --> 00:00:53,760 Speaker 1: But even like some of the surges, and just like 13 00:00:53,920 --> 00:00:58,160 Speaker 1: costs of heating for this year, I mean extraordinary increasing 14 00:00:58,240 --> 00:01:01,400 Speaker 1: costs expected absolutely all the oh. I was talking to 15 00:01:01,480 --> 00:01:04,679 Speaker 1: my mother recently and she's over in Austria and she says, 16 00:01:04,760 --> 00:01:07,760 Speaker 1: because the weather has been warmer, she hasn't had to 17 00:01:07,760 --> 00:01:10,200 Speaker 1: turn up the heat just yet. So the weather is 18 00:01:10,240 --> 00:01:13,399 Speaker 1: bailing some people out so far, but that's not going 19 00:01:13,400 --> 00:01:15,720 Speaker 1: to be the case all winter. And as you mentioned, 20 00:01:15,920 --> 00:01:18,400 Speaker 1: for a lot of low income households, this is just 21 00:01:18,560 --> 00:01:22,080 Speaker 1: an extraordinary burden to be buried. The weather really doesn't 22 00:01:22,160 --> 00:01:25,240 Speaker 1: matter a lot. It's interesting, you know. Actually I think 23 00:01:25,319 --> 00:01:29,040 Speaker 1: there's the Dutch spot rates briefly when negative last month, 24 00:01:29,080 --> 00:01:31,240 Speaker 1: but it doesn't necessarily mean the crisis is over. It's 25 00:01:31,280 --> 00:01:33,600 Speaker 1: just a function of like how much supply or how 26 00:01:33,680 --> 00:01:37,080 Speaker 1: much storage capacity there is right now and some warmer weather. 27 00:01:37,120 --> 00:01:39,679 Speaker 1: And you can have these situations, and you particularly get 28 00:01:39,720 --> 00:01:42,720 Speaker 1: them with gas or other forms of energy that can't 29 00:01:42,720 --> 00:01:46,920 Speaker 1: be stored indefinitely. One day you could have negative prices 30 00:01:47,040 --> 00:01:50,120 Speaker 1: but still be facing a very big potential shortfall and 31 00:01:50,200 --> 00:01:53,640 Speaker 1: higher costs for everyone exactly. And one of the policy 32 00:01:53,720 --> 00:01:56,400 Speaker 1: options that is on the table and looks like it's 33 00:01:56,480 --> 00:02:00,240 Speaker 1: currently making its way through various corners of the moment, 34 00:02:00,320 --> 00:02:02,400 Speaker 1: it might even be decided by the time that we 35 00:02:02,440 --> 00:02:06,520 Speaker 1: actually release this episode. We're recording this on November one. 36 00:02:06,800 --> 00:02:10,280 Speaker 1: It is a price cap on gas, or in German 37 00:02:10,400 --> 00:02:15,040 Speaker 1: a gas price bruns, which I believe translates to my 38 00:02:15,160 --> 00:02:17,880 Speaker 1: German is terrible, especially for someone who's half Austrian. But 39 00:02:17,919 --> 00:02:21,639 Speaker 1: I think it's like gas price breaks or gas price stopic. 40 00:02:22,200 --> 00:02:24,639 Speaker 1: This is the great thing about German policy. Every time 41 00:02:24,680 --> 00:02:27,400 Speaker 1: there's a new decision, you get a new word to 42 00:02:27,480 --> 00:02:29,800 Speaker 1: play around with. It's also a new word that is 43 00:02:30,080 --> 00:02:32,760 Speaker 1: kind of almost English sounding, and then something else, and 44 00:02:32,800 --> 00:02:35,440 Speaker 1: so you can like sort of figure it out anyway, 45 00:02:35,560 --> 00:02:38,160 Speaker 1: a little bit of a sidetrack. But yes, there is 46 00:02:38,200 --> 00:02:42,760 Speaker 1: this proposal in Germany to subsidize a significant chunk of 47 00:02:42,840 --> 00:02:47,320 Speaker 1: gas consumption for households and businesses. But obviously that raises 48 00:02:47,320 --> 00:02:50,160 Speaker 1: all sorts of questions, and you know, in particular, if 49 00:02:50,160 --> 00:02:54,000 Speaker 1: there's a fundamental shortage of the underlying commodity, if there's 50 00:02:54,040 --> 00:02:57,480 Speaker 1: a fundamental scarcity of the molecules. You know, it's one 51 00:02:57,480 --> 00:02:59,400 Speaker 1: thing to say, Okay, we're going to subsidize the price, 52 00:02:59,560 --> 00:03:01,720 Speaker 1: but that does necessarily solve the problem of yes, but 53 00:03:01,760 --> 00:03:03,880 Speaker 1: do we have adequate gas? Right, And of course, this 54 00:03:03,960 --> 00:03:06,960 Speaker 1: was one of the big criticisms of the Biden administration's 55 00:03:07,000 --> 00:03:11,160 Speaker 1: decision to release oil from these strategic petroleum reserve. It 56 00:03:11,320 --> 00:03:14,920 Speaker 1: was that you are in effect subsidizing the price and 57 00:03:14,960 --> 00:03:17,480 Speaker 1: you're not actually bringing down demand at a time when 58 00:03:17,720 --> 00:03:21,440 Speaker 1: the commodity is more scarce. So this is an interesting 59 00:03:21,960 --> 00:03:25,800 Speaker 1: alternative policy here. So the other aspect of this, which 60 00:03:25,880 --> 00:03:29,960 Speaker 1: is really interesting is that economists as a class seem 61 00:03:30,080 --> 00:03:32,880 Speaker 1: to really hate price controls when it comes to inflation, 62 00:03:32,919 --> 00:03:35,680 Speaker 1: when it comes to high prices, you know, expand supply 63 00:03:35,800 --> 00:03:38,839 Speaker 1: side capacity, you know, let the market do its thing. 64 00:03:38,920 --> 00:03:41,920 Speaker 1: Let let high prices be the cure for high prices, 65 00:03:42,000 --> 00:03:44,280 Speaker 1: or let the central bank try to reduce demand to 66 00:03:44,320 --> 00:03:47,520 Speaker 1: bring things into balance. When the subject of price controls 67 00:03:47,600 --> 00:03:50,560 Speaker 1: comes up, economists get like extremely the majority of them 68 00:03:50,600 --> 00:03:54,600 Speaker 1: get extremely anxious. And yet there is this political reality 69 00:03:54,640 --> 00:03:57,800 Speaker 1: that on some level, it appears governments in Europe and 70 00:03:57,840 --> 00:04:00,360 Speaker 1: I guess in the US have some role to lay 71 00:04:00,400 --> 00:04:05,720 Speaker 1: in ameliorating severe acute price shocks. People have strong opinions 72 00:04:05,840 --> 00:04:08,000 Speaker 1: when it comes to price controls, but as you mentioned, 73 00:04:08,080 --> 00:04:11,280 Speaker 1: there is a history of politicians actually using them even 74 00:04:11,360 --> 00:04:13,560 Speaker 1: here in the US, which is something that came up 75 00:04:13,680 --> 00:04:17,280 Speaker 1: very briefly on that previous episode with Josh Younger. All Right, 76 00:04:17,360 --> 00:04:20,360 Speaker 1: so we're going to be diving more into a potential 77 00:04:20,440 --> 00:04:24,760 Speaker 1: plan in Germany, specifically to deal with the high price 78 00:04:24,800 --> 00:04:27,680 Speaker 1: of gas this winter, and we're gonna be speaking with someone, actually, 79 00:04:27,720 --> 00:04:30,240 Speaker 1: we're going to be speaking to a past guest and 80 00:04:30,320 --> 00:04:32,680 Speaker 1: someone who knows a lot about this topic and is 81 00:04:32,680 --> 00:04:35,920 Speaker 1: directly involved in this. We're gonna be speaking to Isabella Vabor. 82 00:04:36,000 --> 00:04:39,080 Speaker 1: She's a professor of economics at UMS, a fellow at 83 00:04:39,080 --> 00:04:42,200 Speaker 1: the Burgruin Institute, and she has been a member of 84 00:04:42,240 --> 00:04:46,680 Speaker 1: the Independent Commission for Natural Gas and Heating in Germany 85 00:04:46,920 --> 00:04:50,680 Speaker 1: working on this proposal. So, Isabella, thank you so much 86 00:04:50,720 --> 00:04:53,440 Speaker 1: for coming back on the podcast. Thanks so much for 87 00:04:53,480 --> 00:04:58,080 Speaker 1: having me. You've written about I'm gonna just jump into 88 00:04:58,120 --> 00:05:02,440 Speaker 1: this right away. I remember you wrote a column that 89 00:05:02,640 --> 00:05:05,680 Speaker 1: I think I thought it was pretty inoffensive last year 90 00:05:05,720 --> 00:05:07,840 Speaker 1: in The Guardian about well, maybe we should talk more 91 00:05:07,839 --> 00:05:12,360 Speaker 1: about price controls as a solution to inflation, and like 92 00:05:12,480 --> 00:05:15,040 Speaker 1: the economics, you know, the sort of like the very 93 00:05:15,080 --> 00:05:19,320 Speaker 1: serious economist commentators, they just totally flipped out that's right. 94 00:05:20,200 --> 00:05:22,039 Speaker 1: I guess that's not a question. And I don't know, 95 00:05:22,080 --> 00:05:24,360 Speaker 1: I'm like jumping right into like when you know, I 96 00:05:24,640 --> 00:05:27,400 Speaker 1: get really messy online, but I'm just I'm setting that up. 97 00:05:27,440 --> 00:05:30,120 Speaker 1: I'm just getting it right out. There's an empathetic observation. 98 00:05:30,240 --> 00:05:33,560 Speaker 1: Was an empathetic observation, Thank you very much. Empathy in 99 00:05:33,600 --> 00:05:38,520 Speaker 1: this regard is much wack up. But why do I mean, 100 00:05:38,560 --> 00:05:42,880 Speaker 1: what is it about price controls that causes people? Causes 101 00:05:42,920 --> 00:05:46,159 Speaker 1: sort of like the mainstream economic commentary to really flip out, 102 00:05:46,520 --> 00:05:49,080 Speaker 1: And why do you think, like fundamentally like people should 103 00:05:49,080 --> 00:05:52,520 Speaker 1: be more open to them as a tool to address inflation. 