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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 solution is MORE regulation, not less.
The rates need to be regulated, and the private companies need to be taken over by nonprofit public organizations.
Every time deregulation is tried, consumers get shafted.
There are no free markets. There are only markets controlled by governments and markets controlled by customers. The markets controlled by customers work out pretty well for customers. The markets controlled by governments work out pretty well for governments and the politicians that run them and the lobbyists who fund them and the corporations who make money because the politicians control the markets in their favor.
Don't piss off The Angry Economist
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
About deregulation and about how my butt still hurts from the Enron assrape. I'm normally a free-market kind of guy, but I learned a lesson on this one.
"Eve of Destruction", it's not just for old hippies anymore...
<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
If we went back to airlines handling security, the market would handle any rogue airline that required the security people to make people choose between groping and naked scanners. That's for sure.
By taking away the choice, we have all lost freedom.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
For a couple of years, I worked in the UK electricity industry, which was at least partially deregulated in 1998. People look at me funny when I say I've got candles and tinned food stashed away, but I expect every winter to be the one where it all comes crashing down.
A big part of the problem, at least for us poor schlubs charged with getting the billing right, was that all these deregulated entities keep getting bought and sold. And every time they do that, there's a data migration, which almost invariably gets screwed up. Bad data piles on bad data on bad data, with fixes promised but never delivered in time for the next buyout. One region in particular had one standard evening/weekend meter set-up and no fewer than four different versions of that reality in their database. The net effect was to flip their predicted e/w usage pattern upside down. That usage pattern is what gets fed into the National Grid computers for demand forecasting. See where this is going?
I'm told that the larger "half-hourly" stuff is in somewhat better shape, which is probably why the whole thing's held together so far. But if what I saw was what you can expect from a deregulated energy industry, I'd say there's good reason to be afraid...
You may be too young to know, but you used to not be allowed to own your own phone. You had to rent one from the government monopoly. It was a crime to hook an unapproved device to your telephone line. Deregulation allowed people to do evil unapproved things like run BBSs in their houses and hook modems up to their phone lines.
If you're talking about the US, that's exactly backwards. It was a breach of your contract with the telephone company - which was allowed to become a monopoly by the US government - but not a crime, and it was actually government regulation that forced the phone companies to allow you to connect phones and other devices not rented from the company.
Nobody said those things should be free. But developed countries have measures to ensure that people can obtain them even if they couldn't afford them in a pure free market - precisely because they are essential. But that's unrelated.
Infrastructure is a prime candidate for regulation, because of its "natural monopoly" character - in the absence of regulation, it's very easy for a dominant company to squeeze everyone else out and then exploit their monopoly. Telephone and internet connections got a lot cheaper and faster here (UK) when the dominant phone company were required to let other providers use their network.
Just look at all the "innovation" that companies like Enron brought to a deregulated energy market! Let's ask California how well that worked out for the average consumer. While we're at it we can look at deregulatory laws like the Commodity Futures Modernization Act and the repeal of Glass-Steagal that enabled such "innovation". The "free market" for oil is now run by speculators who can buy and sell contracts for millions of barrels of oil but never have to take delivery, creating false demand and squeezing millions of dollars a day from average americans as they have to pay over $3.00/gal to fuel their vehicles. What else has deregulation done? How about all those nasty little unregulated derivatives such as MBS(mortgage backed securities) that imploded the world economy? That's financial "innovation" like the world had never seen before. All thanks to deregulation, yay!
All things are subject to interpretation, whichever interpretation prevails at a given time is a function of power and n
For the same reason "life isn't fair"
As long as 1% of the total population controls 90% of the wealth, there is no such thing as competition or free market capitalism.
I like competition and I dislike government intrusion but there is a reason FOR government and that is to protect it's citizens, that includes protection from economic crimes as well as physical ones.
The middle class is shrinking regardless of which ideology is popular that month. People are losing their homes left and right, jobs are going over seas and yet still so many people are ignorant to the real issues.
Deregulating natural monopolies doesn't solve the problem. It just hands a blank check to a corporation chosen by the government to fuck it's customers however it chooses.
Free market is an oxymoron to anyone that actually understands what the two words mean.
From TFA:
Such arguments were compelling enough to convince two dozen or so U.S. states to deregulate their electric industries. Most began in the mid-1990s, and problems emerged soon after, most famously in the rolling blackouts that Californians suffered through in the summer of 2000 and the months that followed. At the root of these troubles is the fact that free markets can be messy and volatile, something few took into account when deregulation began. But the consequences have since proved so chaotic that a quarter of these states have now suspended plans to revamp the way they manage their electric utilities, and few (if any) additional states are rushing to jump on the deregulation bandwagon.
Yeah, so, how about not continuing this experiment with our critical infrastructure?
Not to mention that a business which a) has extremely high barriers to entry and b) is inherently a monopoly was never going to have much of a "free market" to begin with. Of course trying to force it to act contrary to its nature, by fiat, is only going to create problems.
As far as wisdom and foresight go, this is bottom-of-the-class material here.
It's amazing that there is so much debate about this. If you take a hard look at this debate, it's the same old story every time. It just gets rehashed every now and then as though it were a new issue, as though this "debate" were covering new ground. The truth is it never moves forward. It moves in circles. Really, how hard is it to understand that natural monopolies are not fertile ground for free-market principles?
I'm all for free markets. I want them to succeed. This one can't. The reason electrical service has higher prices, lower service, outages, and other problems when you try to treat them like free markets is because they are not free markets. You will never have an electrical free market until it becomes cheap, reliable, and cost-effective for each home to be "off the grid" and generate its own electricity. Until we come up with that kind of technology, we're going to need local monopolies to deliver electricity to us. Because monopolies are inherently abusive, they need reasonable regulation and close scrutiny.
Please can we stop presenting this as a new and interesting issue? It's neither. It's more like an algorithm that produces the same results each time it iterates.
It is a miracle that curiosity survives formal education. - Einstein
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
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...