The stupidity of the German ideology will come back to haunt them

There was an interesting article in the Financial Times last week (August 29, 2013) – The German miracle is now running out of road – about the myopia of policy settings in Germany. The FT author was Sebastian Dullien, who has been consistently presenting the case that Germany is not a role model for the rest of Europe to follow. For example, see – A German model for Europe?. He notes that by targetting a budget surplus in a period of fiscal austerity, the Germans are undermining the very factors which made their manufacturing sector some strong. Their public investment in education and infrastructure is now lagging so much that the costs of business are rising in Germany and the long-term consequences of this are likely to be very damaging. The stupidity of the German ideology will come back to haunt them.

Sebastian Dullien argues that “(t)he country’s foundations for doing business are deteriorating” and while the economic data is the envy of Europe at present, the German underbelly is not so attractive.

The principal driver of Germany’s economic growth – its manufacturing sector – is under pressure.

Its export markets are slowing (mainly China) and its pre-crisis Hartz reforms that drove down wages and suppressed the capacity of German workers to maintain strong domestic spending is now becoming counter-productive.

First, the reforms undermined competitiveness in the other Euro-nations and stimulated German exports. But in doing so, they generated, in part, the conditions that have exacerbated the crash in Southern Europe.

Second, the harsh austerity that has been imposed on the formerly non-competitive Southern nations has led to a dramatic collapse of the prevailing wages in those nations (see below) which now means that Germany no longer looks as competitive in trade.

Third, “the foundations for doing business in Germany are deteriorating, increasing costs for companies and making flexibility more difficult”.

What factors are important here?

Sebastian Dullien says that, for example:

Public spending on education and on research and development as a share of output might not be as dismal as in Italy, but after severe cuts from the mid-1990s onwards, it now trails behind a number of countries that belong to the OECD, the Paris-based club of mostly rich nations, such as Austria, Finland and France. For roughly a decade now, public investment has been lower than the depreciation of public capital.

The OECD publication – Education at a Glance 2012 Highlights – shows that Germany has barely increased its share of national income devoted to spending on educational institutions between 2000 and 2009 and is well below the OECD average in 2009 for both primary, secondary and post-secondary non-tertiary education and tertiary education.

We also learn (Page 49) that the share of public spending on education in total public spending has not changed between 2000 and 2009 although public spending on education as a percentage of GDP has risen somewhat over the same period, although less than most other nations.

In 1995, Germany devoted 8.6 per cent of total public spending to education. This rose to 10.1 per cent in 2000 and 8 years later was still at 10.4 per cent (against the OECD average in 2008 of 12.9 per cent).

Further, between 2000 and 2008, as the neo-liberal vice was tightening on Germany, public spending on education as a share of GDP was unchanged.

The related data for private expenditure (Page 51) shows that Germany is well below the OECD average and private spending has barely changed as a share of total private spending.

On Page 83, we learn that Germany has one of the lowest rates of upward mobility between generations from education (as at 2009) and one of the highest rates of downward mobility.

Euronews carried a story (August 27, 2013) – Germany’s Lower Saxony seeks help over “modern slavery” – which details the conditions for migrant workers in Germany.

The OECD found in the publication – Education at a Glance 2012 – that Germany performs the worst of the OECD nations in terms of integration immigrant students in schools. Concentrated educational disadvantage is prominent in Germany.

Further, cutbacks in education and other public infrastructure funding take time to manifest in practical consequences.

Sebastian Dullien notes that:

After the investment boom following reunification in the early 1990s, infrastructure was in a relatively good state. But potholes are increasingly evident on the roads. The recent flooding led to the most important main artery in train traffic from Berlin to the west of the country being closed for the rest of the year, more than doubling the travel time from the capital to Volkswagen’s headquarters in Wolfsburg.

Other examples include an “increasing number of bridges” not open to “heavy loads” making lengthy detours necessary.

All of which is making “production in Germany increasingly difficult and expensive, and the economic data have begun to reflect this”. While the Germans are trying to relocate their plants to the states to the east of them, we learn that “(p)roductivity measured in output per working hour is now roughly at the level of 2007; such stagnation has not been observed here since the second world war”.

Why are government cutting their commitment to education?

In this OECD briefing note – What Is the Total Public Spending on Education? – we read (Pag:

Since the second half of the 1990s, and especially in the aftermath of the recent financial and economic crisis, most countries have made serious efforts to consolidate public budgets. Education has to compete with a wide range of other government-funded areas for available public resources.

As I have noted in the past, education is one of the first casualties in myopic efforts to restrict government spending and run surpluses. And it should never been seen as an appropriate vehicle for fiscal austerity, even if such austerity was warranted in the face of a major inflation outbreak.

Educational investments are about the long-term – given it takes years to graduate a skilled-worker from inception.

There are two aspects to the European problem. First, the design of the Eurozone means that the member states are like state governments in a sovereign federal system (such as the US or Australia) and all use a foreign currency. They have no monetary autonomy.

In that sort of environment, the federal body (in this case, the ECB) has to fund appropriate budget deficits which are scaled by the size of the private output gap. That is not happening in Europe., which is why the region is in crisis still.

Second, the broader problem is neo-liberalism.