104 00:05:52,600 --> 00:05:55,760 Speaker 1: What are they all getting wrong? Yeah, maybe it's a 105 00:05:55,800 --> 00:05:57,920 Speaker 1: good idea to kind of take a step back and 106 00:05:58,000 --> 00:06:00,800 Speaker 1: try to summarize what I right to say in that 107 00:06:01,440 --> 00:06:05,600 Speaker 1: back in December, Basically, the way I saw the inflation 108 00:06:05,600 --> 00:06:09,440 Speaker 1: debate going was that there was a confrontation between team Transitory, 109 00:06:09,480 --> 00:06:12,159 Speaker 1: who was kind of hoping for inflation to be gone 110 00:06:12,440 --> 00:06:15,680 Speaker 1: sooner or later and therefore there was not much urgency 111 00:06:15,800 --> 00:06:19,279 Speaker 1: to act, and kind of the team let's raise interest 112 00:06:19,360 --> 00:06:22,240 Speaker 1: rates as fast as possible. And I was basically asking 113 00:06:22,960 --> 00:06:26,800 Speaker 1: suggesting that there was a third possibility, which is, instead 114 00:06:26,800 --> 00:06:28,680 Speaker 1: of like kind of risking to push down the whole 115 00:06:28,720 --> 00:06:32,479 Speaker 1: economy by raising rates or sitting there invading and for 116 00:06:32,760 --> 00:06:35,560 Speaker 1: hoping that inflation would go away, that there is a 117 00:06:35,680 --> 00:06:39,320 Speaker 1: history of surgical interventions trying to kind of stabilize the 118 00:06:39,360 --> 00:06:42,919 Speaker 1: prices that drive inflation in the first paid place. So 119 00:06:42,960 --> 00:06:45,520 Speaker 1: I was trying to kind of invoke this history to 120 00:06:45,720 --> 00:06:49,840 Speaker 1: bring back this this perspective of saying, well, if there 121 00:06:49,880 --> 00:06:52,800 Speaker 1: are specific prices that are shooting up in extreme ways, 122 00:06:53,200 --> 00:06:55,760 Speaker 1: maybe there's something that we can do about these specific 123 00:06:55,880 --> 00:06:59,640 Speaker 1: prices without trying to recommend some sort of wartime full 124 00:07:00,040 --> 00:07:03,680 Speaker 1: that at, a price control policy or any anything like it. 125 00:07:04,160 --> 00:07:08,279 Speaker 1: Do your question why it triggers economists so much. I 126 00:07:08,320 --> 00:07:12,640 Speaker 1: think it's basically the case that in most economic models, 127 00:07:12,680 --> 00:07:17,600 Speaker 1: if your prices aren't moving freely anymore, your model no 128 00:07:17,680 --> 00:07:21,880 Speaker 1: longer works. So in some sense, the free movement of 129 00:07:22,040 --> 00:07:26,080 Speaker 1: prices is really at the core of most of economic 130 00:07:26,280 --> 00:07:30,160 Speaker 1: modeling and thinking, and therefore it kind of is is 131 00:07:30,160 --> 00:07:33,160 Speaker 1: is a total trigger point for economists who I used 132 00:07:33,160 --> 00:07:38,560 Speaker 1: to that as the main mechanism of coordinating an economy. 133 00:07:38,920 --> 00:07:43,160 Speaker 1: Many ways, economists think about the market as the movement 134 00:07:43,320 --> 00:07:46,560 Speaker 1: of prices. If you think of the Machellian cross, then 135 00:07:46,920 --> 00:07:50,680 Speaker 1: what matters there is the price adjustment, right, So the 136 00:07:50,760 --> 00:07:53,360 Speaker 1: market in some sense is the price adjustment. You don't 137 00:07:53,400 --> 00:07:55,640 Speaker 1: even know like how big the firms are on the 138 00:07:55,680 --> 00:07:58,640 Speaker 1: Machellian cross, or how how small or how many and 139 00:07:58,720 --> 00:08:01,320 Speaker 1: so on, but you do know how the price is moving. 140 00:08:02,160 --> 00:08:04,080 Speaker 1: So can you talk to us a little bit more 141 00:08:04,120 --> 00:08:09,120 Speaker 1: about specific situations where price controls might make some sense? 142 00:08:09,160 --> 00:08:12,120 Speaker 1: Because you brought up the sort of wartime analogy, And 143 00:08:12,160 --> 00:08:14,200 Speaker 1: I think when a lot of people hear price control 144 00:08:14,680 --> 00:08:16,480 Speaker 1: maybe not a lot of people, but some people when 145 00:08:16,480 --> 00:08:19,240 Speaker 1: they hear price controls will think back to, for instance, 146 00:08:19,560 --> 00:08:22,840 Speaker 1: World War two and the price controls that were implemented 147 00:08:22,840 --> 00:08:26,520 Speaker 1: there as part of America's wartime effort. And that was 148 00:08:26,880 --> 00:08:31,360 Speaker 1: for a very specific situation. But how would that apply 149 00:08:31,600 --> 00:08:34,640 Speaker 1: to our current economic environment or what is it that 150 00:08:34,679 --> 00:08:37,280 Speaker 1: you're seeing in the current economic environment where these would 151 00:08:37,280 --> 00:08:40,920 Speaker 1: make some sense. So the historical analogy that I used 152 00:08:40,920 --> 00:08:44,520 Speaker 1: in this piece was in fact the transition from a 153 00:08:44,559 --> 00:08:47,400 Speaker 1: war economy to a post war economy, which was a 154 00:08:47,440 --> 00:08:50,320 Speaker 1: process that I had studied for my book How China 155 00:08:50,440 --> 00:08:53,960 Speaker 1: Escapes Struck Therapy, because the analogy of a transition from 156 00:08:53,960 --> 00:08:57,880 Speaker 1: a planned war economy to a market post war economy 157 00:08:58,200 --> 00:09:02,080 Speaker 1: was very important in the China these context. Now in 158 00:09:02,480 --> 00:09:06,360 Speaker 1: late one, as you might remember, the Council of Economic 159 00:09:06,360 --> 00:09:10,000 Speaker 1: Advice is actually invoked the same transition as kind of 160 00:09:10,040 --> 00:09:14,600 Speaker 1: the closest analogy for understanding the inflation that occurred in 161 00:09:14,640 --> 00:09:18,360 Speaker 1: the context of the transition to a post shutdown economy. 162 00:09:18,440 --> 00:09:21,000 Speaker 1: So what happens in such a moment of transition is 163 00:09:21,360 --> 00:09:25,320 Speaker 1: that you have a very rapid structural shift where you 164 00:09:25,400 --> 00:09:29,880 Speaker 1: want firms to very quickly change their production behavior, which 165 00:09:30,640 --> 00:09:36,000 Speaker 1: creates short run scarcities and which creates a price shock. 166 00:09:36,120 --> 00:09:38,480 Speaker 1: So in the context of the transition from a war 167 00:09:38,559 --> 00:09:41,640 Speaker 1: to a post war economy, you can think of factories 168 00:09:41,640 --> 00:09:45,080 Speaker 1: that first produce tanks and now as opposed to produce cars, 169 00:09:45,160 --> 00:09:48,600 Speaker 1: and then there's an interim period in which basically this 170 00:09:48,720 --> 00:09:52,679 Speaker 1: adjustment is happening, and if demand is sufficiently strong, then 171 00:09:52,720 --> 00:09:57,000 Speaker 1: this kind of bottleneck resides in an increase in prices 172 00:09:57,040 --> 00:10:00,439 Speaker 1: in ways in which these prices would not root up 173 00:10:00,480 --> 00:10:04,719 Speaker 1: if you didn't have this in elasticity of supply. At 174 00:10:04,760 --> 00:10:07,040 Speaker 1: the time, in the transition from a war to a 175 00:10:07,080 --> 00:10:12,199 Speaker 1: postwar economy, America's most established and most famous, even some 176 00:10:12,280 --> 00:10:15,520 Speaker 1: of the most conservative economies were arguing that would be 177 00:10:15,640 --> 00:10:20,640 Speaker 1: useful to maintain selective price controls in the places where 178 00:10:21,160 --> 00:10:26,000 Speaker 1: supply was very in elastic and demand relatively strong in 179 00:10:26,080 --> 00:10:29,400 Speaker 1: order to prevent these prices from shooting up, which would 180 00:10:29,440 --> 00:10:31,839 Speaker 1: then reset in a situation where all the purchasing power 181 00:10:31,880 --> 00:10:35,080 Speaker 1: would be absorbed by these price hikes, which would then 182 00:10:35,080 --> 00:10:39,640 Speaker 1: in the next round result in possibly a very sharp downturn. 