The Vermont Anomaly and the German Experiment

by Martin Harris

This column has frequently addressed “the Vermont Anomaly”, that curious mix of governance policy and resident response, which in all other States shows up whenever negatives for economic growth –State-and-local-government-decided business climates, tax rates, land use regulations, costs-of-stay, both one-time (housing) and continuing (food/energy/services) and so on– are reflected in substantial resident departures for economically-greener pastures. Examples range from Michigan in the Rust Belt to California on the Left Coast. Vermont, in contrast, tops even such places in the usual measures of such legislatively-created conditions, and yet maintains a slight surplus of in-migrants over out-migrants, such that median incomes have shown noticeable increases and the rules-writers themselves enjoy continuing electoral approval. Maybe that’s because, for the mathematically-average citizen, immune to housing costs because of earlier-purchase ownership and semi-immune to taxes because of just-so-designed caps on the annual property levy (at last count, some 70% of Vermont home-owners enjoy “income-sensitivity” tax-caps) they have similarly enjoyed, although they’d never admit it, historically low food and energy prices when measured in either inflation-adjusted terms or as percentages of household disposable income. In the US as a whole, food-at-home now represents less than 10% of household essential spending (another 4% goes to the most-expensive prepared food available, restaurant-served) and Vermont leads the nation for per-capita spending on pricier-than-supermarket-fare farmers’ markets food, artisanal, organic, non-GMO. Similarly, in the US as a whole, household energy spending (utilities and fuels, for buildings and transport) is at recent-history lows (below 3% of disposable income) compared to above 3% in the early 70’s pre-oil-shock years, an American Enterprise Institute study reports. In political history, these two essentials have supposedly been just as third-rail in voter impact as Social Security, should they rise. They haven’t: The 1950 $1 gallon of milk should be $8.35 today, thanks to “highly-skilled” (?) Federal Reserve currency management; it isn’t. The 1940 10-cent kilowatt of power should be $1.55, per the Purchasing Power calculator on the Economic History website: it isn’t either.

Now, the German Experiment is about to test whether a very-real governmentally-caused tripling of the power cost will disrupt household tranquility there, as even tiny-to-non-existent boosts in food or power costs (for alarmist purposes, use only nominal dollars, and never adjust for inflation) seem occasionally to do here. Detailed reports in The Economist Magazine and The Wall Street Journal have recently described how Germany’s decision to shut down all nuclear power and replace it with bio-mass will triple household energy costs there, in an elaborate combination of ratepayer costs, governmental subsidy, earner taxation, and additional debt all needed to pay for the three-times-more expensive but politically more-attractive, carbon-footprint-doesn’t-matter, non-nuclear kilowatt.

Germany’s just re-stated government commitment to nuclear shut-down by 2022 means that 20% of its power will have to come from other sources, such as the coal fields in the Ruhr region east of the Rhine which were a key element in WWI, or the oil wells in the Ploesti region of Romania, a key element in WWII. Both, once deemed worthy of warfare to control, are now considered secondary to bio-mass from farms and forest, organic matter which historically stayed on the land to improve future crops, and now won’t. Interestingly, the organic-matter-in-soils questions weren’t mentioned by either news source.

Comparing German household expenditures on food and fuel with their US counterparts can be done generally: as in all European countries, such essentials cost a higher percentage of a lower household income than here; but not specifically, because of complications caused by governmental subsidies which reduce visible retail prices while increasing not-so-visible income and value-added tax rates. Even so, a three-fold jump in power costs will surely attract some householder attention; the question for the German experiment, therefore, is, how much.

We’re not told what percent of household spending goes for energy in Germany, compared to the less-than-3% here, but assuming that it’s about the same –less auto usage, more public transit, less square footage per household, higher unit costs for energy purchasers– the 3% would jump to 9%. Thanks to various subsidies, social-service, and income-re-distribution systems, it most likely won’t show up as the full 9% on the utility and fuel bill. But even if it doesn’t, what would a lesser percentage do to public opinion? Chancellor Angela Merkel doesn’t know. It would take far less than that, in any proposal for any State Public Service Board to increase ratepayer costs for US kilowatts, for an unmistakeable voter response to show up in the next election. That’s what’s about to happen, as Vermont, in a similar experiment far smaller than Germany’s in total nuclear output, but far larger than Germany’s in terms of percentage of State power useage, finally succeeds in meeting the Montpelier-majority goal of Vermont Yankee shut-down.

The Vermont picture is complicated by recent changes in VY sales: once all in-State (30% of the total) now all out-of-State, power now goes into the New England sector of the Northeast grid, where some percentage eventually ends up in-State anyway, but it will be a Vermont Experiment like the German one. Will it be a 9% increase, as predicted by The Economist and The Journal? And what will household-voter reaction be? We’ll soon know in both governance jurisdictions.