The week of July 11, 2022: Shutting down farms to save the planet, antitrust, debt, and much, much more.
The week of July 11, 2022: Shutting down farms to save the planet, antitrust, debt, and much, much more.
A n 80-year long war of independence, various wars against the Brits, and an imperial past aside, the Dutch are a reasonably peaceable bunch, but that doesn’t mean that they cannot get riled up. After a series of military disasters in 1672, Johan de Witt (who was, roughly speaking, the equivalent of prime minister) and his brother were torn apart by a mob, which, not satisfied with that, then ate (so the story goes) their livers.
The current Dutch prime minister is unlikely to end up on a plate. Nevertheless, was it entirely wise of him to antagonize a community that knows quite so much about livestock?
The AP (June 10):
The Dutch government unveiled goals Friday to drastically reduce emissions of nitrogen oxides to protect the environment, a plan that would lead to major upheavals in the Netherlands’ multibillion dollar agriculture industry and has already angered some farmers.
Calling it an “unavoidable transition,” the government mandated reductions in emissions of up to 70 percent in many places close to protected nature areas and as high as 95 percent in other places.
The ruling coalition earmarked an extra 24.3 billion euros ($25.6 billion) to finance changes that will likely make many farmers drastically reduce their number of livestock or to get rid of them altogether.
Farming is a key sector in the Dutch economy, with exports worth nearly 105 billion euros last year. But it comes at a cost of producing of polluting gases, despite farmers taking steps to reduce emissions . . .
Provincial governments across the Netherlands now have a year to draw up concrete plans to achieve the reductions outlined in the goals released Friday . . .
LTO, an organization that represents 35,000 farmers, called the targets “unrealistic.”
The government has been forced to act in part because European Union emissions guidelines are being breached around the country and that has led to courts blocking building and infrastructure projects in recent years because they would exacerbate the problem.
Writing for the New York Post, Michael Shellenberger notes that “while nitrogen pollution worsens climate change, the government says its main motivation for reducing it is about protecting its nature areas. Scientists say that in 118 of 162 of the Netherlands’ nature preserves nitrogen deposits are 50% higher than they should be.”
Around 40 percent of the country’s nitrogen emissions come from the agricultural sector.
Shellenberger:
Without a doubt the Dutch should do more to protect their nature areas. The country produces four times more nitrogen pollution than the European average, due to its intensive animal agriculture.
The Netherlands is the largest exporter of meat in Europe and the second largest exporter of food overall after the United States, a remarkable feat for a nation half the size of Indiana . . . . Experts attribute the nation’s success to its farmer’s embrace of technological innovation.
DW:
Dutch agriculture and horticulture account for 10% of the national economy and 17.5% of exports (€65 billion each year).
Shellenberger:
But even many on the political left say the government demands are too extreme, based on radical green fantasies and dodgy science.
“It seems to be very fast,” said Wim de Vries, a professor at Wageningen University and Research who 10 years ago made alarmist claims about “planetary boundaries.”
The government is demanding a cut in nitrogen pollution of 50% by 2030. That amount would require a livestock reduction of one-third or more and thus bankrupt many farmers.
And the farmers say the government’s pollution measurement model is inaccurate. They say measurements near sea water distort nitrogen calculations.
Data show ammonia pollution from manure has already declined by nearly 70% since 1990. And farmers say they will continue to reduce pollution as they put in place low-cost, common-sense fixes, like diluting manure with water, injecting it into the soil and more frequently washing down barn floors.
Netherlands is something of a model for the efficient use of nitrogen fertilizer in farming. Since the early 1960s, the Netherlands has doubled its yields while using the same amount of fertilizer. It’s hard not to conclude that politics and green ideology, more than science and reason, are driving the government’s decision.
The Netherlands has had a nitrogen-pollution permitting system in place since 2015, but that hasn’t satisfied green groups, which want to see significant declines in meat production. A left-wing green-like party, D66, joined the governing coalition in January on the condition that the government reduce the number of animals by half.
“There is a small group of left-wing people, many of whom are vegetarians, who have for 35 years made many arguments to reduce livestock,” said Jan Cees Volgelaar, former chairman of the national dairy farmers association.