183 00:10:39,760 --> 00:10:43,400 Speaker 1: So you would have a short inflationary boom followed by 184 00:10:43,559 --> 00:10:47,880 Speaker 1: a sharp deflationary downtown turn, which had in fact happened 185 00:10:48,080 --> 00:10:51,480 Speaker 1: after the First World War. So therefore this kind of 186 00:10:51,480 --> 00:10:55,640 Speaker 1: stood as a warning at this post war moment in 187 00:10:55,800 --> 00:11:01,120 Speaker 1: actual history, the controls were pulled pretty much overnight, and 188 00:11:01,320 --> 00:11:05,920 Speaker 1: there was a very sharp increase in inflation that coincided 189 00:11:06,040 --> 00:11:09,240 Speaker 1: with a very sharp increase in profits, and then a 190 00:11:09,320 --> 00:11:12,800 Speaker 1: short downturn which was however, by far not as bad 191 00:11:12,840 --> 00:11:15,560 Speaker 1: as after the First World War. And there are different 192 00:11:15,559 --> 00:11:17,800 Speaker 1: reasons that we can discuss. One of them might be 193 00:11:17,840 --> 00:11:21,520 Speaker 1: the war in Korea. But so this is the argument 194 00:11:21,559 --> 00:11:24,520 Speaker 1: that basically, if you have bottomnecks and you have prices 195 00:11:24,520 --> 00:11:28,640 Speaker 1: shooting up because supply can simply not adjust in the 196 00:11:28,800 --> 00:11:32,400 Speaker 1: in this immediate run to demand because of these physical 197 00:11:32,520 --> 00:11:37,360 Speaker 1: challenges of of changing production structures, then a price civilization 198 00:11:37,679 --> 00:11:41,200 Speaker 1: could be useful not only to prevent inflation, but also 199 00:11:41,240 --> 00:12:01,480 Speaker 1: to prevent such sharp boom bust cycles. When you sort 200 00:12:01,480 --> 00:12:04,320 Speaker 1: of kicked off this whole breujaha at the end of 201 00:12:04,480 --> 00:12:07,280 Speaker 1: last year, you know, war was kind of an analogy 202 00:12:07,400 --> 00:12:11,880 Speaker 1: or for thinking about historical patterns, And then not long afterwards, 203 00:12:11,920 --> 00:12:15,440 Speaker 1: there's the start of an actual war in Europe, and 204 00:12:15,640 --> 00:12:17,880 Speaker 1: we've seen, of course it's come down a bit, but 205 00:12:17,960 --> 00:12:21,200 Speaker 1: we saw this massive price shock for energy over the 206 00:12:21,280 --> 00:12:25,320 Speaker 1: summer in Europe and including in Germany. Before we get 207 00:12:25,400 --> 00:12:28,760 Speaker 1: to your work on this commission, how would you just 208 00:12:28,800 --> 00:12:33,080 Speaker 1: sort of summarize the challenge or the crisis in Germany, 209 00:12:33,120 --> 00:12:35,440 Speaker 1: Like if someone was asking you what happened, why did 210 00:12:35,840 --> 00:12:38,560 Speaker 1: gas prices surge so much? Or what are the current 211 00:12:38,600 --> 00:12:42,200 Speaker 1: economic conditions of Europe, how do you sort of diagnose 212 00:12:42,320 --> 00:12:44,240 Speaker 1: the problem? I mean, first of all, we have to 213 00:12:44,240 --> 00:12:47,800 Speaker 1: see that already in late one gas prices in Europe 214 00:12:47,800 --> 00:12:50,960 Speaker 1: were very high, right in Germany in particular, they were 215 00:12:51,000 --> 00:12:53,520 Speaker 1: so high that, as a matter of fact, the policy 216 00:12:53,559 --> 00:12:57,280 Speaker 1: proposal that I wrote with a colleagues sebas Anderlin came 217 00:12:57,320 --> 00:13:00,319 Speaker 1: out still before the war because already that and we 218 00:13:00,320 --> 00:13:06,160 Speaker 1: were estimating that given the enormous increase in wholesale gas prices, 219 00:13:06,200 --> 00:13:10,680 Speaker 1: that would translate into around two percent increase in inflation 220 00:13:10,800 --> 00:13:14,719 Speaker 1: if it was handed down into retail gas prices. So 221 00:13:14,880 --> 00:13:19,000 Speaker 1: even before the war, there was a gas price crisis, 222 00:13:19,040 --> 00:13:21,480 Speaker 1: if you want so, But of course it has become 223 00:13:21,720 --> 00:13:26,160 Speaker 1: much much more severe now. To answer your question, I 224 00:13:26,200 --> 00:13:30,480 Speaker 1: think that basically, gas is a good that is so 225 00:13:30,640 --> 00:13:34,480 Speaker 1: essential that all consumers that happen to be heating with 226 00:13:34,600 --> 00:13:37,800 Speaker 1: gas cannot do without gas. And at the same time, 227 00:13:37,920 --> 00:13:41,320 Speaker 1: firms that have technologies that rely on gas have to 228 00:13:41,480 --> 00:13:44,520 Speaker 1: some degree the possibility to do fewer switch, but that 229 00:13:44,640 --> 00:13:49,880 Speaker 1: is relatively limited or at least not complete. So that again, 230 00:13:50,000 --> 00:13:52,760 Speaker 1: also in the case of firms, you have a really 231 00:13:52,800 --> 00:13:57,400 Speaker 1: great dependence on this specific source of energy. So if 232 00:13:57,440 --> 00:14:02,320 Speaker 1: the price shoots up, you basically have a pretty inelastic 233 00:14:02,720 --> 00:14:08,600 Speaker 1: demand response, not completely in elastic, but relatively inelastic up 234 00:14:08,640 --> 00:14:11,959 Speaker 1: to a point. So this kind of creates a very 235 00:14:12,080 --> 00:14:17,960 Speaker 1: dramatic situation where on the household side, as the representatives 236 00:14:17,960 --> 00:14:20,880 Speaker 1: of landlords we're pointing out as a matter of fact, 237 00:14:21,200 --> 00:14:23,720 Speaker 1: we have a situation where they are warning of like 238 00:14:23,840 --> 00:14:28,160 Speaker 1: kind of nass private insolvency because people can simply not 239 00:14:28,320 --> 00:14:31,480 Speaker 1: pay their gas bits if the government wasn't going to 240 00:14:31,800 --> 00:14:35,320 Speaker 1: step in. And on the part of firms and industries, 241 00:14:35,680 --> 00:14:39,239 Speaker 1: Germany is of course an economy that is hugely reliant 242 00:14:39,480 --> 00:14:44,720 Speaker 1: on industrial production. For a rich country, it's around twenty 243 00:14:44,800 --> 00:14:48,400 Speaker 1: three percent of of GDP that comes from from industry 244 00:14:48,400 --> 00:14:51,600 Speaker 1: and manufacturing, so that is that is pretty big, like 245 00:14:51,720 --> 00:14:55,840 Speaker 1: given given that it's a rich that is a rich economy, 246 00:14:55,880 --> 00:14:59,480 Speaker 1: So this um the whole industrial part of the economy 247 00:15:00,240 --> 00:15:04,080 Speaker 1: under enormous stress if there is both a looming danger 248 00:15:04,160 --> 00:15:08,360 Speaker 1: of actual physical gas strategies and a price shock. So, 249 00:15:08,480 --> 00:15:12,080 Speaker 1: since you mentioned corporate profit taking, which is a hot 250 00:15:12,160 --> 00:15:15,080 Speaker 1: topic in many places around the world, you know in 251 00:15:15,120 --> 00:15:17,680 Speaker 1: Europe and in the US as well, can you walk 252 00:15:17,760 --> 00:15:23,360 Speaker 1: us through the practical differences between a price cap on 253 00:15:23,440 --> 00:15:29,280 Speaker 1: something versus something like a windfall tax on profits, Like 254 00:15:29,400 --> 00:15:32,600 Speaker 1: what are the different effects that those would have on 255 00:15:32,640 --> 00:15:36,600 Speaker 1: the economy. Maybe, if I may, I would like to 256 00:15:36,760 --> 00:15:40,000 Speaker 1: first briefly comment on why I think profits can go 257 00:15:40,200 --> 00:15:43,560 Speaker 1: up in unusual ways in in in the kind of 258 00:15:43,600 --> 00:15:46,240 Speaker 1: situations that we are talking about. So if there is 259 00:15:46,280 --> 00:15:49,960 Speaker 1: a bottomneck that typically affects a whole sector or at 260 00:15:50,000 --> 00:15:53,880 Speaker 1: least the whole line of production, which means that other 261 00:15:53,960 --> 00:15:57,520 Speaker 1: competitors in the market, where that all other competitors have 262 00:15:57,640 --> 00:16:01,320 Speaker 1: the same kind of issues and keeping their supply chain running. 263 00:16:01,560 --> 00:16:04,600 Speaker 1: So if you are Honda and I'm Toyota, we both 264 00:16:04,600 --> 00:16:07,560 Speaker 1: know that we have a computer chip shortage and that 265 00:16:07,680 --> 00:16:11,600 Speaker 1: this means that we can only produce whatever at whatever 266 00:16:11,680 --> 00:16:14,560 Speaker 1: level we can produce. So in this kind of situation, 267 00:16:15,000 --> 00:16:17,760 Speaker 1: if I was to increase my prices, you could not 268 00:16:18,000 --> 00:16:20,960 Speaker 1: easily take away my market share in the ways in 269 00:16:21,000 --> 00:16:24,280 Speaker 1: which you could um in normal times. Right in normal times, 270 00:16:24,280 --> 00:16:28,960 Speaker 1: if I was to increase my prices, then you would say, oh, wonderful. Um, 271 00:16:29,360 --> 00:16:31,840 Speaker 1: now they are going to lose part of their market 272 00:16:31,880 --> 00:16:34,200 Speaker 1: here because their stuff is getting more expensive. So let's 273 00:16:34,200 --> 00:16:37,520 Speaker 1: expand our production. But that kind of easy expansion of 274 00:16:37,560 --> 00:16:40,840 Speaker 1: production is not possible because of the bottom neck that 275 00:16:40,880 --> 00:16:44,160 Speaker 1: affects all players in the market equally. So in that 276 00:16:44,240 --> 00:16:48,600 Speaker 1: kind of situation, then both companies that are direct competitors 277 00:16:48,680 --> 00:16:52,200 Speaker 1: can increase prices in base that would be very harmful 278 00:16:52,280 --> 00:16:55,680 Speaker 1: to their position in the market in normal times. So 279 00:16:55,720 --> 00:17:00,840 Speaker 1: this means that prices suddenly can be hiked in ways 280 00:17:00,920 --> 00:17:04,800 Speaker 1: where they are no longer controlled by competition, in the 281 00:17:04,800 --> 00:17:08,320 Speaker 1: ways in which we would expect them to be now. 282 00:17:08,480 --> 00:17:14,199 Speaker 1: The difference between a price cap and a windfall profit taxes. 