Politics Distorting and Undermining Markets

 by Ray Keating

The Keating Files – October 21, 2021

 

I know this will shock you, but here goes: Politics can fundamentally distort and undermine markets and the economy. 

 

Of course, given that most politicians choose to ignore economics – after all, economic truths and facts can be so inconvenient – no one should be surprised that politicians often act in ways that go against market logic, and therefore, damage or restrain economic growth. Just look at most tax increases.

But what I’m getting at here is how views of an entire sector of our economy can be so distorted by a political agenda that market signals, entrepreneurship, investment and innovation suffer in major ways. This is about politics changing how market players view what they choose to do in the marketplace.

 

Consider the environmental movement. Green politics has become so vocal and ubiquitous that it’s easy to find prices of green stocks being completely disconnected from the actual business, from the realities of future cash flows and earnings – and not just for a brief time. That’s striking. (Think Tesla.)

 

Under normal circumstances, entrepreneurs, businesses and investors work to gain customers and profits by presenting new and improved goods and services to consumers. That is, they’re working to provide something that consumers want or need, products that they currently or will value. Entrepreneurs and businesses compete to add value, to improve the lives, in some way, of customers.

 

But consider, for example, electric cars and renewable energy. Due to politics, these have become market darlings. But what exactly are they presenting, other than lining up with the preferences of a political agenda? Not much. 

 

In fact, bizarrely, it’s easy to make the case that even as these green stocks experience price appreciation, and companies seem to be falling all over each other in announcing various green investments and endeavors, they actually are working to offer products that will make life more difficult and costly for consumers. The full costs of wind and solar power, and of electric cars run far ahead of, for example, energy produced by oil, natural gas and coal, and gas-fueled autos. And that will be the case for the foreseeable future. Why? Politics overriding sound economics.

 

For good measure, a political agenda driven by climate change assumptions, for example, means that industrializing, or developing, nations will have to be compensated by industrialized nations for adopting green energy policies – if not, then the policies in developed nations will be for naught from the environmentalist’s point of view. But the price tag is never spoken of because the costs register at mind-blowing and economy-destroying levels.

 

Whenever politics supplants market freedom, innovation, competition and consumer sovereignty, the results are always negative. But when a political agenda runs as deep as the green movement’s at this moment, an even more troubling kind of market corruption is at work, and if this political agenda takes full hold, the undermining of true innovation and economic growth promises to be grim. Indeed, there’s emerging talk that anti-fossil-fuels politics has already undercut investments in fossil fuels that we need now and for the immediate future, never mind over the long haul. But common sense will be restored … at some point … I hope.

 

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Ray Keating is a columnist, novelist, economist, podcaster and entrepreneur.  Keating has three new books out. Vatican Shadows: A Pastor Stephen Grant Novel is the 13th thriller/mystery in the Pastor Stephen Grant series. Get the paperback or Kindle edition at Amazon, or signed books at www.raykeatingonline.com. Past Lives: A Pastor Stephen Grant Short Story is the 14th book in the series. Get the paperback or Kindle edition at Amazon, or signed book at www.raykeatingonline.com. And order the 15^th book in the series What’s Lost? A Pastor Stephen Grant Short Story.

 

The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

 

You also can order his book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books  at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. 

 

One of the best ways to enjoy Ray Keating’s Pastor Stephen Grant thrillers and mysteries is to join the Pastor Stephen Grant Fellowship! For the BEST VALUE, consider the Book of the Month Club.  Check it all out at https://www.patreon.com/pastorstephengrantfellowship

 

Also, check out Ray’s podcasts – the Daily Dose of Disney, Free Enterprise in Three Minutes, and the PRESS CLUB C Podcast.

 

Check out Ray Keating’s Disney news and entertainment site at www.DisneyBizJournal.com.

Experts and Politicians Get Slapped Down by Oil Markets

by Ray Keating

The Keating Files – April 20, 2020

The nice thing about saying stuff on television that doesn’t make much economic sense is that there’s often considerable lag time before the cold slap of economic reality hits. The same goes for politicians’ mistaken utterances on the economy, whether on TV or not. But on rare occasions, economic reality arrives almost immediately.

The peddlers of economic ignorance usually can escape with their reputations largely intact because by the time their wrongheadedness becomes clear, everyone has moved on to another topic. Indeed, politics, the media and the economics profession are over-populated by experts who consistently get their economics wrong, yet their views are still sought. Go figure.

Apparently, though, the oil markets were having none of this, as the price of oil descended into uncharted territory on Monday (April 20). The May crude oil futures price closed at $18.27 a barrel on Friday (April 17), but ended Monday’s session at negative $37.63. In effect, that would mean that oil sellers would have to pay buyers to take oil off their hands. Wow.

That’s endlessly fascinating for traders and economists alike. But what’s kind of humorous is how much time CNBC, for example, spent on the need for Russia and Saudi Arabia, along with the United States and Mexico in the mix, to agree to oil production cuts earlier this month. The deal was close to being done as oil markets were closing on Thursday, April 9, and then the “historic” and “unprecedented” deal was finalized on Sunday, April 12. 

CNBC reported on its website:

“This is at least a temporary relief for the energy industry and for the global economy,” Rystad Energy’s head of analysis Per Magnus Nysveen told CNBC in an email. “Even though the production cuts are smaller than what the market needed and only postpone the stock building constraints problem, the worst is for now avoided.”

CNBC also highlighted President Trump’s tweet: “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”

And on April 15, CNBC interviewed U.S. Energy Secretary Dan Brouillette. He said, “Think about what would have happened in the alternative had there been instead of a cut of 10 million on the part of OPEC and OPEC+, what if that number had been zero, what would we be looking at today suggests that it’s probably something much lower than where we are. And I think we may be at a floor. I think the intent of this conversation with OPEC and the rest of the G-20 countries is simply to do exactly that, to mitigate.”

The “Whoops” moments clearly have been stacking up.

I often have CNBC on in the background in my office, and as I shook my head at all of the time being spent on this deal, one anchor – Kelly Evans – finally put forth a relevant question. She basically asked: If this deal is happening, why does the price of oil keep falling?

Well, there you go. The obvious question with an obvious answer.

The price of oil has been declining since late February ($53.38 a barrel on February 21), and continued through and after the “historic” production deal ($22.41 on April 13 and, again, $18.27 on April 17), and went into freefall on April 20 because of the coronavirus and governmental responses that have crushed the economy, drying up oil demand and creating enormous uncertainty looking ahead as to when the U.S. and the rest of the world might get back on a growth track.

Anyone with minimal knowledge of how supply and demand works understood that the Russia-Saudi-U.S. production deal meant nothing. Markets clearly were dictating that oil production would have to decline, since there was little demand and nowhere for production to go. Duh.

But what the heck. Even though markets taught a quick, harsh lesson in economics this time around, few are likely to pay much attention, and misguided views on economics and markets will still be sought, spouted off, and forgotten.

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Ray Keating is a columnist, economist, podcaster and entrepreneur.  You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. Keating also is a novelist. His latest novels are  The Traitor: A Pastor Stephen Grant Novel, which is the 12^th book in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?