The idea that it is necessary for a government, which has currency sovereignty, to stockpile financial resources to ensure it can provide services required for, say, an ageing population in the years to come, has no application. It is not only invalid to construct the problem as one being the subject of a financial constraint but even if such a stockpile was successfully stored away in a vault somewhere there would be still no guarantee that there would be available real resources in the future.

Discussions about “war chests” completely misunderstand the options available to a sovereign government in a fiat currency economy.

The best thing governments can do now is to maximise incomes in the economy by ensuring there is full employment. This requires a vastly different approach to fiscal and monetary policy than is currently being practised.

Third, if there are sufficient real resources available in the future then their distribution between competing needs will become a political decision which economists have little to add.

Long-run economic growth that is also environmentally sustainable will be the single most important determinant of sustaining real goods and services for the population in the future.

Principal determinants of long-term growth include the quality and quantity of capital (which increases productivity and allows for higher incomes to be paid) that workers operate with. Strong investment underpins capital formation and depends on the amount of real GDP that is privately saved and ploughed back into infrastructure and capital equipment.

Public investment is very significant in establishing complementary infrastructure upon which private investment can deliver returns. A policy environment that stimulates high levels of real capital formation in both the public and private sectors will engender strong economic growth.

If we adequately fund our public universities to conduct more research which will reduce the real resource costs of health care in the future (via discovery) and further improve labour productivity then the real burden on the economy will not be anything like the scenarios being outlined in the “doomsday” reports. But then these reports are really just smokescreens to justify the neo-liberal pursuit of budget surpluses.

Germany might think it is immune from these imperatives but it will learn the hard way that it is not.

Sebastian Dullien says that Germany should increase public investment now and run deficits. He doesn’t challenge the idiocy of the fiscal compact that is choking Europe but still claims there is “wiggle room” for larger structural deficits.

But he notes that:

Instead of using these funds for infrastructure investment, the government plans to run a small but growing surplus in the coming years … [under the guise] … of so-called fiscal responsibility.

If they follow through with their promises, this might lead to the very outcome they promise to prevent: the burdening of future generations. After all, a few percentage points of less government debt cannot buy the benefits of a world-leading manufacturing sector.

The neo-liberal approach habit of shooting itself in the foot. They deregulated markets on the premise that there will be more efficient and self-regulating – and thus deliver maximal outcomes for all.

What we observed was a spectacular market failure driven by greed and dishonesty of those with market power.

They argue that wage cuts will generate full employment but what we have observed is increased poverty rates and sky-rocketing rocketing unemployment.

They argued that massive cuts in government spending would reduce deficits and public debt and what we have observed are increased deficits and rising debt levels in many nations subjected to fiscal consolidation.

As the author notes, by pursuing policies Allegedly to reduce the burden on future generations the targets of the fiscal cuts are the very areas of spending which deliver advantage and benefit to the adults of the future.

The neo-liberal approach considers it “necessary” to ensure that, in some cases, more than 60 per cent of youth of a nation’s youth who have left school are unemployed.

What will the future of those “kids” be?

There was an interesting OECD study published in 2000 – The Impact of Public R&D Expenditure on Business R&D – which attempted “to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades”.

It noted that several arguments are used to question “the effectiveness of the policies aiming at stimulating private R&D outlays”. I use “question” in the context of disappearing as us of any notion that public spending might be effective in this regard.

The paper lists three mainstream economic arguments against public spending on R&D.

1. “government spending may crowd out private money, by increasing the demand, hence the cost, of R&D”. The argument is that government funding just increases in wages of researchers, which drives up the cost of R&D and leads to private firms reallocating funding elsewhere leaving a smaller pool of R&D funding of “lesser economic efficiency”. This is a standard type argument by those that eschew government spending ( Unless of course they are the ones getting the funding).

2. “public money directly displaces private funding” – with no net gains.

3. “government funds, being allocated to projects in a less efficient way than market forces would do, generate distortions in the allocation of resources between the various fields of research”. This is the standard mainstream argument that markets are rational and deliver optimal allocations of resources. The corollary is that government (regulative) allocations are inferior. Been there done that!

After a detailed study, the major findings of the paper reject all three arguments. The authors find that:

1. “Direct government funding of business R&D and tax breaks has a positive impact on business spending in R&D” – that is, it brings multiplied benefits.

2. “The effect of public funding is more long-lived than that of tax incentives”. There is a long held belief among conservatives that tax hikes are much more damaging than cuts in government spending and that tax cuts (or other tax breaks) are much more stimulative than increased government spending.

In the current climate, this leads to the dominance of expenditure cuts over tax hikes in so-called fiscal consolidation efforts. The evidence does not support the mainstream view and this example of the contrast is indicating that lack of evidential support.

3. “These two policy tools are more effective when stable over time” – so cutting programs for sham political purposes (to reign in deficits) is very damaging.

4. While public research spending reduces “business-funded R&D” but “publicly produced knowledge may result in technology that is used by business while not inducing it to increase its research expenditure. Moreover, it is not the major purpose of government laboratories to produce knowledge for the business sector.

There was another article in the London Review of Books (August 29, 2013) – Vanity and Venality- – by Susan Watkins, which tells us, in no uncertain terms, what the iron policy fist that the Germans have imposed on the Southern European states has done down there.