283 00:17:14,320 --> 00:17:18,320 Speaker 1: I think that the price cap basically says that a 284 00:17:18,359 --> 00:17:22,320 Speaker 1: firm can no longer charge a price that goes above 285 00:17:22,480 --> 00:17:27,760 Speaker 1: a certain level or that represents an increase by X 286 00:17:27,880 --> 00:17:33,040 Speaker 1: over a certain historical date. Whereas for the windfall profit, 287 00:17:33,200 --> 00:17:36,040 Speaker 1: you would need to look at what are the profits 288 00:17:36,040 --> 00:17:38,320 Speaker 1: that the firm actually made, and then you would want 289 00:17:38,359 --> 00:17:41,560 Speaker 1: to kind of tax that back. Right, So, um, in 290 00:17:41,600 --> 00:17:44,200 Speaker 1: the first case, you kind of don't let the windfall 291 00:17:44,280 --> 00:17:47,480 Speaker 1: profit to emerge on the market, and in the second case, 292 00:17:47,800 --> 00:17:52,119 Speaker 1: you would like first have the windfall profits happen and 293 00:17:52,119 --> 00:17:54,399 Speaker 1: then you want to tax them away. And then you 294 00:17:54,440 --> 00:17:57,480 Speaker 1: of course hope that firms, being aware of wind for 295 00:17:57,600 --> 00:18:00,639 Speaker 1: profit taxes, would kind of anticipate it these been for 296 00:18:00,720 --> 00:18:05,720 Speaker 1: profit taxes, and therefore would not hike prices quite in 297 00:18:05,720 --> 00:18:08,280 Speaker 1: the way as they would without it in for profit 298 00:18:08,320 --> 00:18:11,960 Speaker 1: tax But I'm actually thinking of these two policies as 299 00:18:12,000 --> 00:18:16,320 Speaker 1: being complementary along the value chain. So I mean, clearly, 300 00:18:16,359 --> 00:18:20,439 Speaker 1: we are not gonna impose price caps um in in 301 00:18:20,640 --> 00:18:24,199 Speaker 1: very many areas of the economy, if simply because we 302 00:18:24,240 --> 00:18:28,080 Speaker 1: don't even have the bureaucratic capacity to do that in 303 00:18:28,119 --> 00:18:31,880 Speaker 1: a reasonable way. But in Europe, and as by now 304 00:18:32,359 --> 00:18:35,640 Speaker 1: also fellow economists like Paul Brookman and Jose stick Let's 305 00:18:35,640 --> 00:18:38,880 Speaker 1: have been arguing the energy crisis is so severe that 306 00:18:39,119 --> 00:18:42,959 Speaker 1: various forms of price caps in the energy sector. Of 307 00:18:43,040 --> 00:18:48,120 Speaker 1: course on the table now if you do some form 308 00:18:48,200 --> 00:18:50,400 Speaker 1: of price cap, and we can talk about the details 309 00:18:50,400 --> 00:18:54,199 Speaker 1: of the German case later. I suppose if you do 310 00:18:54,320 --> 00:18:59,160 Speaker 1: some form of price cap on let's say gas, ideally 311 00:18:59,480 --> 00:19:02,879 Speaker 1: you want that this reduction and cost for firms is 312 00:19:02,920 --> 00:19:07,879 Speaker 1: somehow translated into a reduction or at least stabilization of 313 00:19:07,960 --> 00:19:11,080 Speaker 1: the prices or the things that these firms are producing. 314 00:19:11,480 --> 00:19:15,600 Speaker 1: Right So here then there could be a situation where 315 00:19:15,960 --> 00:19:21,359 Speaker 1: an energy price cap could be complementary with e wind 316 00:19:21,440 --> 00:19:25,120 Speaker 1: for profit tax in the sense that which wouldn't even 317 00:19:25,200 --> 00:19:29,200 Speaker 1: really be a tax, because the price caps that we 318 00:19:29,280 --> 00:19:31,560 Speaker 1: are talking about in Europe tend to be fiscal price 319 00:19:31,600 --> 00:19:33,840 Speaker 1: caps in the sense that the government is actually paying 320 00:19:34,200 --> 00:19:36,679 Speaker 1: to bring down the price. And you could add a 321 00:19:36,720 --> 00:19:41,800 Speaker 1: conditionality of saying, if the firm that God subsidized price, 322 00:19:42,119 --> 00:19:45,240 Speaker 1: that God like a subsidy that enabled it to have 323 00:19:45,400 --> 00:19:48,720 Speaker 1: access to add at a lower price, should not in 324 00:19:48,760 --> 00:19:51,760 Speaker 1: the next round really win for profits. If it does, 325 00:19:52,200 --> 00:19:55,840 Speaker 1: it would have to pay back part of the subsidy 326 00:19:55,920 --> 00:19:57,800 Speaker 1: or the whole subsidy that it received. So in that 327 00:19:57,920 --> 00:20:02,200 Speaker 1: kind of scenario you would have actually complementarity between a 328 00:20:02,240 --> 00:20:07,080 Speaker 1: price gap on energy as an extremely important input and 329 00:20:07,359 --> 00:20:12,919 Speaker 1: a conditionality on for the access to that subsidized gas 330 00:20:13,000 --> 00:20:17,640 Speaker 1: that would follow event fall tax kind of logic. So 331 00:20:17,760 --> 00:20:22,480 Speaker 1: let's get to the German situation specifically. What don't you 332 00:20:22,520 --> 00:20:25,400 Speaker 1: just tell us though, what was or what I guess 333 00:20:25,440 --> 00:20:27,919 Speaker 1: it just wrapped up? What was the Independent Commission for 334 00:20:28,000 --> 00:20:31,679 Speaker 1: Natural Gas and Heating? What was it tasked to do? 335 00:20:31,800 --> 00:20:34,439 Speaker 1: Who tested? How did you? How did you become a 336 00:20:34,440 --> 00:20:35,960 Speaker 1: member of this group? Why do you just sort of 337 00:20:36,840 --> 00:20:38,959 Speaker 1: before we get even into the details too much, why 338 00:20:38,960 --> 00:20:41,320 Speaker 1: don't you just sort of talk about your experience how 339 00:20:41,320 --> 00:20:45,480 Speaker 1: it came about. So basically, I have been arguing that 340 00:20:45,520 --> 00:20:49,160 Speaker 1: we have to think about a form of nonlinear pricing 341 00:20:49,440 --> 00:20:53,480 Speaker 1: for natural gas since earlier this year. Um so I've 342 00:20:53,520 --> 00:20:56,560 Speaker 1: been kind of in conversation with economists in Germany on 343 00:20:56,640 --> 00:20:59,800 Speaker 1: this issue for a while, and the government had been 344 00:21:00,480 --> 00:21:03,320 Speaker 1: trying out all sorts of policies in the last months, 345 00:21:03,320 --> 00:21:08,320 Speaker 1: including transfers and so I mean like transfers of money 346 00:21:08,560 --> 00:21:12,320 Speaker 1: and thereious other forms of policies in the current crisis. 347 00:21:12,359 --> 00:21:15,919 Speaker 1: But eventually they realized that the gap, the pressure that 348 00:21:16,000 --> 00:21:18,560 Speaker 1: comes from the gas price shock is so intense that 349 00:21:18,640 --> 00:21:24,080 Speaker 1: they had to do something that directly tackled this price shock. 350 00:21:24,720 --> 00:21:29,280 Speaker 1: So they set up a commission in late September that 351 00:21:29,400 --> 00:21:32,840 Speaker 1: has been called upon by the Chances Office in the 352 00:21:32,920 --> 00:21:36,960 Speaker 1: Ministry of Economic Affairs, and we received the mandate to 353 00:21:37,280 --> 00:21:42,600 Speaker 1: develop a policy that would basically be this gas price break, 354 00:21:43,920 --> 00:21:46,520 Speaker 1: which which is this funny German word that you already 355 00:21:46,520 --> 00:21:50,720 Speaker 1: mentioned earlier, So basically literal German is sometimes I really 356 00:21:50,760 --> 00:21:56,040 Speaker 1: do put the brakes on gas prices. Makes sense. There's 357 00:21:56,040 --> 00:21:59,200 Speaker 1: also this strange fashion around using break for so many 358 00:21:59,240 --> 00:22:02,680 Speaker 1: things like that that break and so on. But anyways, 359 00:22:02,760 --> 00:22:06,040 Speaker 1: that's that's a different topic. So um, so they set 360 00:22:06,080 --> 00:22:09,840 Speaker 1: up this commission there were six other economists, myself and 361 00:22:09,960 --> 00:22:16,800 Speaker 1: various representatives from industry, from utility companies, unions, environmental groups 362 00:22:16,840 --> 00:22:20,719 Speaker 1: like a charity organization and so on, to kind of 363 00:22:20,760 --> 00:22:24,439 Speaker 1: be an independent commission to try to come up with 364 00:22:24,760 --> 00:22:28,000 Speaker 1: a policy package that could kind of square the circle 365 00:22:28,160 --> 00:22:31,760 Speaker 1: of having at the same time a crisis of actual 366 00:22:31,840 --> 00:22:36,800 Speaker 1: physical gas shotage and a crisis of inflation and skyrocketing 367 00:22:37,400 --> 00:22:40,560 Speaker 1: energy prices on top of what looks more and more 368 00:22:40,600 --> 00:22:45,919 Speaker 1: like a recession. So one of the criticisms of the 369 00:22:45,960 --> 00:22:50,600 Speaker 1: proposal has been that maybe this will keep even more 370 00:22:50,680 --> 00:22:54,639 Speaker 1: pressure on utility suppliers who are already pretty strained. I 371 00:22:54,680 --> 00:22:57,960 Speaker 1: think Uniper, for instance, I think it's on course to 372 00:22:58,000 --> 00:23:00,840 Speaker 1: be nationalized by the end of the year. Or but 373 00:23:00,960 --> 00:23:03,320 Speaker 1: would you say to that criticism, like what is the 374 00:23:03,400 --> 00:23:08,000 Speaker 1: actual impact that price caps would have on energy suppliers 375 00:23:08,119 --> 00:23:12,320 Speaker 1: or gas suppliers. Yeah, interesting questions. So we had four 376 00:23:12,359 --> 00:23:17,199 Speaker 1: representatives of utility companies on the Commission and one of 377 00:23:17,280 --> 00:23:20,240 Speaker 1: the elements of the policy package is actually to provide 378 00:23:20,320 --> 00:23:24,600 Speaker 1: more liquidity to these companies. And the way that the 379 00:23:24,680 --> 00:23:29,639 Speaker 1: gas price breaks an impossible word in English, um we 380 00:23:29,880 --> 00:23:34,320 Speaker 1: work is that basically, the utility providers they get funds 381 00:23:34,520 --> 00:23:38,119 Speaker 1: from the government which will allow them to give a 382 00:23:38,200 --> 00:23:43,280 Speaker 1: rebate on gas. It's four households and firms, and it's 383 00:23:43,320 --> 00:23:46,359 Speaker 1: it's a non linear pricing scheme with the savings bonus. 