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Source link: http://archive.mises.org/5384/the-real-cause-of-blackouts/

The Real Cause of Blackouts

July 26, 2006 by

Energy is far too important to the very core of life today to be administered by a bureaucracy that lacks the economic means to provide for the public. How it should be organized we can’t say in advance: it should be left to the 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. FULL ARTICLE

{ 30 comments }

Scott Stinson July 27, 2006 at 6:10 am

An truly unregulated could deliver more energy at a cheaper price. But the real question is how unregulated a “deregulated” market will really be. After all, if other competitors cannot get in the game, the “deregulated” company will have the freedom to hike prices as it pleases.

Consumers may want more energy. But will those same consumers allow another company to put up a new power plant in their backyards? And what about the delivery system? Over 10 years ago, several cities in America voted on resolutions to allow another energy company to build extra power lines. Overwhelmingly, the voters rejected those resolutions. Most public utilities in America provide reliable energy at a reasonable price.

If the public utility companies in America were ran by incompotent bureaucrats like the one in NYC, citizens do have the option of purchasing generators or solar panels.

Rather than rewriting all the complicated laws in America, there is an easier solution to preventing more blackouts in NYC. Hold one hearing and fire the incompetent bureacrats who are running the electric company in NYC.

Biff July 27, 2006 at 7:50 am

Scott says: “Hold one hearing and fire the incompetent bureacrats who are running the electric company in NYC.”

You really think that will fix it? Replace bureaucrats? Who do you think will be the replacements? Yep, more bureaucrats.

Beau R. Krat July 27, 2006 at 8:31 am

Replace the bureacrats! Sounds like Joe Stalin talking about why the latest economic plan isn’t working.

N. Joseph Potts July 27, 2006 at 9:26 am

From Scott Stinson: “Most public utilities in America provide reliable energy at a reasonable price.”

Here is a monumental, but too-common, failure of imagination. What is this reasonable price (yes, the RATES are known), and might some lower price be MORE reasonable? To say some (unknown) price is reasonable has no meaning beyond the writer’s viewpoint – the term “reasonable price” doesn’t exist in my vocabulary, since a lower price is always more reasonable in my book.

Firing employees of Con Edison usurps the property rights of the people (stockholders) who paid for Con Ed’s generators, transformers, and transmission lines. No doubt, here you’re talking here about confiscating said infrastructure (with or without compensation?) and turning its operation over to the people who brought us the postal service, or their close kin. Something in this plan worries me . . .

M E Hoffer July 27, 2006 at 9:29 am

The centralization of power production is a major bottleneck to greater Economic efficiencies, including fewer “service interuptions”.

It’s interesting to see the above comments re: Stalin. I wonder how many are aware that the U.S.(Gov’t and its “agencies”) has more than its own fair share of similiar plans.

We have some institutionalized problems vis-a-vis our accounting of “Economic” activity, in whole, and, especially, Industrial “production”, in specific. This gets in the way of Economic activity that provides greater efficiencies, leading to increased Economic & Financial ‘profits’.

Our Economy, and its measures, are largely predicated upon ‘Waste’. The current tally of GDP gets bonus points for using more, and is ‘penalized’ for using less (conservation/efficiencies, in any/all stripes).

All said to provide context for: Swithching to massively distributed power generation and harnessing more thermal energy, from the Sun, through mere ‘absorbtion’, thereby increasing multi-various measures of efficiency(-ies) faces the additional uphill battle, in light of accusation, of “shrinking” the Economy. Such, surely to be made by the same “Polaroid”(read: Keynesian) ‘economists’ that lend their weight, and owe their livelihood, to the State that is at the heart of the “blackout” problem.

Here’s betting that the “blackout”, after all the food is replaced, and cars are repaired (as minimum examples) will be considered a + for the Financial Economy.

btw, this: “After all, if other competitors cannot get in the game, the “deregulated” company will have the freedom to hike prices as it pleases.”– is a canard, based on the snap shot developed by decades of State intervention in the power supply market. The Market would/will allow electrons to flow, like water, to where it is directed, by demand v. Command.