We read that:

A new authority, the Troika, is policing the countries that got themselves into trouble; governments are constitutionally bound to the principles of good housekeeping … Seen from the besieged parliaments of Athens and Madrid, from the shuttered shops and boarded-up homes in Lisbon and Dublin, the single currency has turned into a monetary choke-lead, forcing a swathe of economies – more than half the Eurozone’s population – into perpetual recession. The Greek economy has shrunk by a fifth, wages have fallen by 50 per cent and two-thirds of the young are out of work. In Spain, it is now commonplace for three generations to survive on a single salary or a grandparent’s pension; unemployment is running at 26 per cent, wages go unpaid and the rate for casual labour is down to €2 an hour. Italy has been in recession for the past two years, after a decade of economic stagnation, and 42 per cent of the young are without a job. In Portugal, tens of thousands of small family businesses, the backbone of the economy, have shut down; more than half of those out of work are not entitled to unemployment benefits. As in Ireland, the twentysomethings are looking for work abroad, a return to the patterns of emigration that helped lock their countries into conservatism and underdevelopment for so long.

Okay.

I guess it is only reasonable that the German stupidity, as it has in other historical epochs, comes back to haunt their own nation.

But how we see these obvious facts is not straightforward. In this vein, I have been reading the work of – George Lakoff – recently and been pondering over the implications of this “Metaphor Thesis” (outlined in his 1980 book Metaphors We Live By) for the development of Modern Monetary Theory (MMT).

George Lakoff has made an academic career out of studying “how brains work and how language affects politics”.

His argument, presented, for example in this article (December 10, 2010) – Untellable Truths – tells us that underlying matters of fact is what really matters:

… what is being ignored is that the answer to material policy questions depends on how Americans understand the issues, that is, on how the issues are realized in the brains of our citizens. Such understanding is what determines political support or lack of it in all its forms, from voting to donations to political pressure to what is said in the media.

The central learning conclusion is that we have to be careful not to use language that we think is progressive but which just “activates the conservative view” of the issue at stake and leads to “(t)he progressives … helping the conservatives”.

But, for example, saying that “wages have fallen by 50 per cent” in Greece – isn’t that bad, just triggers the conservative view that they were too high and finally those fat, lazy Greeks are getting paid what they contribute.

And saying the 2/3rds of Spanish youth are out of work just prompts the response that any support to them is just “money the government takes out of the pockets of people who have earned it in order to give it to people who haven’t earned it and don’t deserve it”.

In other words, there has to be more than meagre indignant recital of facts.

I will write more about what I think of all this in due course.

Conclusion

History isn’t kind to our view of Germany and the ideology that infests its ruling elite and is, seemingly shared by the population. Once again they are spearheading a political position that not only pushes significant and damaging intervention in the affairs of other neighbouring nations but also is likely to back-fire and damage itself.

By being obsessed with the inflation of the Weimar years they have forgotten what happened the following decade.

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.

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24 Responses to The stupidity of the German ideology will come back to haunt them

  1. James Schipper says:

    Dear Bill

    Percentages of GDP are always crude indicators, for various reasons. Age structure is one of them. If Ruritania has 7% of its population over 64 and 50% of its population under 25 while Slobodia has 21% of its population over 64 and 25% of its population under 25, then we would expect that Ruritania spends a higher percentage of its GDP on education than Slobodia and that Slobodia spends a higher percentage of its GDP on old age security. Very well, Germany’s population has been aging. It may therefore not be surprising if the German share of GDP that goes to education is not very high. We should look at expenditure per pupil, although even that is a somewhat crude indicator because it includes the cost of building new schools. In a country like Germany there is no need to build new schools because the student population is not increasing.

    Let’s tell a little story. Peter has an annual income of 200,000 and spends 8,000 on weaponry per year, which is 4% of his income. Paul’s annual income is 25,000, of which he spends 2,000 on weaponry, which is 8%. It would be absurd for Peter to say that Paul is more militarized than he is because Paul’s share of income spent on weaponry is twice as high as Peter’s. The fact remains that Peter acquires 4 times more weaponry each year than Paul does. We should look at results, not at shares of GDP.

    Regards. James

  2. Alex Hanin says:

    For those of you who read French, I highly recommend the fantastic book by Guillaume Duval “Made in Germany” (yes, the title is in English, but the book is written in French and as far as I know no translation is available).

  3. Daniel D says:

    James Schipper says:

    Let’s tell a little story. Peter has an annual income of 200,000 and spends 8,000 on weaponry per year, which is 4% of his income. Paul’s annual income is 25,000, of which he spends 2,000 on weaponry, which is 8%. It would be absurd for Peter to say that Paul is more militarized than he is because Paul’s share of income spent on weaponry is twice as high as Peter’s. The fact remains that Peter acquires 4 times more weaponry each year than Paul does. We should look at results, not at shares of GDP.

    Pardon me for being persnickety, but, does it necessarily follow that Peter acquires 4 times more weaponry than Paul does?

    Peter may have purchased a tank, while Paul purchased an anti-tank missile and destroyed Peter’s tank. I would think the only conclusion that can be arrived at, without further information, is that Peter spent 4 times the amount of Paul.

