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How the Free Market Rocked the Grid
sean_nestor sends in a story at IEEE Spectrum that begins:
"Most of us take for granted that the lights will work when we flip them on, without worrying too much about the staggeringly complex things needed to make that happen. Thank the engineers who designed and built the power grids for that — but don't thank them too much. Their main goal was reliability; keeping the cost of electricity down was less of a concern. That's in part why so many people in the United States complain about high electricity prices. Some armchair economists (and a quite a few real ones) have long argued that the solution is deregulation. After all, many other US industries have been deregulated — take, for instance, oil, natural gas, or trucking — and greater competition in those sectors swiftly brought prices down. Why not electricity?"
No, the real free market solution (a.k.a. the ones politicians would never propose) is that you get a whole bunch of power companies competing on the same grid, attempting to be a lower cost than one another, and give consumers a choice of who to pay for their power. You don't regulate the price directly, or directly control the companies providing the power; that's a recipe for disaster. Granting a monopoly, whether government or private, is going to cause bloat and high prices, then eventual failure of the system.
Airplane tickets are fantastically cheap relative to 30 years ago when the deregulation started. You could pay $1,000 to fly coast to coast in 1980 dollars. Now, the last time I flew it was $450 in 2010 dollars.
Don't piss off The Angry Economist
Exactly. In every country I have been in where it has been deregulated, the result has been higher prices and lower service. Somehow we must nail this myth that deregulation means competition: it doesn't, it means cartels, and it means the ownership of the productive capacity passes into the hands of ignorant investors and greedy bankers instead of the producers, so you end up with energy companies being owned by anonymous, uninterested, and incompetent asset-strippers.
<sarcasm>I am always surprised of how easily these "neocons" forget the most basic economic concepts of the system they worship... They forget things basic concepts like ROI, entry barriers and so on, as long as forgetting them favours their dogmas.</sarcasm>
In short, in Capitalism 101 we saw that, in a pure free market, if sector A has profits better than sector B, then inversions will flow from sector B to sector A, increasing supply until price drops, and profits in both sectors are the same.
In Capitalism 102, we saw that, in real life, maybe building a new enterprise in sector A is not just as easy... it may require huge inversions, a big risk (if by entering the market they lower collective profits, maybe the ROI won't be positive), and outright collusions (for example, all enterprises in sector A join and tell you "if you enter into our sector, we will presure our suppliers so nobody does provide you with the materials you need if they want to do bussiness with us").
In Campitalism 103, we all saw what happened to Enron.
In my country, the former monopoly of telcos (Telefónica, now Movistar) still is the only supplier when you need some services in some geographical areas (not by law, but the other telcos do have wanted to get the infrastructure). Sometimes when they have lost a contract with us, they have blocked providing the service through the winner to the maximum that the law allowed them (and at least we have some law forcing them to provide the service in a limit time).
Of course, some illuminated people will only repeat Capitalism 101 lessons while covering the ears to avoid realising what they are really saying...
Why can't
I sent this in to Slashdot yesterday and it was, of course, not used.
http://www.businessweek.com/news/2010-12-23/why-businesses-can-t-stand-free-markets-veronique-de-rugy.html
It's a great article in Bloomberg businessweek about how so many companies DON'T want a free market and all the hypocrisy going around about the term...
We tried this crap in California 10 years ago. All the utility companies did was shut down their plants to cause demand and high prices. Remember that company....Enron? PG&E bankruptcy? It ends up being collusion and not competition.
I've got 101 mod points and you can't have them!
In Alberta, Canada we have deregulation. Production, transmission and sales are 3 separate entities. You buy from whoever you want. Transmission and consumption are charged as separate items on the bill. Both charges have a fixed rate and a variable rate based on usage. The power bills have more than doubled. The sales people tell customers we can lock you in for 3 - 5 years because rates are going way up. The lock in ends up being higher than the regulated rate (This was kept for those who didn't sign up).
We could buy power and gas from a British company that didn't have any gas wells, pipelines, generators, or wires in Canada.
Do what is right. You will please some and astonish the rest. --Mark Twain
Seth Blumsack, the author of that offensive lie, should be forced to read aloud the live data feed of the oil and gas market prices. For the rest of his life. Oil and gas prices have skyrocketed without regulations protecting us from speculators, supply side manipulation, and every other kind of abuse the market manipulators cook up. Trucking is a random example of an industry never properly regulated enough that is also not actually deregulated.
But right there under lying Blumsack's byline is a cluster of pictures of Enron creating a faked energy crisis in California, because deregulation allowed it. Of course, that crisis also required Bush and his lying "free marketeers" to be running the Federal government, which is obligated to protect one state from interstate commerce abuses that damage it - which is what Texas deregulation allowed by keeping Enron's practices and books secret, even though California's deregulation required opening them.
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make install -not war
We've got the same scheme in Texas. Electric bills changed from being a simple "Your used X KWH last month, pay us X * 0.10 dollars" to being like cell phone contracts with opaque pricing models, multitudinous fees, taxes, and surcharges, two-year commitments (with early termination fees), etc. Unsurprisingly, we now pay more on average than people in surrounding states where electricity is provided by a monopoly public utility...
0 1 - just my two bits
Deregulation in California is what drove the sometimes 2000% increase in electricity costs that peaked in 2003. It brought us Enron and the recall of Governor Gray Davis.
Blindly recommending deregulation on a commodity that is bought and sold in an a marketplace that promotes investing and speculation instead of direct production, distribution, and consumption creates a situation that will blow up unless it is regulated in some fashion.
(Of course the SEC has shown it can really keep a handle on this type of thing... hmmm... uhhh, urrrk...