It’s also worth noting that these restrictions will hit smaller farmers (almost archetypal “kulaks,” at least in some senses) far harder than larger players.
Ralph Schoellhammer, writing in Newsweek:
While large farming companies have the means to hypothetically meet these goals and can switch to non-nitrogen-based fertilizers, it is impossible for smaller, often family-owned farms. The new environmental regulations are so extreme that they would force many to shutter, including people whose families have been farming for three or four generations.
The AP:
“Of course, [this] has enormous consequences. I understand that, and it is simply terrible,” [Dutch prime minister Mark] Rutte said. “And especially if they are businesses handed down in the family who want to proudly continue.”
But omelet, eggs, we know the script.
Although, to borrow from that famously bitter response to that: “Where’s this omelet of yours?”
It is, shall we say, highly unlikely — even if the Netherlands (admittedly a nitrogen hotspot) does fulfil its plans — that there would be much of a difference in the climate, or, environmentally speaking, that much else, especially if changing the plans merely involves a longer phase-in period, giving farmers a better chance of finding a way to adapt. Wim de Vries, the scientist quoted by Shellenberger above, has argued that given the effects of nitrogen to date, “It doesn’t make so much difference if we do it in 7 or 10 or 12 years. We anyhow have to wait for decades for nature to improve seriously.”
However, using language reminiscent of earlier generations of fanatics, green fundamentalists have no time for time.
Environmentalists say now is the time to act.
“You rip a plaster off a wound in one go,” said Andy Palmen, director of Greenpeace Netherlands. “Painful choices are now necessary.”
Somehow, I don’t think that it is Palmen who will be suffering. His business — and have no doubt, Greenpeace is, in addition to everything else, a business — is not facing the prospect of being closed down. On the contrary . . .
One of the reasons, it should be said, that the Dutch government is in such of a hurry is that currently the country is in breach of EU emissions rules and, as the AP reports, “That has led to courts blocking building and infrastructure projects in recent years because they would exacerbate the problem.”
If that’s the case, the government needs to get those rules changed, something that — such is the nature of both Brussels and the environmentalist lobby — won’t be easy.
But then the politics of all this in the Netherlands don’t look too easy, either.
ABC (July 6):
Some 40,000 farmers gathered last week in the central Netherlands’ agricultural heartland to protest the government’s plans. Many arrived by tractor, snarling traffic around the country.
On Monday and into Tuesday, farmers again took their protests to crowded highways, driving slowly along the roads or stopping altogether. Some have dumped hay bales on roads, and small groups demonstrated at town and city halls, in some cases starting bonfires outside the buildings.
Some farmers set hay bales ablaze Tuesday alongside highways, while others gathered in towns and cities, including The Hague.
The farmers have blocked supermarkets, causing some temporary shortages here and there, and, in a sign of how far things have gone, shots have been fired.
Politico (July 6):
Dutch police fired shots at tractor-riding farmers who were protesting against plans to cut nitrogen emissions on Tuesday evening in northern Netherlands.
Police said they were responding to a “threatening situation” when the farmers, who were attempting to push past a blockade to get onto a highway in the province of Friesland, started to drive their tractors into officers and their vehicles.
According to the Friesland police, their shots hit a tractor, but no one was injured. Three suspects were arrested. The Rijksrecherche, the Dutch government’s internal investigator, said it would look into the events given police had discharged their weapons.
And the farmers appear to be attracting some sympathy.
Shellenberger:
A new poll released two days ago shows that, if elections were held today, the ruling VVD party would lose 13 of its 34 seats in parliament and its allied D66 party would lose 11 of its 24 seats. By contrast, the party of the farmers, the “Farmer-Citizen Movement,” or BBB, which formed just three years ago, would go from having just one seat to 20.
And this problem is not going to stay confined to the Netherlands.
For example, via DW:
Neighboring Belgium, which has the third-highest EU livestock concentration and a major nitrogen problem as well, is watching the Netherlands closely. The government of the Dutch-speaking region, Flanders, wants to reduce numbers of pigs 30% by 2030 and is offering farmers €150 euros per pig and €855 euros per sow to buy them out.