384 00:23:46,400 --> 00:23:49,800 Speaker 1: And I'm happy to explain the technically details. Feel free 385 00:23:49,840 --> 00:23:52,680 Speaker 1: to our Our listeners love technical details, so feel free 386 00:23:52,720 --> 00:23:57,800 Speaker 1: to dive into that. Yeah. So, the the basic philosophy 387 00:23:57,840 --> 00:24:01,199 Speaker 1: is to say, there's one part of gas demand that 388 00:24:01,400 --> 00:24:04,359 Speaker 1: is pretty in elastic, and there's another part of gas 389 00:24:04,400 --> 00:24:09,840 Speaker 1: ement that is considerably more elastic. So therefore there's a 390 00:24:09,920 --> 00:24:12,920 Speaker 1: quota that everybody gets with a price that is lower 391 00:24:12,960 --> 00:24:16,879 Speaker 1: than the market price, and that quota for the household 392 00:24:16,920 --> 00:24:19,840 Speaker 1: sector and all the firms that kind of have a 393 00:24:19,920 --> 00:24:24,120 Speaker 1: gas account like you and I, is such that this 394 00:24:24,200 --> 00:24:28,520 Speaker 1: quota is based on eighty percent of your estimated use 395 00:24:28,800 --> 00:24:33,560 Speaker 1: and for these you will pay twelve cents, and if 396 00:24:33,600 --> 00:24:37,440 Speaker 1: you use more than these eight percent, then you will 397 00:24:37,480 --> 00:24:41,240 Speaker 1: have to pay whatever your retail price is on your 398 00:24:41,680 --> 00:24:44,960 Speaker 1: gas contract. Now, if you managed to use less than 399 00:24:45,040 --> 00:24:49,200 Speaker 1: eighty percent, there's actually this additional feature of this policy, 400 00:24:49,400 --> 00:24:53,680 Speaker 1: which is that you will still have your rebate. So 401 00:24:53,840 --> 00:24:57,320 Speaker 1: this means that if you use less your the price 402 00:24:57,400 --> 00:25:01,480 Speaker 1: will actually fall because your rebate may be larger proportional 403 00:25:01,920 --> 00:25:04,080 Speaker 1: um to your usage. So this is to say that 404 00:25:04,080 --> 00:25:08,199 Speaker 1: there's a savings bonus if you if you use less 405 00:25:08,200 --> 00:25:13,040 Speaker 1: than So that's the policy on the kind of what 406 00:25:13,160 --> 00:25:16,320 Speaker 1: we call the SLP customers, so those with like a 407 00:25:16,359 --> 00:25:19,960 Speaker 1: non industrial gas account, and on the side of industry, 408 00:25:20,240 --> 00:25:24,200 Speaker 1: it's kind of a similar scheme, but the price would 409 00:25:24,240 --> 00:25:27,440 Speaker 1: be seventh cents because it's like taxes and so on 410 00:25:27,520 --> 00:25:31,080 Speaker 1: are not accounted for on the industry side, and the 411 00:25:31,200 --> 00:25:36,720 Speaker 1: quota would be seventy instead of eight. And then there 412 00:25:36,720 --> 00:25:39,880 Speaker 1: has been like a lot of debate whether industry firms 413 00:25:40,240 --> 00:25:44,000 Speaker 1: can or cannot trade the gas that they get at 414 00:25:44,000 --> 00:25:48,159 Speaker 1: this discounted price in the market. And this has probably 415 00:25:48,160 --> 00:25:51,200 Speaker 1: been one of the most hotly debated issues and still 416 00:25:51,280 --> 00:25:54,160 Speaker 1: is one of the most hotly debated issues because from 417 00:25:54,200 --> 00:25:58,600 Speaker 1: a pure like let's have price signals rain all the 418 00:25:58,640 --> 00:26:01,560 Speaker 1: way through a perspective, I will be desirable to have 419 00:26:01,840 --> 00:26:05,600 Speaker 1: firms trade gas in the market from the perspective of 420 00:26:05,840 --> 00:26:10,000 Speaker 1: kind of price stability and also not encouraging firms to 421 00:26:10,680 --> 00:26:14,280 Speaker 1: kind of switch from producing whatever they are producing too 422 00:26:15,280 --> 00:26:18,080 Speaker 1: getting cheap gas and selling it on the market and 423 00:26:18,160 --> 00:26:22,359 Speaker 1: kind of using this as their business model perspective, There's 424 00:26:22,440 --> 00:26:26,159 Speaker 1: like trading of subsidized gas on the market is not 425 00:26:26,280 --> 00:26:30,880 Speaker 1: a very desirable feature. The way that the Commission report 426 00:26:31,080 --> 00:26:34,439 Speaker 1: stands as of now is that it actually does allow 427 00:26:34,720 --> 00:26:39,360 Speaker 1: for industrial firms to sell the subsidized gas on the market. 428 00:26:39,600 --> 00:26:43,640 Speaker 1: I'm I'm a bit skeptical about this as a kind 429 00:26:43,640 --> 00:26:47,760 Speaker 1: of general rule, I can see a use for having 430 00:26:47,800 --> 00:26:51,439 Speaker 1: a reverse auction or or a model where basically the 431 00:26:51,520 --> 00:26:55,040 Speaker 1: state sets up a marketplace to buy back some part 432 00:26:55,080 --> 00:26:58,200 Speaker 1: of this gas in a defined volume, but as a 433 00:26:58,320 --> 00:27:01,840 Speaker 1: kind of a general policy see for all industrial firms 434 00:27:01,960 --> 00:27:06,000 Speaker 1: in Germany to have this like basically a minimum margin 435 00:27:06,200 --> 00:27:09,520 Speaker 1: that is defined by whatever a firm can make by 436 00:27:09,680 --> 00:27:13,280 Speaker 1: selling the subsidized gas on the market. I think this 437 00:27:13,520 --> 00:27:18,320 Speaker 1: sets somewhat problematic incentives because it seems likely that this 438 00:27:18,440 --> 00:27:22,120 Speaker 1: will be um in particular attractive for firms that are 439 00:27:22,280 --> 00:27:24,240 Speaker 1: at the beginning of the value chain and that are 440 00:27:24,359 --> 00:27:28,240 Speaker 1: very gas intensive and have relatively low margins, which could 441 00:27:28,280 --> 00:27:32,800 Speaker 1: then create all sorts of cascading effects like if let's say, 442 00:27:33,000 --> 00:27:39,120 Speaker 1: producers of of of basic methods or basic chemical components 443 00:27:39,240 --> 00:27:42,880 Speaker 1: decided to buy and sell gas instead, then this will 444 00:27:42,960 --> 00:27:47,720 Speaker 1: of course create or not necessarily create, but make it 445 00:27:47,880 --> 00:27:51,680 Speaker 1: shortage more severe, which could then have all sorts of 446 00:27:52,200 --> 00:27:55,000 Speaker 1: ripple effects along the supply chain. So on my mind, 447 00:27:55,160 --> 00:27:56,960 Speaker 1: it would be more desirable to have a policy that 448 00:27:57,040 --> 00:28:01,080 Speaker 1: kind of spreads the burden of saving gas more really right, 449 00:28:01,160 --> 00:28:04,639 Speaker 1: So in the theory, the fear of allowing sort of 450 00:28:04,680 --> 00:28:06,879 Speaker 1: like almost like a cap and trade system, but for 451 00:28:06,920 --> 00:28:10,480 Speaker 1: the gas. Subsidized gas is an industry that's low margin, 452 00:28:10,840 --> 00:28:13,679 Speaker 1: rather than producing their price, rather than producing the goods 453 00:28:13,720 --> 00:28:16,880 Speaker 1: that other players on the value chain might need, might 454 00:28:16,960 --> 00:28:21,280 Speaker 1: just sell at a substantial markup there discounted gas. Can 455 00:28:21,320 --> 00:28:23,640 Speaker 1: you just talk a little bit more? I mean, look, 456 00:28:23,640 --> 00:28:27,480 Speaker 1: obviously the issue with something like dealing with high gas 457 00:28:27,480 --> 00:28:30,280 Speaker 1: prices is yes, the price is high, but there's also 458 00:28:30,680 --> 00:28:33,320 Speaker 1: you know, the whole issue is there's a scarcity of 459 00:28:33,359 --> 00:28:37,240 Speaker 1: the commodity itself. Talk to a little bit more about 460 00:28:37,400 --> 00:28:40,480 Speaker 1: the rationing effect of this plan, like how does it 461 00:28:40,560 --> 00:28:44,920 Speaker 1: sort of create an incentive to perhaps curtail use or 462 00:28:45,200 --> 00:28:48,640 Speaker 1: discourage use in less economic ways, and then talk a 463 00:28:48,640 --> 00:28:52,400 Speaker 1: little bit more about the redistributive effects, because you know, 464 00:28:52,440 --> 00:28:56,320 Speaker 1: in terms of subsidizing households, etcetera, it seems sort of 465 00:28:56,360 --> 00:28:59,320 Speaker 1: clear that, Okay, you want to sort of make sure 466 00:28:59,360 --> 00:29:02,480 Speaker 1: that somehow hold don't freeze, that the poorest households in 467 00:29:02,520 --> 00:29:05,560 Speaker 1: particular can afford to keep the heat on over the winter. 