    Which when I ponder this further, I see your point regarding looking at the results.

    Somewhat analogous to the amount of health-care dollars spent in the United States, whether measured, per individual or as a % of GDP, compared to other industrialized nations?

  4. The Dork of Cork. says:

    “After the investment boom following reunification in the early 1990s, infrastructure was in a relatively good state. But potholes are increasingly evident on the roads. The recent flooding led to the most important main artery in train traffic from Berlin to the west of the country being closed for the rest of the year, more than doubling the travel time from the capital to Volkswagen’s headquarters in Wolfsburg.

    Other examples include an “increasing number of bridges” not open to “heavy loads” making lengthy detours necessary.”

    We have witnessed the failure of the European and in particular German entrepot , the Germans have succeeded in externalizing the loses so far but the defective system is integrated regardless.

    The above road infrastructure would only reach capacity if the entrepot continues , however the entrepot cannot continue without stripping off further pieces of the peripheral pie to feed German industry which orbits around feeding high end consumer products to the financial centers.

    The essential physical problem of the European economy is a drive for efficiency …….this is expressed financially through leverage.
    Germany is a super efficient product – however its shacky foundations are based on top of declining primary industry.
    It will continue until it cannot.
    Germany is a model pupil of the banks which require scarcity to extract rental flows….Germany is simply the last country standing to supply the people who make profits from this scarcity.
    Germany is a nothing.

    These are the words of the scarcity merchants….the IEA.

    “Energy policy decisions in Germany inevitably have an impact beyond the country’s borders and must be taken within the context of a broader European energy policy framework and in close consultation with its neighbours. ”
    A master of understatement as always………

  5. The Dork of Cork. says:

    You can see this quite clearly in its relationship with the UK ( a country with the most financial claims)

    The UK trade deficit with Germany is growing.
    This is obviously the loads of money crowd spending it on the 21st century equivalent of the white Porsche 911.
    £ Billion
    2011 Q2 : 4,336
    2012 Q2 : 5,166
    2013 Q2 : 6,780 (I believe this is a record Quarterly deficit…surprise surprise.)

    However all the Porsches in the world (secondary production) will not stop the expanding entropy within the system , this will of course accelerate entropy as less and less resources are put into primary industry. (nuclear power for example)

  6. James Schipper says:

    Dear Daniel D

    Nothing wrong with being persnickety. You are making a valid point by saying that we should also look at what things money is spent on. Let’s pursue this topic a bit. There are expenditures on goods and services. Often the price of services goes up as per capita income rises because services often contain mainly labor, and labor becomes more expensive as a country becomes richer. In a rich country, the average person has to work about 1/2 hour for a simple haircut. In a poor country, it is the same. OTH, in a rich country, people have to work far less to purchase a pair of shoes than in a poor country. The implication of this is that a rich country can obtain the same per capita amount of certain goods as a poor country while spending a smaller percentage of its GDP, just as a high-income person can eat just as well as a low-income person by spending a smaller fraction of his income on food than the low-income person.

    A rich country needs to spend a smaller share of GDP on health care than a poor country to obtain the same results because part of health care costs consist of goods. Let’s illustrate this. We take Ruritania and Slobodia again. Both countries have 2000 inhabitants. In both countries, there are 5 doctors and 20 nurses. Ruritania’s per capita GDP is 10,000 and Slobodia’s is 40,000. We assume that a doctor makes 4 times the per capita income of his country and a nurse twice that amount. As a result, Ruritania has to spend 600,000 on medical services, which is 3% of its GDP. Slobodia has to spend 2,400,000 on medical services, which is also 3% of its GDP.

    So much for the services part. In addition, both countries spend 800 dollars per capita on medical goods per year. If we assume, plausibly, that medical goods have the same price in both countries, then Ruritania spends 8% of its GDP on medical goods and Slobodia only 2%, even though both countries obtain the same per capita quantity of medical goods. Total medical expenditures in Ruritania are 11% of GDP while in Slobodia they are only 5%. Conclusion: a rich country can obtain just as much health care per capita as a poorer one while spending a smaller fraction of its GDP on health care.

    As a rule, we should only compare countries with broadly similar GDP per capita. For instance, comparing India’s rate of economy growth with Japan’s doesn’t make any sense. India HAS to grow faster to catch up. The same applies to investment. Obviously, a poor country has to invest a higher share of its GDP than a rich country because the rich country already has accumulated a lot of capital.

    Regards. James

  7. Keith Newman says:

    For Alex Hanin:
    Could you tell us what is ‘Made in Germany’ about and why is it so good?
    Thanks,
    Keith Newman

  8. James Schipper says:

    Dear Keith

    The complete title is Made In Germany Le Modèle Allemand au-delà des Mythes. According to http://www.amazon.fr, the book tries to demonstrate that Germany’s economic success has nothing to do with the recent neo-liberal reforms but are due to certain characteristics of Germany such as a workplace where a diploma isn’t everything and shareholders who don’t dominate a company. The author argues that the tradition strengths of Germany are actually undermined by the reforms initiated by Schröder. He says that Germany’s strengths can’t just be copied by France while Germany’s neo-liberal policies shouldn’t be imitated.