And it will not stop there, and, nor, when it comes to agriculture, will the focus only be on nitrogen.
BBC (June 9):
New Zealand has unveiled a plan to tax sheep and cattle burps in a bid to tackle one of the country’s biggest sources of greenhouse gases.
It would make it the first nation to charge farmers for the methane emissions from the animals they keep.
New Zealand is home to just over five million people, along with around 10 million cattle and 26 million sheep.
Almost half the country’s total greenhouse gas emissions come from agriculture, mainly methane.
The war against meat has been going on for a very, very long time, and its climate front was opened up quite a while ago. If climate policy continues in its current direction, meat is going to become more expensive (some types more than other, however, and insectivores can probably relax) adding yet another twist to the greenflation that (again, as things currently stand) is likely to be with us for years.
There are many ways to look at the Dutch farmers’ revolt, some tipping over into the conspiratorial fringe, others with a class-based perspective (you can see that reflected in Schoellhammer’s article) which, if an overly reductive approach can be avoided, is worth thinking about. But what matters for now, is that, even if this conflict is either patched over or peters out, the angry Dutch farmers will have been another early indication of the political and economic turmoil that may be on its way as climate (and certain other environmentalist) policies start to bite.
When asked for their opinion, most people, at least in the West, typically say that they are prepared to do their bit for the planet. But when they start to feel the effects of what that now means — especially in cases when it doesn’t appear to be making much difference — those opinions are, in many cases, likely to change. That is something that politicians currently promoting net-zero greenhouse-gas emissions (or something similar) on timetables with no obvious connection to practical, economic, and political reality are likely to discover.
It will not be a pleasant discovery.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 75th episode David is joined this week by Michael Matheson Miller of the Acton Institute, and the two devote considerable time to the poverty problem, and to the concerns many have about the direction of the culture. They also focus on a general understanding of multi-generational expectations and why, at the foundation of it all, our common ground must be theological and philosophical understandings of the human person. They strive to understand the frustrations of the so-called “new right” with “market fundamentalism” and, better yet, present a coherent vision for society that covers all bases.
The Capital Matters week that was . . .
Climate
The Supreme Court’s 6-3 decision in West Virginia v. Environmental Protection Agency is a long-overdue step to rein in an agency that has exerted hydra-like control over much of the U.S. economy through its regulations on virtually every activity that uses energy. The Court found that the EPA overstepped its authority, writing that “it is not plausible that Congress gave EPA the authority” to “[cap] carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity.”
Sadly, the decision will do little to stop New York policy-makers from bankrupting their own state. For them, the rise in fuel prices over the last year has provided the perfect excuse to double down on the state’s misguided and quixotic green-energy policies . . .
Antitrust
Iain Murray and Jessica Melugin:
The recent announcement of the final verdict in the U.K.’s case to block Meta’s acquisition of GIF library Giphy is a partial victory for consumers and innovation. Meta is the parent company of Facebook, and had moved to acquire another American company, Giphy, which is a library of the moving digital images called GIFs. Acquiring this library would allow for easier posting of the images by Meta’s users on apps like Facebook and Instagram. The British competition regulator, the Competition and Markets Authority, ruled that the acquisition would substantially lessen competition in the U.K. The U.K.’s appeals tribunal undermines that decision.
The CMA’s case had two major flaws: one procedural and one on the merits of the case. The British tribunal, which by law could only rule on technical grounds, found that the CMA had abused process. However, the ruling made it clear it agreed with Meta on the merits, too . . .
In fact, the Washington Post report (and much else besides) should lead fair-minded observers to the only viable conclusion left to draw about the motives behind bills like AICO. It has become all too popular for politicians on both sides of the aisle to make a boogeyman out of big tech companies. The right does not like the supposed political bias of their corporate leadership, and the left can cast them as the villain in their economic populism narrative. This bill is an ambitious power play to score political points against these companies. Whether those on the right who support this bill are being played for fools by the left is a question for another time, although not one that, in my view, should be too difficult to answer . . .
