Recently, major parts of Queens, New York, were without electricity following a failure of power that plunged much of the city into darkness amidst sweltering heat for more than a week.
For many, it was the Ten Days of Hell. There were thousands without air conditioning, lights, refrigeration, internet connections, and, well, modern life generally.
And get this: no one is sure why, precisely, it happened, other than to say that the system became overloaded. What will happen as a result? Hearings, reports, meetings, yammering, resolutions, reforms, and, in time, another blackout followed by hearings, reports, meetings, etc.
What do the consumers do about it? They follow the news and keep paying the bills, to the same company that let them down. They can’t switch. They can’t influence the production process. They are powerless in more ways than one.
Meanwhile, on the other side of the country, California residents are putting up with blackouts, threats of more blackouts, denunciations from politicians, and even death: 56 people so far.
And in Texas, “consumer advocates” are pushing for re-regulation of electric rates, having most recently convinced regulators to keep companies from terminating service to customers who don’t pay their bills.
All because of a heat wave, and all because the structure of the industry is not designed for extremes.
Now, if markets were in charge, a heat wave would not be looked at as a problem but an opportunity. Entrepreneurs would be swarming to meet demand, just as they do in every other sector that is controlled by markets. The power companies would be praying for heat waves!
After all, do shoe manufacturers see a massive increase in footwear demand as a problem? Do fast food companies see lunchtime munchies as a terrible threat? On the contrary, these are profit opportunities.
Just who is in charge of getting electricity to residents? Public utilities, which usually means “state-run” and “state-managed” enterprises, perhaps with a veneer of private trappings.
This centralization and cartelization began nearly a century ago, as Robert Bradley points out in Energy: The Master Resource, when industry leaders agreed to price controls based on a cost-plus formula in exchange for franchise protection from market competition- a formula that survives to this day.
Then the economists got involved ex post and declared that electrical power is a “public good,” under the belief that private enterprise is not up to the job of providing the essentials of life.
In this system, the priorities of regulators rather than customers are the focus – thus entrepreneurial development is hindered. Entrepreneurs and investors do not compete for the opportunity to meet growing consumer demand. Instead, the system has become focused on limiting consumer demand.
Markets don’t criticize us for our “consumerism” and “greed”; if anything, these things are courted and encouraged. Indeed, isn’t this why markets themselves are criticized? They encourage consumers to spend, spend, spend, consume, consume, consume. Today, however, we are criticized for not wanting to live in 90-degree houses and sleep in puddles of sweat.
How New York, California and Texas consumers would adore a setting in which power companies were begging for their business and encouraging them to turn down their thermostats to the coldest point. Competition would lead to price reductions, innovation, and an ever greater variety of services – the same as we find in the computer industry.
The Texas Public Policy Foundation has documented some of the benefits to Texas consumers due to the state’s partial deregulation of electric rates. Yet, in order to “protect” consumers, some would roll back the clock to the old regulatory schemes that led to the New York blackouts.
Contrary to conventional wisdom, we are learning that many essential sectors of life, like electric power, are far too important to be administered by bureaucracies unable to respond to consumers’ needs. How the electric system should be organized we can’t say in advance: that should be left to competitive markets. Whatever the result, you can bet the grid would not look like it does today, nor would its management be dependent on the whims of political jurisdiction.
Competition exists so long as the state is not prohibiting other companies from trying their hand. This means we don’t need two or more companies serving every market. What we need is full, complete, uncompromised deregulation and privatization.
Lew Rockwell is president of the Mises Institute and a fellow at the Texas Public Policy Foundation’s Center for Economic Freedom.