As per usual, many of these technologies, able to animate the above discussion, are and have been among us for many years.

adi July 27, 2006 at 9:47 am

Ordinary people and the politicians are complaining loudly over increasing electricity and fuel prices here in Finland also…

Its said that our electricity market is “deregulated” when some major companies control our main transmission operator Fingrid which also has some regulatory duties.

When Russian company wanted to build a power transmission cable from Russia to Finland most producers were quick to complain that this will lead to greater dependency on Russian electricity and it will also cause problems with the main transmission network ( supposedly network cannot handle that much new transmission ).

Asko Kauppinen, student of econ, University of Joensuu, Finland

billwald July 27, 2006 at 11:44 am

What is the Libertarian solution for the west coast manipulation of the electricity spot market 3 years ago?

Did the power companies have a Libertarian “right” to take power plants off line in the middle of the summer?

What is the Libertarian solution for power line construction? Should a start up company have a Libertarian “right” to put up their own power poles or would a Libertarian govt require the existing power companies to lease power lines? Who would set the lease price? If a property owner refused to give a right of way for a new power line any any price should the project be cancelled or should the company be required to go miles out of their way?

I live inside city limits. A 5 MWH turbine would probably fit inside my lot lines. Should I be permitted to build a 70 foot tower and start my own power company?

Paul Marks July 27, 2006 at 11:50 am

One must keep alert for the misuse of language.

A couple of years ago the media were shouting about the “failure of deregulation” in California (they were filled with joy as this seemed to fit in with the statist assumptions they were taught at school and college) – it turned out that this “deregulation” left price controls in place.

As for wicked energy companies pushing up prices (because setting up an alternative energy supply is supposdely so expensive) – are we not endlessly told (by much the same people who warn about the wickedness of big business)that energy is “too cheap” and this is “destroying the environment”.

It is much the same with what we in Britian call petrol (car fuel). If the price is low the academics and the media say “people will use too much, we need government action to save the environment” and if the price is high they say “we need government action to reduce the price”.

Government action is demanded – whatever the situation is.

There is nothing “empirical” (as they claim there is) about talk of “market failure” and demands for statism – statism is belief system, it has nothing to do with any set of facts of statistics.

If people in the coal or atomic power industry really pushed up prices what they would be doing is (for example) opening the door to the new generation of more efficient solar cells that are being developed.

Vince Daliessio July 27, 2006 at 12:15 pm

billwald,

Electric power (so-called ‘deregulation’ to the contrary)is a fully-regulated government monopoly from top to bottom. California’s notorious deregulation scheme fixed retail prices charged to consumers, while freeing some generation and transmission from regulation, leaving huge monopolies in those sectors free to raise prices to whatever level they wished, which they did. The generators tied to the distribution companies could not raise their prices to meet demand and had to shut down. The mayhem that ensued got Gray Davis recalled.

The libertarian solution? Complete, total deregulation of electricity. Let all who want to provide, provide, retaining all liability for their generation, transmission, and distribution, using their own property. If voters vote down new generation, transmission, or distribution under this scenario, let them sweat in the dark.

MBC July 27, 2006 at 12:23 pm

No mention of the 500,000+ people without power in eastern Missouri? More than 1 week later, there are still 41,000 people out of power.

Better reporting is required

Francisco Torres July 27, 2006 at 1:00 pm

What is the Libertarian solution for the west coast manipulation of the electricity spot market 3 years ago?

The answer is REAL deregulation, and not the phony “deregulation” that Californian politicians prescribed upon Californians.


Did the power companies have a Libertarian “right” to take power plants off line in the middle of the summer?

Yes, when prices are so heavily controlled by the State, that loses are imminent. Again, it is government playing VISIBLE hand.


What is the Libertarian solution for power line construction? Should a start up company have a Libertarian “right” to put up their own power poles or would a Libertarian govt require the existing power companies to lease power lines?