    Regards. James

  9. Podargus says:

    Germany has a history of being a problem for its neighbours since the time of Bismarck who was something of a weird character in his own right.
    Of course it all rebounded on Germany but have thay learnt anything?

    Lest we forget,the sort of mindset which plagued Germany ( and maybe still does ) is also very much in evidence elsewhere.

  10. SteveK9 says:

    Germany’s attempt to abandon nuclear power, and rely instead on wind and solar is also going to prove very damaging. This is another policy driven by ideology, not reason. Energy costs are rising rapidly. An amusing quote from Jurgen Grossman (former CEO of RWE): ‘Solar in Germany makes as much sense as growing pineapples in Alaska.

    The outputs touted by solar/wind enthusiasts are always some peak value that happened for 15 minutes when the sun was shining and the wind was blowing. Capacity utilization of wind is around 25%, for solar in Germany it is under 10%. In the meantime the subsidies for wind/solar and the rules which force utilities to take the power, whenever it is available, are wrecking the economics of the fossil and nuclear plants. Imagine the wind is blowing like mad for an hour, you have to take the power, so you cycle down, curtail, whatever, your coal, gas, nuclear plants … that machinery does not like being jerked up and down constantly. These baseload plants are designed to run at full power 24/7. The CEO of E.ON (Germany’s largest utility) recently threatened to move the company to Turkey (OK, only a threat, but you get an idea of his feeling).

    Another result of shutting down the 8 nuclear plants? Germany is completing construction of a 2GW brown coal plant, the dirtiest, most environmentally-damaging source of energy production (well, tar sands are in the running as well). Coal burning kills thousands every year. Nuclear in Germany … zero, in all the years it has been operating.

  11. Robert Börnig says:

    Hey Steve,

    while I have to admit that these problems exist and agree with you that the drive towards renewable energy is posing new challenges to the energy sector, I must oppose your analysis that our nuclear plants should have been kept online. Well, first of all you have to know that we haven´t yet shut down all nuclear power plants, but only the oldest reactors approaching 35 years of operation. As of yet, there are still several nuclear reactors operational, with their shutdown scheduled between 2015 and 2022.
    Three reactors of the eight reactors that where shut down would have been taken off the grid already according to the law made in 2002 that was later canceled by Merkels Government.

    The German publich as always been very critical of nuclear power. Not sure why, maybe because we are risk-averse in this regard, maybe because Germany has been under constant threat to become a nuclear battlefield for over 40 years during the Cold War. Maybe because our population density is much higher than in the US, or even double that of France. A nuclear disaster in one of the German nuclear powerplants, like it happened in Fukushima or Chernobyl, would affect millions – or relatively speaking, a very large share of our population, depending on which plant you´re planning to blow up in a simulation ;) – Speaking of Chernobyl… this desaster, while far away for any American, Australian, etc. has had a significant impact in Europe, at least psychologically.

    But in the end, I´m not only opposing nuclear power because of the risks posed by an accident – but on economic reasons as well. The claim that nuclear power is cheap is only true if you ignore all the hidden cost and risks that accompany this technology. Nuclear Power is getting shitloads of subsidies – ranging from state guarantees for new plants all over the world, subsidies for research and development and finally the cost of transportation and storage for nuclear waste. Speaking of which, nobody knows how to store that stuff safely for the next ten-thousand years. Already, too much damage is done – why do we keep producing this extremely hazardous material? At least Ten thousand years storage time to keep it safe. Can you even imagine how much time that is? 10.000 years ago, mankind was merely beginning to master agriculture and husbandry! We regard Egypt or Babylon, some of the most ancient civilzations on earth as something very very old – but they´re just roughly 5000-6000 years old, roughly half of what we need to safely store radioactive material.
    Already, very intelligent people are thinking of ways to mark the storage sites for future generations who might not remember our languages and recognize our symbols. But finding a physically safe storage is a challenge on its own, and future generations will have to pay with their hard labour and maybe even their health for the problems we create today. One of the German underground waste storages (the “Asse”), built in the 80s, which is merely 30 years old, is already getting flooded with barrels full of radioactive material rusting in the salty water. To ensure that nothing bad happens with that stuff, we´ll have to exvacate all of it and relocate it into a safer storage – after just 30 years! Do you think that these costs where ever factored into the energy price for nuclear power back in the 80s?

    What about insurance? Who is paying for the damage in case of a nuclear accident, however remote chance such an event has to happen? You can see it live and in color on the example of Fukushima – power company gets bailed out by the state after enjoying decades of enormous profits generated by risky business. You wouldn´t regard your neighbor lighting his house with candles without a proper fire insurance a very clever practice, even if it saves him the cost of electricity – but nuclear power companys get a free option – if everything goes right, cash if flowing in, if everything goes wrong, government´s gonna bail ye out!

