The law that requires the economy to shrink
The law that requires the economy to shrink
A bizarre new regulation from the EU commits Germany to in effect shrinking its economy by the end of the decade.
Dear Reader,
Back in March, Olaf Scholz was waxing lyrical about the promised land of “green” technologies that would bring about an economic boom not seen since the Wirtschaftswunder of the 1960s.
Given that Germany is the only major country that actually got poorer over the past twelve months, there has been much mockery of his bold prediction since.
But who said that the crossing to that green, green grass on the other side won’t face stiff headwinds? Sure, the state has just had to bail out Siemens Energy, Germany’s major renewable manufacturer, to the tune of €7.5 billion after its wind division threatened to drag it into ruin. But, perhaps the headwinds missed Siemens’ wind turbines.
There’s just one thing, though. Even if those pastures are as luscious as we’re told, once we get there we won’t be able to gorge ourselves on the fullness of their harvest.
That’s because of a very odd law passed in September that, in effect, commits Germany to rapidly cutting its energy usage.
The Energieeffizienzgesetz (energy efficiency law) set an upper limit on the total amount of energy Germany is allowed to use by the end of this decade. To be precise, the country is allowed to use 1,867 Terawatt hours of energy in the year 2030… and not a watt more.
I searched the small print of the law in vain to see what would happen should we overshoot this target. Will Scholz stand threateningly over a large red button and warn us that, any more frivolousness, and all the lights will go out? Will we at least be provided with free candles and an extra blanket?
Who knows.
What we do know is the effect that such a target will have on German industry. In 2021, Germany used a total of 2,407 TWh of energy. In 2008, that number was 2,544 TWh. That is a drop of six percent in 15 years. The cuts demanded by the new law would mean a drop of 20 percent in just six years.
The Ifo Institute, one of Germany’s three major economic institutes, has calculated what that would mean for future growth. In order to maintain the modest growth figures of the past decade Germany would have to improve energy efficiency savings from the current 1.5% per year to 4% a year.
For this to happen “you would need a miracle,” says Ifo Institute head Clemens Fuest. “The more efficient we become, the harder it is to identify new ways to become efficient, so this acceleration is unrealistic.”
On the other hand, if one were to make the more realistic assumption that efficiency gains will follow recent trends, how much economic growth would be allowed under the new law?
The Ifo Institute’s answer… the economy would need to shrink by 20 percent!
That is such a crazy result that it seems impossible that the government ever expects to actually hit its target.
Indeed, overseeing energy output would require some gargantuan bureaucracy that peers into the production facilities of companies up and down the country. There is no mention of that in the law, which can only lead one to assume that the government has no intention of enforcing the law.
Equally as inexplicable is that the legislation does not discern between CO2-low and CO2-intensive forms of energy production. In other words, in a world in which Germany managed to produce all its energy without releasing any greenhouse gases, it would still be required to slash its overall energy usage. And that is despite the fact that the whole point of the law is to cut green house gas emissions!
Sometimes, you really can’t make it up.
Not tolerated
How many times recently have we heard a company or public institution hanging an employee out to dry by issuing some vague statement along the lines that their opinions “in no way reflect our organisation’s values.”
Often, the employee in question is an academic who has made the cardinal error of citing actual scientific evidence on a highly politicized subject of research.
As standard, the organisation doesn’t dispute the veracity of the claims but instead implies that mentioning them contradicts a deeply held commitment to “tolerance.”
Well, just such a lazy attempt at equivocation by Berlin’s Humboldt University (HU) fell flat on its face this week, after a city court ordered it to retract the statement about its postdoc researcher Marie-Luise Vollbrecht.
A biologist by training, Vollbrecht had co-authored an article in Die Welt newspaper that accused Germany’s public broadcasters of spreading misinformation about the scientific facts on sex. That led the student union to try and shut down a lecture she was due to hold under the title “sex, gender and why there are two sexes in biology.”
The university buckled under the pressure and released a press release explaining that the talk had been canceled because the opinions expressed in the Die Welt article “are not in line with HU's mission statement and the values it represents.”
Ms. Vollbrecht responded by taking her employer to court on account of reputational damage… and she won.
The judges’ ruling stated that a public institution cannot make “pejorative” statements about one of its employees that “lack a viable factual basis.”
The ruling explained: “It is not clear from the press release which opinions of the applicant (Ms. Vollbrecht) the respondent (the university) is specifically referring to and which values or elements of its mission statement it considers to have been breached.”
In other words, universities will have to rely on fact rather than insinuation in the future. One wonders what they were ever set up for.
Simple maths?
The OECD released its quadrennial PISA report into the academic abilities of school children around the world this week. And German school children did terribly.
In all three categories of maths, reading, and science, standards plummeted, leaving Germany well behind the east Asian states that lead the pack. In comparison with the last report in 2018, German school pupils are lagging roughly nine months behind in their development.
The German press have been wringing their hands over the news for days. Are teachers paid too little? Are top grades handed out too easily? Should we be forcing children to stay in school all day?
Here’s a simple calculation for them: what do you get if you add the time schools were shut down (six months) to half the time they were in "hybrid learning" (six months) during Covid? A PISA pass to the winner.
On the upside, the OECD estimates that the future cost of this collapse in academic achievement is only around €7.5 trillion. But remember folks, when the next virus comes around, mentioning phrases like “cost-benefit” could well make you one of those dreaded “Covid deniers”.
Enjoy your weekend and please forward this email to friends and colleagues!
Jörg Luyken