A Libertarian government? That is a contradiction in terms. Poles, lines, leasing… all this would be left to the market. If a company does not find the investment in new lines profitable, they have an option to lease other companies’ lines – no need for government intervention.


Who would set the lease price?

Uh…. THE MARKET??? Competition? C’mon, bill, you are still thinking in statist terms: NOBODY “sets” anything; prices are set naturally by the force of MILLIONS of decisions we take every day. A government simply cannot replicate this complex decision-driven network.


If a property owner refused to give a right of way for a new power line any any price should the project be cancelled or should the company be required to go miles out of their way?

Whatever is more financially feasible. As simple as that. The other solution would be to call Papa-government and ask it to expropriate the owner’s property…


I live inside city limits. A 5 MWH turbine would probably fit inside my lot lines. Should I be permitted to build a 70 foot tower and start my own power company?

Why not? If you have the money and resources, why the hell not? If you can supply happy customers with clean electricity, and [God forbid!] make a profit, why should you be stopped from doing it?

Nathan Reed July 27, 2006 at 2:51 pm

Billwald:

Before construction and other investements you may want to check any covenants or other obligations/limitations that may be binding on your property ownership. But the good news is you will not need to check with the government.

I might also suggest that you do some market studies and cost analysis. Would hate to see you find out your idea is not economical after a large investment.

And keep in mind that even if you are clear with regards to property rights that is no guarantee that the market will be happy with someone who mis-located their operation and displeased their potential customers. Of course you probably already thought of that when you did the feasability on how you were going to distribute your product.

Man, this ripping off the customer to make bunches of money is really easy when you eliminate the govt. All you have to do is respect property rights.

Larry N. Martin July 27, 2006 at 7:32 pm

There are plenty of people who, like Bill Wald, will never believe you when you try to tell them the extent that government interferes in the market, as it does and did in the California situation. They will never believe the government had anything to do with the Great Depression, either.

Dan Mahoney July 27, 2006 at 7:41 pm

Libertarians need to be careful what they promise. The case for
deregulation rests on economic rationality, i.e., to ensure that
factors of production are directed into the most profitable
endeavors. It *cannot* rest on dubious claims about lower consumer
good prices that will supposedly result, because there is no reason
to believe that a particular good will fetch a lower a price under
a deregulated market than a regulated market. Indeed, there is no
reason to believe the good will be produced at all under the two
scenarios. Prices can rise under a free market, after all. What is
true under deregulation is that only those most profitable lines of
production will be pursued, which is not the case under hampered
markets.

On this same topic, consider the case of electricity deregulation in
Maryland (which Rockwell ignores for some reason). Obviously this
program was flawed, as in California, but one of the premises 6 years
ago was supposedely that lower power prices would be brought to
consumers *now*, when deregulaton was to be fully instituted. However, much
has happened in the markets since then, specifically a huge rise in
natural gas prices, which form the marginal cost units in the
generation stack. Quite apart from the reasons why *these* prices
have risen, it should be clear that such cost increases could occur
in a completely free market. In such a case you could see rising
power prices then, as well! Utopian fantasies about lower costs and
increased production are fallacious, because consumption and
production are integrated processes. This fact should not be ignored.
And forecasts about what future prices will be should best be left
to those willing to put their money where their mouths are.

Eric July 27, 2006 at 8:54 pm

It’s quite easy to see which resources are distributed by a free market and which are regulated regardless of what those in the regulation business call it. I live in California and what was called de-regulation was simply re-regulation. Here’s a list of resources, can you guess which is regulated and which is not:

Power: batteries, vs. power delivery. The only time batteries are in short supply is when they are regulated, say during an emergency and government goes after the so-called price-gaugers.

Transportation: cars vs. highways. We have all the cars we want, but the roads are clogged.

Airlines: planes vs. Airport and traffic control. Ditto, all the planes we need.

Video and audio communications: In 60 years, we’ve had one or two increases in the quality of TV video resolution and we’ve been stuck with the old AM and FM analog bands for audio. The regulators decided that compatibility should trump innovation. If PC’s were regulated, every computer would still have to use punch card input.