    I could go on, but for the last part of my comment I want to focus on the benefit of the renewable energy policy that Germany and some other countries have been pursuing. Within 10 years since the inception of the new law, Germanys share of renewable electricity generation has gone from ~5% to 20%. Until the 2009, this has increased the cost of electricity by roughly 2 cent for the consumer. Afterwards, we have seen some political dabbling by our lovely government, which has increased this sum to ~5ct by exempting energy intensive industries from their share of the cost for renewables and later on even the cost for transmission through the electricity grid.
    All the while, the feed-in-tariff for electricity generation of renewable energy has decreased severely in line with production cost:
    For Solar Energy, feed-in-tariff decreased from ~50ct in 2002 for 10-15ct per kWh in 2013 (depending on size and type of installation). Factoring in all external cost of fossil fuels, we are getting very very close to the point where solar power is more viable than fossil fuels – IN GERMANY! [for comparison: as a customer, I pay ~25ct for 1 kWh of electricity right now. It would be more viable to place a solar module on my roof and use the energy for myself than taking off the grid, unfortunately that won´t be enought to cover my demand ;)]
    Similar story for wind energy – cost of production for electricity has now reached ~8ct per kWh, which is already competitive with fossil fuels.
    Efficiency of solar panels is soon about to reach 25% for commercially produced modules due to innovation and R&D in this sector. We wouldn´t have seen such a development if it wasn´t for the feed-in-tariffs creating demand for this type of generation.

    Yes, we are facing problems in adapting our grid and rebuilding our electricity sector. But with the right management, we can handle these problems and create an electricity sector that is a lot more friendly to both environment and humans, we will be less dependend on external sources of energy and maybe we´ll even be able to produce power more cheaply than ever before if technological development continues in the current pace.

    In the end, it´s all about investment in our future, just like Bills post said – making this effort today will make us stronger tomorrow. Looking for the lowest-cost option today is only rational to the point where you start ignoring the future.

  12. The Dork of Cork. says:

    @Robert
    New Nuclear power was effectively stopped in Europe sometime around 1986 ~
    The reason was not Chernobyl , that was the excuse.

    The eurosystem was forming at this stage.
    This was the banking system scaling up beyond national borders.

    What this meant in reality was that internal goods with high labour input ( Nuclear has a high labour input to maintain initially capital intensive systems) became expensive while external goods (oil & gas for example cheap relative to cash flow)
    With the eurosystem collapse both internal & external goods & power became expensive (or unavailable) relative to cash flow …cue full scale breakdown crisis.

    Its OK to be against Nuclear power if you feel your country needs to become pre industrial.
    Although this has obvious problems given your pop density and expected movement of people to Germany within a banking system of euro scale.
    I recognize Germany is the junior “partner” in all this with your expected role to supply both internal & external financial centers with luxury goods but you cannot have it both ways.

    Existing German energy policy is to transmit a massive energy shock to the rest of the eurozone and expect us to pick up the tab.
    You should exit the eurozone immediately and engage in your own domestic polices suited to your needs and or wishes.
    The Green energy industry is a paradox.
    Only local commerce can be sustainable without fossil fuels or nuclear but the green “industry” operates on a trans global corporate scale.
    Can you see how funny but sick the whole process truly is ?
    You are either Industrial or you are not.

  13. Robert Börnig says:

    Duke,

    I don´t quite get the link between Non-Nuclear = Non-Industrial. It´s true that many industrial countries have utilized nuclear power at some point, but I´m quite certain that nuclear power is no prerequisite to a countries industry to function. From this definition I´d otherwise conclude that you don´t regard Australia as an industrial country?

    What is true is that you probably cannot fuel an industrial society by 100% green energy. This is not what my post was about. I´m sure we will be dependend on oil, coal and gas for quite some time. I´ve been solely talking about electricity. Electricity CAN be produced using renewable sources and renewable sources CAN supply enough energy to provide electricity for even such countries as Germany – and soon it will become competitive to fossil fuels for this purpose.
    Of course, we will not be able to satisfy our primary energy demand solely by green energy. This is far from realistic at current technology levels and will probably be so for quite some time.

    However, I don´t see how a country cannot stay industrial when switching its electricity supply to green sources for roughly the same production cost of electrical energy than before, once we solved the technical problems regarding transmission & possibly storage, especially if we are able to combine this with a drive for efficiency which would reduce the actual demand for electricity? Your reasoning on this point is beyond me.

  14. The Dork of Cork. says:

    I am sorry but the numbers don’t lie.

    Solar at 50 degree ~ lat in a temperate (cloudy) climate is a form of strange eco – madness.
    Remember these are not basic and simple village endeavours such as the previous & successful Chinese village practice of turning shit into local gas.
    These enterprises operate on a much larger Industrial scale but cannot produce the required energy density period.
    Solar barely registers on the German TPES for obvious reasons.
    It does not work very well despite the large inputs cost.

    Nuclear requires a massive initial capital input but afterwards requires labour to maintain the systems…. labour is not a problem in Europe…………the difference with Nuclear is that it produces a vast amount of power.
    This reduces scarcity…….the financial capitals cannot sustain themselves in a system without scarcity …..something is obviously very wrong with the structure of commerce in Europe.

    This website prevents me from adding links but the IEA German TPES chart from 2011 barely registers solar on the diagram – its certainly less then 1% of total TPES.

