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September 13, 2022


Frank Little

Are we to believe that the false arguments you cite in your opening paragraphs are part of the orthodoxy which Truss wants to sweep away?


Frank: No Truss has a different orthodoxy. No doubt we will return to this issue in the future.


This is happening for reasons that may sound familiar: financial derivatives have been used to do something that looked very clever until, suddenly, it wasn’t." But wait a minute: why, at a time when energy prices are through the roof and companies are reporting record profits, would the energy industry want any more money?
“They don’t have a solvency problem, they have a liquidity problem,” says John Kemp, a senior energy market analyst at Reuters. Kemp explains that when traders, wholesalers and retailers in the energy market buy gas or electricity, they also buy financial instruments that help to take the risk out of changing prices."

To use the apples analogy everyone in the supply chain (farmer to consumer) wants stable predictable prices and therefore enters into fixed price contracts (especially due to the capital that has to be deployed) rather than have poorly designed auctions and spot markets (other than for the surplus/variable/elastic demand).

Who is the only player that does not have an interest in stable prices. Finance which is why it is a good idea to limit or exclude finance from the commodities (all) markets.


"We argue that financialization has substantially changed commodity markets through these mechanisms."

Ideology, Finance and the Greens are the irrational forces that has destroyed the rational market of the C.E.G.B. not to forget Enron.
Putin just provided the shove to topple an unstable energy system, which was due to collapse eventually under it's own contradictions.

Original issue:


The whole article is relevant.

Where does that leave the gig-economy?


Were prices really more rational in the 1970s before Fischer Black invented option pricing? Why not acknowledge that prices are noise (see Black's "Noise") and adapt through full indexation, rather than use state violence to enforce your particular theory of rationality?


Prices are information in a 'free market', therefore the signal to noise ratio, determines it's usefulness. Of course finance just adds noise!

All Black, Scholes, Morton did was add mathematical credibility to speculation, but how does that survive the the collapse of L.T.C.M ?

You can't hedge your way to perpetual motion (profit) even as a parasite.

The C.E.G.B, ranked suppliers on cost and availability or dispatchability.

Favouring cheap reliable plants for base load and dispatchable plants for elastic/variable/peaking demand (priced accordingly).

Much of the price of wind/solar is distorted by subsidy, and access to the spot market, and the fact that Electricity is instantly perishable costs are externalised to the Electricity system (consumer) as a whole.

Finance is just in the business of gaming the system, like Enron.

As for violence, the C.E.G.B used prices and contracts. Contracts for Difference (CfD) are long-term contracts with prices fixed in a range, as prices with a lower margin but no upper bound, proved to prohibitively lucrative (for the renewable suppliers.)


Movement is from a 'Free' spot price, to a more managed long-term fixed price contracts appears to be the direction of travel. i.e. Return to the C.E.G.B model but called the National Grid ESO and LCCC's but without the logical coherence.


As Edmund Burke said:

"Circumstances (which with some gentlemen pass for nothing) give in reality to every political principle its distinguishing colour, and discriminating effect. The circumstances are what render every civil and political scheme beneficial or noxious to mankind."

From this perspective, free marketeers must be saddened by rising energy prices just as they bewail increased state spending - because both mean that the proportion of economic activity devoted to beneficial market activity is shrinking.

[ This is quite a brilliant essay.

From a conservative perspective, PM Truss has resolved the energy price emergency in the least intrusive manner and this should be entirely satisfying. ]

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