This summer, the U.S. Senate faces a momentous choice. It will likely vote on the American Innovation and Choice Online Act (AICOA), a sweeping piece of “antitrust” legislation sponsored by Democratic senator Amy Klobuchar and supported by a bipartisan coalition, including prominent Republicans such as Ted Cruz. Regrettably, AICOA is full of bad economics, misconceptions about the tech sector, and shockingly vague language . . .
Energy
In the most recent Capital Letter, I wrote about the (natural) gas crunch that will lie ahead for Germany if Moscow either fails to reopen the Nord Stream 1 pipelines (currently just beginning their annual shutdown for maintenance) or, when they reopen (due July 22), maintains the flow through those pipelines at their current reduced levels.
Under the circumstances there is a somewhat painful irony about this story from Bloomberg’s Rachel Morison (my emphasis added) . . .
Blas believes that Putin will ultimately turn off the taps. The beginning of winter seems like a reasonable bet as to when. Europeans are already scrambling to take steps to alleviate the storm to come, steps that are unlikely to be enough to stave off trouble.
Writing in the Daily Telegraph, Rachel Millard runs some numbers, The background against which she is writing is that on July 11 the Nord Stream 1 pipeline was shut down for annual maintenance. It should reopen on or about July 22 (please note that occasional extensions of the shutdown are not unusual, as those working on maintenance discover something that needs fixing), but will it?
Blas guesses yes (for now), although he doesn’t seem to expect that the flow will resume at anything like normal . . .
All this increases the demand for (natural) gas, and that, with Putin in the catbird seat, is something of a problem. The chances of Europe being able to build up the gas reserves it needs ahead of winter are worsening, it sometimes seems, daily.
Meanwhile, it’s an indication of how seriously (abandonment of nuclear power aside) that Germany is taking the crisis that may lie ahead that, the Daily Telegraph reports, Deutsche Bank estimates that the country has already cut demand for natural gas by around 10 percent. More, including the use for wood for heating homes, will, the bank warns, be required.
The Daily Telegraph’s Ambrose Evans-Pritchard, a writer not always known as a ray of sunshine, adds some more to the pile of guesses estimates of what a full switch-off of Russia’s gas pipelines could mean . . .
Government Debt
Rates are likely to continue rising. The Federal Reserve has quickly hiked the federal funds rate from 0.25 to 1.75 percent, yet will likely have to go higher to crush inflation. And once inflation is defeated, a more vigilant Fed is unlikely to drop rates back within the 0–2.5 percent range that has prevailed over the past 14 years.
Investors will likely demand many years of higher interest rates and an inflation risk premium to avoid getting burned again. Such a scenario helped drive up 1980s interest rates in response to 1970s inflation. Other factors that may drive up interest rates for years to come include a long-awaited productivity surge (which would increase borrowing by making capital investments more profitable, and families more willing to borrow against future wealth), global investors chasing stronger returns in faster-developing economies, and baby boomers finally spending down their decades of retirement savings. The colossal national-debt surge projected by the Congressional Budget Office would add approximately three percentage points to interest rates over three decades.
Washington, perched for now on top of a mountain of debt, can ill afford higher interest rates . . .
Tax
Brian Deese, head of the White House’s National Economic Council, explains the administration’s opposition to Russia’s invasion of Ukraine by saying: “This is about the future of the Liberal World Order, and we have to stand firm.”
But not so firm as to terminate America’s 30-year-old tax treaty with Russia, which ensures proper tax treatment of citizens of both countries.
Without the treaty, Russian investors with U.S.-sourced dividends would face a 30 percent withholding tax rate and lose preferential treatment.
The U.S. is honoring the Russian treaty at the same time it is abrogating its 43-year-old tax treaty with Hungary, punishing that country for resisting a global minimum tax of 15 percent for multinational corporations that’s being pushed by the Biden administration . . .
When he was a presidential candidate, Joe Biden famously promised to undo the 2017 tax cuts for businesses, and this promise was built into early versions of the 2021 “Build Back Better” bill. The bill has not yet passed, but a slimmer version is rumored to increase tax rates on non-corporate businesses. More importantly, the 2017 tax law itself sunsets some of its cuts, such as its bonus depreciation provisions.