On a computer, we can have almost any resolution or audio quality we want. Audiophile equipment has changed from records, to tape, to cd, to mp3 etc. Whatever the consumer prefers. An early attempt at "quadraphonic" failed because consumers didn’t want it. Now we have 6 or 7 channel sound and it doesn’t cost 7 times as much. The consumer rules.

Education: truly private schools vs. public schools. There are fewer and fewer private schools left, but look at Mises.org vs. the rest of education. Education is supposed to be vital and so can’t be left to the free market, hence, public education.

Well, food is more important than education. Can you imagine if food was regulated like schooling? We’d have huge lines with nothing to buy. There’d be food board meetings (thanks Harry Browne for this analogy) to attend to argue what products should be on the shelves.

The problem is obvious. The question is this: Is mankind the sort of animal that can live in a free society or is he doomed to live under a socialistic regulated Mafia like control. Are the people who want to rule over others a product of evolution and is it simply against human nature to live in a free society?

Clearly, history has but few examples of people living under a truly free society. America in her youth was just such an example, but perhaps freedom is unstable and will always degenerate into totalitarianism.

I tend to think we are doomed. Looking at nature, I see examples that arise, such as parasites living off other parasites living off hosts. Therefore, in evolutionary terms, I think we will probably never be able to have a free society. Our nature is that we are here because we are descended from survivors. Nothing in that evolution required that we be happy or free. Slaves survive.

Alex Kozak July 27, 2006 at 11:46 pm

Wasn’t it issues with deregulation that caused the CA power crisis in the early 2000s? Isn’t it irresponsible to think that its even possible to have such a vital industry deregulated in ther first place?

bill stender July 28, 2006 at 2:01 am

the power grid was reliable, affordable AND profitable for its operators prior to deregulation.

the breakdowns of the deregulated power grids are the simple result of being freed from the onerous responsibility of maintaining them.

Curt Howland July 28, 2006 at 8:04 am

Alex, there was no deregulation as you and I understand the word. Regulations were not removed from the books, they were simply reworded. In fact, there were more regulations in that the power companies were denied permission to make long-term contracts for power.

So the power companies were forced by government to buy power on the “spot market”, which means prices went up any time there was a spike in demand, with no guarantees that there would be any power available.

Result, as is obvious to anyone expect a government bureaucrat, shortages.

Oh, and it was illegal to raise prices regardless of cost. Again the result, shortages.

Yancey Ward July 28, 2006 at 9:43 am

Bill Stender,

I guess Exxon Mobil should find a way to free itself from the “onerous responsibility” of producing oil.

The California “deregulation” failed because it did not actually fully deregulate it, and actually added regulations that were economic nonsense, thus producing systems that were sure to fail. If I were trying to devise a method of smearing free markets, I would design a similar kind of “deregulation” for any government enforce monopoly.

bill stender July 28, 2006 at 1:43 pm

I guess Exxon Mobil should find a way to free itself from the “onerous responsibility” of producing oil.

bad analogy. the ‘marketplace’ for a power grid is a bit different. the grid is a natural monopoly to deliver a vital resource. there is no fear of competition and no incentive to maintain it beyond what is absolutely necessary. if you save money on upgrading and preventative maintenance you may ultimately face insolvency someday in the future, but as you know that the public will ultimately fund those major repairs because they have no choice, you would be considered foolilsh not to milk it for all it’s worth right now. the grid is invaluable no matter what state it is in, you can’t gain by maintaining a high standard of repair.

and the california market wasnt designed that way to ‘smear markets’, it was designed that way by ‘free market’ pirates so that they could wring maximum profit…

and of course they proceeded to do just that. until everyone rises up to become Randian pillars of virtue, there will always be a need for laws protecting the public trust.

and to the guy building a 70′ tower on his ‘property’… if you don’t want to respect our desire to NOT have a giant tower next door, then me and the rest of the neighbors are going to cut it down… is that the way you want to play it?

