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Not a Promising Start for Liz Truss

Here’s a letter to CNBC


Britain’s Prime Minister Liz Truss plans for government effectively to reimburse each household for energy expenses above £2,500 annually, with (as you describe it) an “equivalent guarantee for businesses for the next six months [and] further support for vulnerable sectors such as hospitality” (“New British PM Liz Truss announces a cap on energy bills to combat cost-of-living crisis,” Sept. 8). In making this announcement, the prime minister, as you report, “also suggested businesses should look at ways to become more energy efficient.”

I’ve never encountered a clearer example of economic illogic than this scheme by Ms. Truss to shield Brits from high energy prices. High energy prices reflect the underlying reality that energy in Britain today is especially scarce. This reality is unfortunate, but as the economist Thomas Sowell reminds us, reality isn’t optional.

Yet by reimbursing each household and business in Britain for energy that it uses above a certain amount, the government will encourage, not the energy efficiency for which Ms. Truss pleads, but energy inefficiency. With each household and business able to offload its cost of high energy consumption on to taxpayers, each household and business will be shielded from the reality of energy scarcity. Collectively, all will thus attempt to use far more energy than is available. The results will be ugly.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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