468 00:29:05,680 --> 00:29:07,880 Speaker 1: But at the same time, if you subsidize everyone, you 469 00:29:07,920 --> 00:29:12,160 Speaker 1: still run into the same capacity shortfall. Yeah. Absolutely, First 470 00:29:12,160 --> 00:29:15,000 Speaker 1: of all, there is still a strong savings incentive bid 471 00:29:15,080 --> 00:29:19,080 Speaker 1: into this scheme. Right above, you have the extremely high 472 00:29:19,120 --> 00:29:22,920 Speaker 1: market prices. Twelve cents is still almost twice as much 473 00:29:22,960 --> 00:29:25,240 Speaker 1: as people would have been paying in twenty one, and 474 00:29:25,280 --> 00:29:28,760 Speaker 1: price one we're already very high so to have cents 475 00:29:28,840 --> 00:29:31,640 Speaker 1: should still have a lot of savings incentives. But on 476 00:29:31,760 --> 00:29:35,720 Speaker 1: top of it, we have this savings bonus scheme which 477 00:29:35,800 --> 00:29:39,800 Speaker 1: ensures that from a like price incentive perspective, there's still 478 00:29:39,840 --> 00:29:42,400 Speaker 1: a lot of incentive to save gas. Then we have 479 00:29:42,480 --> 00:29:45,640 Speaker 1: like kind of come up with a number of complementary 480 00:29:45,680 --> 00:29:51,760 Speaker 1: measures like information campaigns, like advisory services and how households 481 00:29:51,760 --> 00:29:55,680 Speaker 1: can actually save gas and so on. But there is 482 00:29:55,720 --> 00:29:59,440 Speaker 1: a big question of distribution here because of course, I 483 00:29:59,480 --> 00:30:02,280 Speaker 1: mean you use the word ration, So what we are 484 00:30:02,360 --> 00:30:06,600 Speaker 1: doing here in sometimes it's rationing price capped gas, right, 485 00:30:06,800 --> 00:30:10,040 Speaker 1: because everybody gets a quota of price capped gas, which 486 00:30:10,080 --> 00:30:12,880 Speaker 1: is obviously desirable because it's cheaper. So it's not a 487 00:30:12,920 --> 00:30:17,080 Speaker 1: physical ration, but it's a kind of a ration for 488 00:30:17,200 --> 00:30:21,400 Speaker 1: an entitlement to price capped gas. Now, the rule that 489 00:30:21,560 --> 00:30:26,360 Speaker 1: we are using is based on the consumption estimate that 490 00:30:26,480 --> 00:30:31,160 Speaker 1: every household or firm would have based on their utility 491 00:30:31,240 --> 00:30:37,280 Speaker 1: providers estimates. This, of course has the big difficulty from 492 00:30:37,320 --> 00:30:43,760 Speaker 1: the perspective of what are the distribution outcomes of this policy. 493 00:30:44,160 --> 00:30:47,960 Speaker 1: That if you used very little gas, you would get 494 00:30:47,960 --> 00:30:51,120 Speaker 1: a small quota, and if you used a lot you 495 00:30:51,120 --> 00:30:54,880 Speaker 1: would get a big quota, right, because obviously eight percent 496 00:30:55,040 --> 00:30:58,720 Speaker 1: of a small estimate is much less than eighty percent 497 00:30:58,800 --> 00:31:01,400 Speaker 1: of a big gess that and your estimate would be 498 00:31:01,680 --> 00:31:04,720 Speaker 1: somehow based on your past consumption and what kind of 499 00:31:04,800 --> 00:31:07,960 Speaker 1: house you're living in and so on. Now, this is 500 00:31:07,960 --> 00:31:12,280 Speaker 1: an issue especially for the households that are using like 501 00:31:12,560 --> 00:31:17,000 Speaker 1: huge amounts of energy, which can be very rich, households 502 00:31:17,040 --> 00:31:19,960 Speaker 1: that have facilities like pools and so on. So one 503 00:31:20,000 --> 00:31:24,800 Speaker 1: of the demands that the actually are debating right now 504 00:31:25,040 --> 00:31:27,960 Speaker 1: is whether there could be kind of an upperbound to 505 00:31:28,040 --> 00:31:32,160 Speaker 1: this eight percent rule, so that you get but not 506 00:31:32,440 --> 00:31:37,240 Speaker 1: more than let's say twenty th kid what hours or 507 00:31:37,320 --> 00:31:40,760 Speaker 1: or something like that. This then goes into the whole 508 00:31:40,840 --> 00:31:44,840 Speaker 1: question of data availability on the part of utility providers, 509 00:31:44,840 --> 00:31:47,200 Speaker 1: which I'm happy to go into detail if this is 510 00:31:47,200 --> 00:31:49,880 Speaker 1: of interest. But basically, the situation is in Germany that 511 00:31:49,960 --> 00:31:55,240 Speaker 1: a utility provider does not know whether behind any utility 512 00:31:55,280 --> 00:32:01,520 Speaker 1: bill is like one huge villa or an apartment building 513 00:32:01,520 --> 00:32:06,080 Speaker 1: with one fifty flats, or a business. So therefore, in 514 00:32:06,160 --> 00:32:08,480 Speaker 1: order to have such an upper bound, we would need 515 00:32:08,640 --> 00:32:13,800 Speaker 1: a better data base, which I think would be desirable 516 00:32:13,920 --> 00:32:16,680 Speaker 1: in any case, because if we are talking about blooming 517 00:32:16,720 --> 00:32:20,160 Speaker 1: gas shortages. It would be good to know whether there's 518 00:32:20,640 --> 00:32:26,880 Speaker 1: one hundred households or five households behind any one gas account. 519 00:32:27,120 --> 00:32:30,160 Speaker 1: But yeah, so there is this whole big question of 520 00:32:30,440 --> 00:32:33,600 Speaker 1: what are the distributional implications. I think one way of 521 00:32:34,280 --> 00:32:38,080 Speaker 1: chatifying what we are doing is to say this policy 522 00:32:38,360 --> 00:32:42,920 Speaker 1: is taking off the like extreme spikes in gas prices, 523 00:32:43,400 --> 00:32:47,400 Speaker 1: So it's not like trying to do social policy or 524 00:32:47,480 --> 00:32:50,840 Speaker 1: transfers or whatever, but it's like taking off the spikes 525 00:32:50,880 --> 00:32:54,280 Speaker 1: in the price of gas, which is the result of 526 00:32:54,360 --> 00:32:58,440 Speaker 1: the war in Ukraine. So therefore it doesn't really make 527 00:32:58,480 --> 00:33:02,440 Speaker 1: sense that whoever happens to have a gas account is 528 00:33:02,440 --> 00:33:04,960 Speaker 1: the one who is paying for the cost of war, 529 00:33:05,240 --> 00:33:08,440 Speaker 1: compared to someone who happens to have an oil heating 530 00:33:08,480 --> 00:33:12,080 Speaker 1: system or or whatever else they might have. So this 531 00:33:12,160 --> 00:33:15,920 Speaker 1: is I think, one way of kind of chastifying this approach, 532 00:33:16,000 --> 00:33:19,120 Speaker 1: But of course there are still issues of distribution. We 533 00:33:19,120 --> 00:33:23,160 Speaker 1: are also recommending for the kind of implicit subsidy that 534 00:33:23,280 --> 00:33:26,760 Speaker 1: comes from having access to this price kept gas to 535 00:33:26,880 --> 00:33:31,680 Speaker 1: be taxed, so that part of this distributional issue is 536 00:33:31,760 --> 00:33:35,959 Speaker 1: kind of elevated by then the taxing whatever the rebate 537 00:33:36,080 --> 00:33:39,200 Speaker 1: is in the next round. We have also set up 538 00:33:39,320 --> 00:33:42,440 Speaker 1: kind of or we have recommended to set up a 539 00:33:42,520 --> 00:33:47,080 Speaker 1: fund for households in need where they could get additional 540 00:33:47,320 --> 00:34:07,600 Speaker 1: support with their heating bits. So one question I had 541 00:34:07,760 --> 00:34:11,640 Speaker 1: is if you impose price controls, what what is the 542 00:34:11,680 --> 00:34:16,080 Speaker 1: trigger or the necessary conditions for the price controls to 543 00:34:16,920 --> 00:34:22,320 Speaker 1: revert or be taken off for gas price um gas 544 00:34:22,360 --> 00:34:25,640 Speaker 1: pedals to come into effect. I don't know, like when 545 00:34:25,680 --> 00:34:29,919 Speaker 1: you hit the gas on gas prices again. Yeah, maybe 546 00:34:29,920 --> 00:34:32,520 Speaker 1: I should say that there is a controversy amongst the 547 00:34:32,520 --> 00:34:36,600 Speaker 1: economists whether we should be calling this a price control 548 00:34:36,840 --> 00:34:39,480 Speaker 1: a price cap, and kind of this whole language of 549 00:34:39,640 --> 00:34:45,719 Speaker 1: gas price break is a way of circumventing that discussion 550 00:34:45,920 --> 00:34:47,680 Speaker 1: because at the end of the day, that this policy 551 00:34:47,719 --> 00:34:52,000 Speaker 1: is not a