Freedom is mostly enjoyed by powerful men. Unsurprisingly, they are the ones who put Freedom on a pedestal and dismiss the Limitations necessary to maintain civil society.

Eric July 28, 2006 at 5:40 pm

Bill, how can you say that the power grid is a natural monopoly? You mean it would be impossible in nature to put up more than one power grid?

But ya know, most people who vote would probably agree with you. It does take some private education, like that found on mises.org, to understand the economics of monopolies, and especially the kind that is clearly not “natural”.

That term was even applied to Microsoft, when it even had all sorts of competition. As Lew has pointed out many times, the government doesn’t want you to understand this, or you would see right through it and discover that the only way to improve things is with libertarian economics.

It is when people visit this site and still don’t understand, that I give up hoping for a better world. Humans are like dogs. There’s always one top dog who rules by force. That’s probably why we get along with dogs so well.

bill stender July 28, 2006 at 6:34 pm

Bill, how can you say that the power grid is a natural monopoly? You mean it would be impossible in nature to put up more than one power grid?

it is possible, but so ridiculously redundant and functionally impractical that it is not done. you may think that politicians only live to stifle free market competition, but in actuality, they answer first to the captains of industry. do you have any doubt that if those captains wanted to build multiple grids, that is, if it made sense to build multiple grids, that it would not have been done long ago?

it makes sense to build one grid for an area and thus you have to regulate the monopoly or you get the inevitable problems that we are seeing now. the public was betrayed by their erstwhile representatives by deregulating, as they have been on many fronts at the behest of the big dogs.

yes, we are a society still run by big dogs, perhaps forever, which is why carving out something resembling a civil society is unfortunately only accomplished with the aid of well-armed dog catchers. Libertarians like to skip over that inconvenient fact, assuming that their own true moral compunctions are probably pretty much the same for everyone. Sadly, NOT! Either that, or they are in fact a big dog and simply want those pesky dog catchers done away with.

Paul Edwards July 28, 2006 at 7:27 pm

Eric,

“Humans are like dogs.”

My dog and I do not appreciate that remark. She is very easy to get along with and respects property rights very well, except for the occasional lapses with personal necessities that she takes care of during our walks (which my wife removes from the victim’s lawn). But anyways, she generally doesn’t violate anyone’s property.

Paul Edwards July 28, 2006 at 8:00 pm

Bill,

“it is possible, but so ridiculously redundant and functionally impractical that it is not done.”

The free market would arrive at a more ridiculously redundant and functionally impractical solution to the provision of electrical power than the state?

“you may think that politicians only live to stifle free market competition, but in actuality, they answer first to the captains of industry.”

Well NO and YES. They live to enrich themselves with power and money. The don’t really care if they have to stifle free market competition do achieve this goal, but it turns out stifling competition to the advantage of certain larger and wealthy corporations is one sure way to accomplish their main objective.

“do you have any doubt that if those captains wanted to build multiple grids, that is, if it made sense to build multiple grids, that it would not have been done long ago?”

Do you mean that you think the politicians are out for the good of the consumer, doing what they can to ensure the free competitive market decides how such services will be provided for the optimum satisfaction of the consumer? Do you think they would not prefer a monopoly if for one reason or another it resulted in more political power or wealth for themselves? I don’t know on what basis you would think so.

“yes, we are a society still run by big dogs, perhaps forever, which is why carving out something resembling a civil society is unfortunately only accomplished with the aid of well-armed dog catchers. Libertarians like to skip over that inconvenient fact, assuming that their own true moral compunctions are probably pretty much the same for everyone. Sadly, NOT! Either that, or they are in fact a big dog and simply want those pesky dog catchers done away with.”