  15. hanns says:

    Why do the Germans in masses vote for policies (i.e. political parties) which bereave them? There are now roughly a fifth of the working population in G. working in the low-paid sector having to draw on additional social benefits, the infamous workfare sector. There are also lots of pensioners who suffered from the many, many pension cuts (called “reforms”) in the last 17 years. There are many public sector workers who suffered cuts in real wage during the last ten years (there has been a large overhaul of the labour-agreement which resulted in numerous hidden cuts on top) and a de-facto distruction of their addiditional pension scheme. There are many families who do not longe benefit from subventions for owner-occupied property. And there are 8 from 10 wage earners who suffered losses in real wage during the last 20 years.
    One should think that there should be a massive potential for a political alternative. But alas, there isn’t. A powerful economical elite with a network of business associations, think tanks, foundations, dubious or faked right wing civic movements (German tea-parties) and ouvert propaganda organizations like the so called “Initiative for a modernized social market economy”, (not to forget the horrible Bundesbank), with large influence over the political class and the media, will prevent a landslide in public opinion by all means. They worked very hard to get Germany into the mire it is in now, and as the former chief economist of Deutsche Bank, Thomas Mayer, explained at the peak of the crisis 2009, confronted with claims for a higher internal demand in Germany: “We worked hard to convert Germany into the most competitive economy of the world, and we won’t allow that to be destroyed now”. Almost all political parties, except the rather small “Left Party”, which is treated like lazar by the media and most institutions, are nowadays infested by the neoliberal pestilence. The oldest and once biggest social democratic party of the world the SPD converted (fully) under Schröder to that crackbrained religion, which roughly halved its electorate. And there isn’t any hope for a change.

  16. The Dork of Cork. says:

    A Industrial country requires energy dense systems.
    Local “Green” systems can only operate on the local scale as the energy from each unit is very small.
    Therefore local industrial systems are non industrial by definition

    You seem to display basic ignorance of Industrial & political geographical development beginning lets say when the lowlands and later England began sucking in goods from the New world & new wastelands created as Ireland & Scotland was cleared – this began to start proto industrial activities from the surplus provided.
    Its how the debt system works baby.

  17. Robert Börnig says:

    You are right on the fact that is has a very small share as we speak. It´s also true that we cannot produce solar power with the same efficiency as southern Europe, the sahara or american powerplants in new mexico or texas. However, Solar power is experiencing a huge growth and is quickly closing the price gap it has, even in a country with relatively small solar radiation like Germany.
    All that matters in the end is how expensive the product is – and solar power is not that expensive anymore when compared to the other alternatives. It´s fluctuating and not always available – that´s the most difficult problem to tackle. But apart from that, with further reductions in cost, it will experience further growth.

    You´re talking about large input costs / capital investments for solar power and how that compares to nuclear power. Truth is, these cost of investment is already factored into the cost of electricity generation. COE for nuclear power in is in the range of 70-110 €/MWh, while Solar Energy in Germany has a cost of electricity generation of 110-200 €/MWh, depending on location and size.
    Wind Power has already reached production costs in the range of 50-90 MWh.

    These costs include the investment required to install the generation sites, it includes that wind and sund aren´t blowing constantly and are not producing 100% of the time. Still, these technologies are coming close to what power generation with nuclear powerplants costs! And that is EXCLUDING all external costs like risks of accidents, cost of storage facilities, etc.
    So, the real question becomes how much solar capacity can be installed and where, how can we mitigate the problems and risks arising from fluctuating demand to ensure the availability of power at all times (and how much does it cost) and are we willing to commit the required brain- and manpower to solve these problems in order to achieve a better outcome for the future.

    It would be wrong to look at the numbers of today, dismissing the case on the notion that solar is small and more expensive than nuclear and thus will always stay small and more expensive than nuclear. If mankind was thinking along these lines, we´d never have experienced an industrial revolution and we´d still be hunting deer and gaterhing fruit, like we always used to.
    And we wouldn´t have started using nuclear power, because once that was expensive too.

  18. The Dork of Cork. says:

    The industrial revolution was created using Debt………
    It was brutal.
    I always look back to Scotland and Ireland as its a landscape I understand.

    The people of western Scotland were cattle based independent people and given the low energy density were spread out throughout the landscape and not concentrated in cities towns or even villages…at most it was basic hamlets.
    They had primary industry (farming) and nothing much else beside folklore & friendship / kinship.
    However debt concentrates capital…
    In a debt based system they needed to be cleared so as to earn a yield.
    You had now primary , secondary and tertiary activity going on in Scotland.

    Look read some books about the highland clearances and how it cascaded through the system in various ways.
    The Silver Darlings is a good book but it looks at the last period of Highland clearances around the time of the Napoleonic wars.
    It talks about the strange cultural clash between more monetized English speaking lowlanders and displaced Gaelic people.
    The people with the money claims wanted to earn more money…..they had surplus labour around the gaff.
    The money went into producing 19th century fishing villages and towns….
    People and capital became more concentrated.

    Once you understand the basics of capitalism on that small but brutal level you can scale up that same system to whatever size until there is no more worlds (and resources) to conquer.

    To be honest it strikes me as if you have the whole idea of it back to front in some way.

  19. Neil Wilson says:

    “till, these technologies are coming close to what power generation with nuclear powerplants costs! ”

    Are they, or is that just the websites or lobby ‘research’ you’re reading who are cheerleading their particular technology. The whole area is obfuscated based upon ideology and lobbying. The underlying truth is very difficult to find because there is so much money to be made and lost depending upon what government ultimately decides to support.

