My recent work on electricity deregulation (the Texas Electric Meter and related commentary) has generated quite a bit of criticism. One (friendly) critic sent me an article by Scott Hempling, executive director of the National Regulatory Research Institute, with the following quote, “Competition and regulation share a common purpose to align private behavior with the public interest.”

Of course, competition and regulation are not aligned toward the same end-regulation is by its very nature intended to change the outcome of what would have otherwise happened through competition, i.e., the voluntary actions of buyers and sellers, in the market.

For instance, in a particular electricity market, 100 MW of power is sold by 5 generators through 10 retailers to 100,000 people at an average price of 12 cents per kWh. This is the market result. However, perhaps someone thinks 12 cents is too high. Or that some of the retailers or generators made too much profit. Or that the generators and retailers communicated/cooperated too much (some would call it collusion). Or that too much pollution was generated in the process.

Whatever the objection, the only reason to impose regulations on this-or any other-market would be that someone for some reason is dissatisfied with the results that the market produced. So the article-which is intended to support the imposition of regulations on markets-gets it wrong from the beginning.

It is important to understand the implications of this: the sole raison d’être of regulations is to allow a relatively few regulators to forcibly change the behavior of the relatively numerous producers and consumers in the marketplace. Or, in other words, to limit the ability of people to use their own private property and labor as they think best.

Now we can certainly have a debate about under what circumstances the “public interest” is served by imposing regulations on a marketplace. But the coercive nature inherent in regulations ought to give everyone pause as they ponder what benefits might ensue from imposing restrictions on the actions and property of others.

– Bill Peacock