The big dog/dog-catcher metaphor is over my head. I presume the big dog is the big state-big business-big media complex. But who might the well armed dog catchers be? Surely not the state as well? Here is the way it is: if you put political power in the hands of men, it will be sold to the highest bidder. This can’t be helped because all men are self-interested and those men interested in political power are the most self-interested. If we eliminate access to political power altogether, we necessarily give economic power back to the consumer. In a free market, it is the consumer who calls the shots, not big business, not big media, not big intellectual elites, and not, of course the government. Any perception that the government will or even intends to look out for the interests of its underlings is purely illusory.

averros July 28, 2006 at 8:01 pm

Bill Stender –

you obviously never heard of micro-generation.

Besides, the “redundancy” claim is ridiculous. It shows the total lack of comprehension of the value of competition. This argument was exactly what was used to justify the Soviet 5-year plans – eliminating “redundancy” for the sake of efficiency.

What none of the central planners seem to understand that the besides economic “inefficiency” on the surface, the redundancy of multiple parallel competing products is absolutely necessary for the production of input data for economic calculation. Without that data no calculation is possible – so in the end the central planning degenerates into arbitrary decisions made on the whim of managers pursuing their own political interests – rather then in the interests of the end-users.

You would be well advised to read “Socialism: An Economic and Sociological Analysis” by von Mises (http://mises.org/books/socialism/contents.aspx).

bill stender July 29, 2006 at 2:38 am

paul,

this dichotomy is not valid; The free market would arrive at a more ridiculously redundant and functionally impractical solution to the provision of electrical power than the state?
It seems self-evident that a single grid powering a community is both logical and sufficient. so much so that all schemes to wring profit from the activity start from that basic assumption. in short, the ‘state’ did not mandate a single grid, it simply is what intelligent humans did, and will continue to do… worldwide, in the past and in the future, in a socialist state or in a free-jungle state.

Do you think [politicians] would not prefer a monopoly if for one reason or another it resulted in more political power or wealth for themselves?
i think in this case that the logic of the singular regulated grid was and is compelling enough to supercede their agenda AND the profiteers agenda (who you must agree are similarly self-aggrandizing).

the big dog metaphor was in response to Humans are like dogs. There’s always one top dog who rules by force.
to which i agreed, we do live in a world run by power. Power will take what it wants by force and these are the ‘big dogs’. The ‘State’ is an amalgam of many forces, some of which are designed to counteract these dogs, some of which are rapacious dogs in their own right. the State is no more or less a scourge on civil society than the amalgam called the ‘free-market’. you could say that any concentration of power that has no match is potentially detrimental. the ‘free market’ in its ideal sense would be a lot of individuals with limited power in relation to the whole, but in our actual reality, we have sufficiently free market to see that powerful conglomerates will form and will rape and pillage without fear of reprisal until a governmental power intervenes, as a representative of the victims, it is the only practical counterweight to that power.

all that notwithstanding, i am highly anti-government as it primarily facilitates the lords of the “free market” aka, the jungle. i am a social-libertarian. i think there are many more important things than profit.

Paul D July 29, 2006 at 9:41 am

“it is possible, but so ridiculously redundant and functionally impractical that it is not done.”

If I recall correctly, Japanese cities have multiple power grids. The system is still largely state-run or regulated, unfortunately, but I believe they are beginning to allow competition — companies and consumers can choose who they buy power from.

banker July 29, 2006 at 12:03 pm

“it is possible, but so ridiculously redundant and functionally impractical that it is not done.”

Should the people who own a piece of land decide whether or not it is worth putting power cables on their property? Or at least the local city council? Why should power companies not be able to negotiate directly with the land owners where the cables are going? Why do they need permission from some strangers that live 500 miles away?

This would be much better than Soviet style central planning that seems to be in vogue right now.

averros July 31, 2006 at 2:43 am

It seems self-evident that a single grid powering a community is both logical and sufficient.

It seems self-evident that you’re ignorant of basics of economics, sorry.

Ryan August 20, 2006 at 10:59 am

It’s a real enigma as to why seemingly most individuals who insist that the free market will bring about monopolies (obviously fearing higher prices) also insist upon retaining the oligopolistic/monopolistic status-quo (e.g., energy) which operate under either government-regulated or government-owned industries.

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