    Having said that if anybody can come up with a mix of generation that can reliably generate the underlying demand in all weathers then it would be the Germans. It is, after all, a mere engineering problem.

  20. Gerd G. says:

    As a German I have to say thank you, because this blog entry contains much more differentiated arguments againts our actual financial policy than you will ever find in most of the german newspapers.
    Unfortunately it is true that there is a majority of people thinking Germany is doing the right thing regarding it’s european neighbors, but that is because of a massive political campaign that claims “everything is all right in Germany”.
    There is a minority of people in politics here who understand the problems of our economyc policy that are listed here and who can’t accept low budget jobs as a regular employment. We have Bundestags-elections in 18 days which will show if this minority of politicians can make a stand against the others.
    If our current chancellor Angela Merkel is re-elected – take it as a bad sign because it will mean that everything will go on in the same way.

    And to add something to the disussion about nuclear- / solar energy: nuclear plants are only cheaper than anything else, because 1. we (the public) have to pay the disposal of radioactive material and not the companies operating them and 2. they dont have to pay any insurances for these things. You know what hapens when an nuclear power plant fails? The region cannot be used by humans anymore. No sane person would give an insurance for a reactor failure because the potential damages are so great.
    Take these to factors into account, because it ultimately means that nuclear energy is highly subsidised.

    Regards

  21. The above discussion in which one asserts that dense energy sources are necessary to support an industrial
    base is interesting. I note that the protagonist, has no numbers to show, but he is keen to refute numbers
    shown by others. Could he be a shill for the Nuclear Industries?????

    We at PRI created an energy model of a carbon neutral US economy, in which all energy is sourced from
    PV, wind, GeoThermal, and Hydro. This model uses WindFuels to make 3 million Bbl/day of liquid hydro
    carbons, nearly half of which are feedstock for the chemicals industries. It features 6kwe of PV on the roof of every dwelling. 250 Kwe of PV on the roof of every commercial building. 50 Kwe of Pv on the roofs of every farm. One – 800 Kwe wind turbine on each and every farm. Maximization of GeoThermal to 100 Gwe with the plants configured as peaking plants capable of producing 400 Gwe for 6 hours. Maximization of Hydro to 200 Gwe with the plants configured as peaking plants capable of producing 800 Gwe for 6 hours.
    There is no need for utility scale wind.
    Each house has one 15Kwe NaS battery
    Each commercial building has one 600 Kwe NaS battery
    Each farm has one 2Mwe NaS battery
    This provides sufficient battery storage for 3 days production.

    I would be most happy to post it, or to mail it given a request.

    Just ask for:
    Silicon_Sodium_Sulfur_EnergyDrivenEconomy.pdf

    INDY

  22. The Dork of Cork. says:

    A shill for the Nuclear Industries ?
    I am but a Dork.

    Listen lads – the industrial system concentrates power , it cannot work via a diffuse (green) system.
    Think of the coal used in the mine engine to displace water.

    All Industry requires subsidy via the debt system be it solar or Nuclear.
    In the UK union highland Scottish and Irish Wealth was transferred to the Scottish lowlands & England.
    It was concentrated….get it ?
    The amount of energy used in Germany is declining , this despite subtracting the energy ration of all of the PIigs which you could imagine as being the modern version of the Scottish highlands.

    In the 1700s & 1800s England and lowland Scotland (and the islands as a whole) was increasing its energy consumption – based on these metrics at least the destruction of Ireland and highland Scotland was a success.
    This cannot be said of German & by extension European Industrial policy where energy use is decreasing …..using Industrial measures this is a clear expression of failure.

    It may indeed be best to deindustrialize and stop Nuclear power but thats not my core point.
    My simple point is you cannot have your cake and eat it
    The German Industrial entrepot is destroying the core capital base , this cannot be refuted.

    The French have more or less stopped nuclear development but at its peak nuclear reached a high 40s% of total French TPES….
    The energy available was /is of a different order of magnitude.
    We can debate about externalties but it terms of raw POWER them there are the facts.
    And Industry is all about POWER baby.

  23. Neil Wilson says:

    “No sane person would give an insurance for a reactor failure because the potential damages are so great.”

    But of course the risk of failure is exceedingly small – particularly with newer reactor designs that have better failure modes. And the impact of failure on nature is much less than predicted by the doomsayers – primarily because the science behind radiation damage is based largely on extrapolation from the nuclear bomb blasts.

    Biology can repair radiation damage much better than most people believe – primarily because it is exposed to very large doses of radiation every day due to their being a large nuclear reactor in the sky.

    As usual the arguments against nuclear are largely based on 50 year old plants. It’s like suggesting we ban cars due to the terrible safety record of the E-type jag.

    Mostly it is emotion rather than science and getting to the actual truth is very difficult. Much as it is difficult to get to the truth about fatty foods, or persistent unemployment.

  24. The Dork of Cork. says:

    UK trade July 2013 Stat Bulletin

    “Due to unforeseen operational issues, the geographical data have been temporarily removed
    from this release. The data will be reinstated as soon as we are satisfied that the issue has been
    resolved and the quality of our statistics assured. The ONS apologises for any inconvenience
    caused.”

    Sensitive souls ?

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