In other words, the sunsets and inflation each increase the share of business income subject to tax and thereby discourage business investment. In order to maintain the investment incentives that have faced businesses since 2018, new tax legislation is needed. Such legislation would take steps for allowed depreciation expenses to keep up with expenses, as well as making the Trump tax cuts permanent.
Central Planning
The blame for the inflationary surge rests on government (as inflation is always and everywhere, if not a monetary phenomenon, at least a political one), and if the people whose job it is to research consumer preferences and project inventories couldn’t figure out how to align supply with demand, we have no reason to believe the people whose job it is to give speeches and lie for votes would do better.
Politicians desire to become central planners so they can replace the price system with their own preferences. Firms are islands of central planning that are organized by economic reasoning to allow the price system to function better. When diagnosing “market failure,” be sure that the cure isn’t worse than the disease.
Sri Lanka
Just how did the wheels come off the Sri Lankan rupee and its economy? Because of its political shrewdness, one family, the Rajapaksas, became Sri Lanka’s ruling clan. Gotabaya Rajapaksa was elected president in 2019, after having served as defense secretary when the Sri Lankan armed forces won the civil war against Tamil separatists in the north of the country in 2009. His older brother Mahinda was president during the civil war and became prime minister during Gotabaya’s presidency. Two of their brothers and one of Mahinda’s sons were also cabinet ministers.
As so often happens, clannishness begat insularity. The Rajapaksas’ government spent freely, running large deficits and piling up government debt. The Central Bank of Sri Lanka (CBSL) became a great facilitator. Indeed, in 2020, the bank’s governor, W. D. Lakshman, said, “The fears around debt sustainability appear to be unfounded. As rupee-denominated bonds were within the ‘sovereign power,’ money could be printed to repay them as indicated by ideas like Modern Monetary Theory.”
The Economy
The idea that gas-station owners are some sort of high-and-mighty titans of industry, rolling in cash while the rest of us languish, is nonsense. As Ryan Mills reported for NR over the weekend, these businesses don’t like high gasoline prices, either: They’re making roughly the same amount of money on a gallon of gas today as they were in the past, because their costs have gone up as well. The profit margin on gasoline is relatively low, and higher gas prices correspond with less spending in the convenience-store portions of gas stations, which is where the higher profit margins are.
A delay in gasoline-price declines after oil prices fall makes perfect sense given the way the business operates. Crude oil must be extracted, transported to a refinery, and refined into gasoline, and then the gasoline must be transported to a gas station. That means the gasoline you’re buying today was produced with oil purchased at the prices of at least a couple of weeks ago . . .
Italy
Mario Draghi is a technocrat’s technocrat. As president of the European Central Bank, he famously declared in 2012 that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” These lines (and an extremely flexible interpretation of the ECB’s mandate) probably saved the euro from yet another crisis (whether the euro should — in its current form — have been saved is an entirely different question) and, for that matter, paved the way for what has, by the dismal standards of the EU’s single currency, been a period of relative calm.
Draghi’s term at the ECB ended in 2019, but in 2021, with Italy still roiled by the pandemic and its aftermath, he was picked by the country’s president — Draghi is not a democrat’s democrat — to form a broad-based government of national unity, something that probably only he had the stature to do. Draghi is nothing if not competent. He has proved fairly effective . . .
Trucking
Since the Supreme Court declined to hear the California Trucking Association’s appeal regarding AB5 on June 30, it’s still unclear exactly how California’s trucking industry will be affected.
AB5 seeks to classify more workers as employees instead of independent contractors. About 70,000 truckers, and 70 percent of the drayage truckers who work near California’s seaports, are independent owner-operators. That gives them more flexibility in setting their schedules and allows them to be small-business owners by owning their trucks and contracting for deliveries . . .
Price Controls
Any time inflation begins to take a bite out of people’s wallets, you’re sure to hear politicians, pundits, and even some economists advocating price controls. Biden would like to command gas-station owners to lower their prices.
Supply Chain
So far this year, we’ve seen in numerous examples around the world that unions have the upper hand in labor negotiations, and they have no qualms making supply-chain problems worse.
Here’s a quick update of how things are going.
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