The German government, led by Chancellor Olaf Scholz, seems in near panic now after a court ruling disallowed a proposed reallocation of € 60 billion (roughly $66 billion) in unused COVID funds for more green subsidies. Reuters reports Scholz and his ministers reacted by freezing proposals for new spending on programs to help the country’s struggling industrial sector.
German industries have been hit by rapidly rising energy costs caused by the double whammy of disruptions due to Russia’s war on Ukraine, combined with government green energy mandates. The Scholz government, led by Greens Party economy minister Robert Habeck, had established a € 200 billion Climate and Transformation Fund designed to subsidize businesses as they’ve struggled through the pandemic and forced energy transition. But largesse spending from the fund was suspended following the court’s ruling.
Habeck says The Climate and Transformation Fund was designed to ensure value creation and jobs, as quoted by Reuters. “It will be used to finance the production of green steel, green chemicals, the ramp-up of hydrogen, battery cell production, and also semiconductor production to strengthen economic security,” he said. “If this is at risk, jobs and value creation are at risk. The exodus of industry is damaging our country and society.”
Part of what we’re seeing here, of course, is the hazard of government activist central planners trying to overrule the market through subsidies and mandates, all funded through debt spending. Green steel, green chemicals, green hydrogen, green batteries and semiconductors and cars, and those lovely 500 ft. high windmills with 20% efficiency factors now covering the land formerly occupied by that nasty historic Black Forest — how could anyone doubt a plan to subsidize all that into existence with government spending would be wildly successful?
After all, the computer models all said it would all work out, so long as the modeling inputs were appropriately biased.
Unfortunately, the governments of the U.S., Canada, the UK, and most of the rest of the western world have been salted with the poison of hubris-filled central planners who view Habeck’s thinking not as a ruinous threat to be avoided, but as a role model to be followed. Not surprisingly, similar results are starting to pop up in those other countries.
In the U.S., the negative consequences of all this central industrial planning are mainly showing themselves in the offshore wind and auto industries. The Biden administration’s lofty goals for the expansion of wind farms off the Atlantic coast appear to be crumbling, with recent major asset write downs by several developers, and Orsted’s cancellation of two planned projects offshore New Jersey.
The wind sector in general finds itself struggling financially, leading to demands for higher subsidies from the federal and state governments, more and more of which are being rejected.
The auto industry, whose leading companies like Ford and GM eagerly bought into the Biden administration’s subsidy-and-mandate siren song starting in 2021, similarly finds itself struggling as consumer interest in buying electric vehicles has plateaued in recent months.
The Wall Street Journal reports that sales of EVs have now held steady at around 100,000 units per month in the U.S. for the past half-year, leading to a piling-up of inventory at factories and on dealer lots. Companies have responded to the waning sales by cutting prices, often to below cost, in an effort to draw down that inventory.
That tactic having failed, companies have more recently announced delays in major capital investments in new EV plant and equipment and have begun delaying and even cancelling outright some proposed new model lines. Even Elon Musk said on a recent earnings call that Tesla might also have to delay its own expansion plans.
The waning consumer interest in adopting EVs, if it continues, would be potentially catastrophic for these automakers which have already invested billions in building plants to manufacture the new vehicles preferred by the central planners. But the problem with central planning remains as it always has been, which is that you always run out of other people’s money, or simply the political will to continue throwing good money after bad ideas.
It appears that Germany’s government is now reaching that point. It would be nice if America’s central planners would take a step back and effort to avoid sentencing us all to a similar fate.
David Blackmon on November 22, 2023