traditional price control. The utility providers are 552 00:34:52,000 --> 00:34:56,080 Speaker 1: not being simply ordered to charge lower prices, but there 553 00:34:56,680 --> 00:34:59,400 Speaker 1: asked to charge lower prices and are being paid in 554 00:34:59,480 --> 00:35:03,880 Speaker 1: return rates. So it's kind of a fiscally funded price 555 00:35:04,000 --> 00:35:05,759 Speaker 1: cap if this makes sense. And then there are all 556 00:35:05,760 --> 00:35:07,960 Speaker 1: these other features that I've talked about. But back to 557 00:35:08,000 --> 00:35:12,240 Speaker 1: your question. So, the way that we have set the 558 00:35:12,280 --> 00:35:17,040 Speaker 1: prices in the gas price break is such that if 559 00:35:17,080 --> 00:35:20,640 Speaker 1: you look at the average price that would emerge from 560 00:35:20,680 --> 00:35:25,480 Speaker 1: this at twelve cents and twenty percent at an average 561 00:35:25,480 --> 00:35:30,080 Speaker 1: of around twenty cents retail price, you get a price 562 00:35:30,120 --> 00:35:35,600 Speaker 1: of around fourteen cents, which is the price that, based 563 00:35:35,640 --> 00:35:38,919 Speaker 1: on the best gases that we had in the room, 564 00:35:39,120 --> 00:35:43,320 Speaker 1: would be the kind of new normal once this gas 565 00:35:43,400 --> 00:35:47,520 Speaker 1: crisis is no longer a severe as it is right now. 566 00:35:47,600 --> 00:35:50,759 Speaker 1: So the idea is that we are not kind of 567 00:35:51,080 --> 00:35:55,000 Speaker 1: stabilizing prices back to a pre crisis level, but we 568 00:35:55,040 --> 00:36:00,200 Speaker 1: are stabilizing prices on a level that is consistent with 569 00:36:00,480 --> 00:36:04,560 Speaker 1: what we expect the market prices to be in about 570 00:36:04,719 --> 00:36:08,360 Speaker 1: two years time. This means that, at least in theory, 571 00:36:08,520 --> 00:36:11,160 Speaker 1: if these guesses aren't completely off, which is of course 572 00:36:11,200 --> 00:36:15,839 Speaker 1: totally possible, firms that would be taking decisions based on 573 00:36:16,040 --> 00:36:20,200 Speaker 1: these prices that they have now should also be viable 574 00:36:20,600 --> 00:36:25,080 Speaker 1: in the future because similar kind of market prices should 575 00:36:25,160 --> 00:36:31,240 Speaker 1: emerge in the future. Households should not experience another price 576 00:36:31,280 --> 00:36:37,640 Speaker 1: shock when the gas price break stops. Stepping on the 577 00:36:37,680 --> 00:36:41,560 Speaker 1: brake on gas prices. We're laboring this analogy a bit 578 00:36:41,600 --> 00:36:45,040 Speaker 1: too much. Aren't the break of the break? You know? 579 00:36:45,160 --> 00:36:48,240 Speaker 1: I just want to I guess the devil's advocate for 580 00:36:48,360 --> 00:36:51,640 Speaker 1: a second. But when we talk about price cabs, or 581 00:36:51,719 --> 00:36:55,400 Speaker 1: we talk about our ceilings or breaks or windfall profit taxes, 582 00:36:55,840 --> 00:36:59,000 Speaker 1: you know, for ten years, the energy business was not 583 00:36:59,080 --> 00:37:01,319 Speaker 1: a particularly good business to be in, and a lot 584 00:37:01,360 --> 00:37:04,320 Speaker 1: of firms did not have much pricing power. The stocks 585 00:37:04,320 --> 00:37:07,239 Speaker 1: did not do too well, poor profits. There are a 586 00:37:07,280 --> 00:37:09,640 Speaker 1: lot of gas companies that went out of business, or 587 00:37:09,680 --> 00:37:12,960 Speaker 1: exploration companies and so forth. And then, of course in 588 00:37:13,000 --> 00:37:15,920 Speaker 1: the middle of COVID and then in this period the 589 00:37:16,160 --> 00:37:19,480 Speaker 1: fortunes turned around. But part of me wonder as well, 590 00:37:19,520 --> 00:37:23,000 Speaker 1: it's like, okay, the shareholders of these companies suffered for 591 00:37:23,239 --> 00:37:26,560 Speaker 1: you know, underperformed for years and years, and then finally 592 00:37:26,600 --> 00:37:29,480 Speaker 1: there's a surge, and then the surge happens in prices. 593 00:37:29,520 --> 00:37:33,160 Speaker 1: The windfall profit comes after like ten years or longer, 594 00:37:33,440 --> 00:37:37,160 Speaker 1: and suddenly politicians say we're gonna tax it away. And 595 00:37:37,239 --> 00:37:39,759 Speaker 1: so I kind of feel when I look at this, 596 00:37:39,880 --> 00:37:42,600 Speaker 1: it's like, well, there's, yes, this year or maybe over 597 00:37:42,600 --> 00:37:45,360 Speaker 1: the last two years, there's been these extraordinary profits, but 598 00:37:45,440 --> 00:37:48,879 Speaker 1: it's not taking into account the entire long cycle, which 599 00:37:48,880 --> 00:37:53,680 Speaker 1: saw many years of underperformance. Why shouldn't the shareholders are 600 00:37:53,719 --> 00:37:58,640 Speaker 1: the investors in these industries be compensated for the sort 601 00:37:58,640 --> 00:38:01,439 Speaker 1: of other part of the goal, so to speak. Why 602 00:38:01,440 --> 00:38:04,080 Speaker 1: do they only get the profits clipped and not the 603 00:38:04,120 --> 00:38:07,640 Speaker 1: downside clip? I mean, in the German case, there's none 604 00:38:07,680 --> 00:38:11,560 Speaker 1: of that happening, right because all the I mean the 605 00:38:11,600 --> 00:38:16,480 Speaker 1: price cap is financed by public money. So therefore, basically 606 00:38:16,719 --> 00:38:20,319 Speaker 1: it wouldn't affect profits on the part of utility providers 607 00:38:20,360 --> 00:38:22,680 Speaker 1: and name anyway. But of course we also don't have 608 00:38:23,080 --> 00:38:26,719 Speaker 1: a lot of local sources of possive fuels, right, So 609 00:38:27,280 --> 00:38:31,239 Speaker 1: therefore this whole debate that's happening in other countries of like, 610 00:38:31,360 --> 00:38:36,360 Speaker 1: basically taxing the fossil fuel industry to then finance fiscal 611 00:38:36,520 --> 00:38:39,319 Speaker 1: price caps is not really an option here. But to 612 00:38:39,400 --> 00:38:44,640 Speaker 1: go back to your question, I kind of have a 613 00:38:44,719 --> 00:38:47,640 Speaker 1: suspicion which I would be interested, in fact, to hear 614 00:38:47,719 --> 00:38:51,520 Speaker 1: what you think about if this is a possibility. But um, 615 00:38:51,640 --> 00:38:54,120 Speaker 1: let's let me put it differently. I mean, one way 616 00:38:54,120 --> 00:38:57,040 Speaker 1: of thinking about the price hikes that we have seen 617 00:38:57,200 --> 00:39:00,440 Speaker 1: in the fossil fuel industry is to say that a 618 00:39:00,480 --> 00:39:04,240 Speaker 1: lot of oil production capacity went off the grid during 619 00:39:04,280 --> 00:39:06,719 Speaker 1: the pandemic, where you kind of had, of course, this 620 00:39:07,080 --> 00:39:11,480 Speaker 1: collapse in demand which allowed companies to downsize their production 621 00:39:11,520 --> 00:39:14,600 Speaker 1: in ways in which they would not downsize their production 622 00:39:14,600 --> 00:39:18,000 Speaker 1: if there wasn't such a gigantic demand shock right. And 623 00:39:18,040 --> 00:39:21,880 Speaker 1: then after the pandemic, yes, some production has returned to 624 00:39:21,960 --> 00:39:23,960 Speaker 1: the grid, but poss a few companies, based on their 625 00:39:24,000 --> 00:39:26,400 Speaker 1: earning scores, have been quite explicit that they are taking 626 00:39:26,880 --> 00:39:32,360 Speaker 1: a discipline approach to investment, and what they saw happening 627 00:39:32,440 --> 00:39:38,560 Speaker 1: is basically that prices skyrocketed and costs were down because 628 00:39:38,600 --> 00:39:43,680 Speaker 1: they had shut down the most costly production facilities. Obviously, 629 00:39:43,680 --> 00:39:47,160 Speaker 1: if you have to choose which production line to shut down, 630 00:39:47,160 --> 00:39:49,320 Speaker 1: you would shut down the one that is most costly 631 00:39:49,320 --> 00:39:52,920 Speaker 1: and such at least profitable. Right. This then means that 632 00:39:53,040 --> 00:39:57,160 Speaker 1: you have a situation where this constraint supply actually suddenly 633 00:39:57,200 --> 00:40:02,240 Speaker 1: becomes extraordinarily profitable. And this is of course a problem 634 00:40:02,360 --> 00:40:05,239 Speaker 1: because I mean, we would expect, based on echon one 635 00:40:05,280 --> 00:40:08,080 Speaker 1: oh one, that if prices go up, supply would go up, right, 636 00:40:08,120 --> 00:40:10,799 Speaker 1: But now we have a situation where actually prices go 637 00:40:10,920 --> 00:40:13,960 Speaker 1: up and supply doesn't really go up by as much. 638 00:40:14,200 --> 00:40:18,480 Speaker 1: Because firms see that prices go up, profits go up, 639 00:40:18,560 --> 00:40:23,080 Speaker 1: and that's actually great because they are making record profits 640 00:40:23,120 --> 00:40:25,839 Speaker 1: that are in some cases higher than they have ever 641 00:40:25,920 --> 00:40:28,799 Speaker 1: been in the long history of these companies, right, So 642 00:40:28,880 --> 00:40:33,200 Speaker 1: why would anyone choose to produce more to bring the 643 00:40:33,239 --> 00:40:36,480 Speaker 1: prices down into earn less. So that is kind of 644 00:40:36,480 --> 00:40:39,480 Speaker 1: the conundrum that we find ourselves, and I think, yeah, 645 00:40:39,520 --> 00:40:43,480 Speaker 1: that definitely sounds like an accurate characterization of the existing conundrum. 646 00:40:43,800 --> 00:40:46,560 Speaker 1: Isabelle of Favor, It's so fascinating to talk to you 647 00:40:46,640 --> 00:40:49,360 Speaker 1: because it's so it's such a treat to talk to 648 00:40:49,440 --> 00:40:52,239 Speaker 1: someone who's such a deep background in theory, but then 649 00:40:52,280 --> 00:40:55,319 Speaker 1: also in the position of working on putting these things, 650 00:40:55,800 --> 00:40:58,760 Speaker 1: making the policy. Yeah, and so hearing you talk about 651 00:40:58,760 --> 00:41:01,080 Speaker 1: the sort of like practical realities of how do you 652 00:41:01,120 --> 00:41:04,400 Speaker 1: ameliorate the pain while you know, having some rationing effect 653 00:41:04,400 --> 00:41:07,839 Speaker 1: and so forth, really fascinating. Really appreciate you coming back 654 00:41:07,880 --> 00:41:10,239 Speaker 1: on the show. Thanks so much for having me. This 655 00:41:10,320 --> 00:41:11,799 Speaker 1: is a lot of fun. There's a lot of fun. 656 00:41:11,880 --> 00:41:14,279 Speaker 1: I really appreciate you taking the time, and I'm looking 657 00:41:14,280 --> 00:41:16,759 Speaker 1: forward to having this one coming out. Thanks Isabella. That 658 00:41:16,840 --> 00:41:35,319 Speaker 1: was great, Tracy, I really liked that episode. I mean, 659 00:41:35,360 --> 00:41:37,680 Speaker 1: I guess sort of for the reason we're just talking about, 660 00:41:37,719 --> 00:41:40,480 Speaker 1: because it is rare for something that's like this sort 661 00:41:40,480 --> 00:41:46,000 Speaker 1: of theoretical theoretical topic. Economists often, you know, they're often 662 00:41:46,080 --> 00:41:48,520 Speaker 1: do theory and not too much practice, and then it's like, okay, 663 00:41:48,600 --> 00:41:50,960 Speaker 1: let's put it into practice. Let's that's what we can do. Yeah. 664 00:41:51,040 --> 00:41:53,160 Speaker 1: I was also kind of just thinking about how quickly 665 00:41:53,239 --> 00:41:56,320 Speaker 1: things have changed between the time that Isabella published that 666 00:41:56,400 --> 00:41:59,719 Speaker 1: op ed and now it seems like things that were 667 00:41:59,760 --> 00:42:04,080 Speaker 1: one unthinkable are certainly being thought through and maybe even implemented. 668 00:42:04,360 --> 00:42:07,279 Speaker 1: There's so many funny little details that she talked about. 669 00:42:07,560 --> 00:42:10,520 Speaker 1: You know. The the idea of like making a market 670 00:42:10,600 --> 00:42:13,800 Speaker 1: in the subsidized gas is very funny to me because 671 00:42:14,120 --> 00:42:15,719 Speaker 1: you know, it's like a, right, here's the idea. We 672 00:42:15,800 --> 00:42:18,480 Speaker 1: wanted to just sort of put this ceiling of some 673 00:42:18,560 --> 00:42:22,400 Speaker 1: sort on gas. But of course, economists, you know, I 674 00:42:22,440 --> 00:42:24,680 Speaker 1: think there's a certain type of economistry. His first thought 675 00:42:24,800 --> 00:42:27,239 Speaker 1: is like, great, let's have an auction mechanism for the 676 00:42:27,280 --> 00:42:31,120 Speaker 1: subsidized gas. It immediately goes back to the market mechanism 677 00:42:31,320 --> 00:42:35,440 Speaker 1: for you know, somewhere somewhere is like proposing a Dutch auction. Yeah, exactly. 678 00:42:35,480 --> 00:42:38,640 Speaker 1: It's immediately it's like, well, should should firms be forced 679 00:42:38,640 --> 00:42:40,960 Speaker 1: to actually use the subsidized gas. What if they can 680 00:42:41,120 --> 00:42:43,719 Speaker 1: sell up more profitably to another firm that needs more 681 00:42:43,719 --> 00:42:46,720 Speaker 1: subsidized gas because their margins are higher. It's so funny, 682 00:42:46,760 --> 00:42:48,880 Speaker 1: how like it always like sort of like well like 683 00:42:48,960 --> 00:42:51,479 Speaker 1: seep into these debates. Yeah. The other thing I thought 684 00:42:51,560 --> 00:42:55,759 Speaker 1: was interesting was just the discussion of historical price controls 685 00:42:55,800 --> 00:43:00,280 Speaker 1: and also why you can see prices spike during a 686 00:43:00,320 --> 00:43:05,000 Speaker 1: supply constrained environment. And I know, you know, intuitively it 687 00:43:05,080 --> 00:43:08,879 Speaker 1: seems kind of obvious, but this idea that suddenly everyone 688 00:43:09,040 --> 00:43:12,960 Speaker 1: has pricing power at the same time because of scarcity 689 00:43:13,000 --> 00:43:15,879 Speaker 1: and the thing that they're producing. Like again, I guess 690 00:43:15,920 --> 00:43:20,440 Speaker 1: it's obvious, but it kind of crystallizes that point for me. Yeah, absolutely, 691 00:43:20,480 --> 00:43:23,040 Speaker 1: you know. And also look, and I was really interested 692 00:43:23,080 --> 00:43:25,879 Speaker 1: to hear about how there's still has to be some 693 00:43:26,160 --> 00:43:28,520 Speaker 1: rationing mechanism otherwise what are we doing here? Because the 694 00:43:28,600 --> 00:43:31,879 Speaker 1: issue is there is a fundamental as you said, there's 695 00:43:31,880 --> 00:43:36,360 Speaker 1: a fundamental scarcity of the the natural gas molecules themselves. 696 00:43:36,400 --> 00:43:39,279 Speaker 1: So how do you get that balance where yes, you're 697 00:43:39,760 --> 00:43:44,200 Speaker 1: humiliorating some of the pain, particularly for smaller households, etcetera, 698 00:43:44,440 --> 00:43:48,120 Speaker 1: but also trying to sort of like recreate some sort 699 00:43:48,160 --> 00:43:50,759 Speaker 1: of scarcity mechanism, and it was interesting even that she 700 00:43:50,800 --> 00:43:54,200 Speaker 1: was talking about a utility level data, which is people 701 00:43:54,239 --> 00:43:56,040 Speaker 1: get really anxious about that, and it's come up in 702 00:43:56,080 --> 00:43:59,319 Speaker 1: some of our conversations with Jigger Shaw, for example, about well, 703 00:43:59,360 --> 00:44:01,200 Speaker 1: what if we just had more data about use? But 704 00:44:01,239 --> 00:44:03,880 Speaker 1: then people get really anxious about privacy, so they're just 705 00:44:03,920 --> 00:44:06,160 Speaker 1: sort of all things kind of crazy when you think 706 00:44:06,160 --> 00:44:09,080 Speaker 1: about it, that we're trying to solve these problems without 707 00:44:09,120 --> 00:44:12,319 Speaker 1: necessarily having a lot of granular data or as much 708 00:44:12,360 --> 00:44:15,480 Speaker 1: granular data as we could, right, because if we had 709 00:44:15,480 --> 00:44:17,440 Speaker 1: the data, you think, Okay, well, yeah, like we're not. 710 00:44:17,440 --> 00:44:20,800 Speaker 1: We're not going to give the subsidy to people with pools, 711 00:44:20,840 --> 00:44:23,719 Speaker 1: right because pools aren't as essential. Heating a pool isn't 712 00:44:23,760 --> 00:44:26,680 Speaker 1: as essential as cooking, or heating a pool isn't as 713 00:44:26,719 --> 00:44:29,400 Speaker 1: essential as keeping a house warm. But you know, we 714 00:44:29,440 --> 00:44:31,680 Speaker 1: don't have that data. Shall we leave it there? Let's 715 00:44:31,719 --> 00:44:34,239 Speaker 1: leave it there. Okay. This has been another episode of 716 00:44:34,280 --> 00:44:36,840 Speaker 1: the All Thoughts Podcast. I'm Tracy Alloway. You can follow 717 00:44:36,880 --> 00:44:39,879 Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Wisn't Though. 718 00:44:39,920 --> 00:44:43,120 Speaker 1: You can follow me on Twitter at the Stalwart. Follow 719 00:44:43,160 --> 00:44:47,080 Speaker 1: our guest Isabella Vabor. She's at Isabella M. Vabor. Follow 720 00:44:47,160 --> 00:44:51,160 Speaker 1: our producers Dash Bennett at dashbot and Kermen Rodriguez at 721 00:44:51,239 --> 00:44:54,960 Speaker 1: Carmen Arman, and follow all of our podcasts at Bloomberg 722 00:44:55,040 --> 00:44:59,760 Speaker 1: under the handle at podcasts. And for more odd Lots content, 723 00:45:00,040 --> 00:45:03,000 Speaker 1: check out Bloomberg dot com slash odd louds. Tracy and 724 00:45:03,040 --> 00:45:04,680 Speaker 1: I keep a blog there where we talk a lot 725 00:45:04,719 --> 00:45:07,600 Speaker 1: about these same issues. We post our transcripts, and once 726 00:45:07,640 --> 00:45:10,640 Speaker 1: a week we post a newsletter where we discussed more 727 00:45:10,680 --> 00:45:12,160 Speaker 1: of this stuff. You can sign up for that at 728 00:45:12,200 --> 00:45:15,120 Speaker 1: Bloomberg dot com slash odd Lots. Thanks for listening