The Real Cause of Blackouts
 

Op-Ed here, cliff notes below:

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All last week, 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.


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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.


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Now, if markets were in charge, a heat wave would not be looked at as a problem but as 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!


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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.


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Then [after monopoly was coercively granted] 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.

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Competition would lead to price reductions, innovation, and an ever greater variety of services — the same as we find in the computer industry.


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Re: The Real Cause of Blackouts
 

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under the belief that private enterprise is not up to the job of providing the essentials of life.

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You mean like food and shelter?

Re: The Real Cause of Blackouts
 

On a related note, is it ever possible for there to be a "shortage" in the free market? Not to be confused with a good's scarcity, a good's shortage is when consumers want that particular good, they have whatever it takes to pay for it, but the suppliers are unable to meet the demand. A blackout seems to me to be a prime example of a government created shortage. By artificially limiting the number of suppliers (effectively to one, maybe two in a given political district) any entrepreneurial opportunity to enter the market and supply electricity when more is demanded than the monopoly can provide is restricted. People die as a result of this artificial restriction.

Or a less morbid example: surfers are aware that recently Clark Foam, the leading supplier of blank foam used to mold surfboards, shut down suddenly (this shutdown was actually *caused* by the California government, but we'll pretend for now that it wasn't and that the owner was just spiteful and hated money). So relative scarcity of blank foam plunged and the cost of foam skyrocketed for the a brief time. You could still get foam, you just had to pay a much higher price for a few months last winter. Not surprisingly, entrepreneurs. unrestricted by artificial government limitation (and utilizing more of Mexico on the supply-side now, I believe) jumped at the opportunity and as of now foam is once again in abundant supply and back to previous prices.

A more simple example: Picasso's. Because I want a Picasso and cannot get one doesn't mean that there is a shortage of Picasso's. It simply means the relative scarcity of Picasso's has rendered them out of my purchasing range.

Re: The Real Cause of Blackouts
 

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On a related note, is it ever possible for there to be a "shortage" in the free market?

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Of course, but it is almost always temporary.

Suppose you are the only manufacturer of widgets. People like widgets a lot, but they only have a shelf life of 3 days. Your widget factory gets destroyed by a natural disaster. After three days, all of the widgets that have been stockpiled are gone. But people still want them. Even those who have infinite means to pay for them cannot. It takes time to rebuild your widget factory to cover this.

In the simplest case, some emergency happens and a particular good is in high demand. Since a free market is not perfect, vendors might not react fast enough to this sudden increase in demand, and sell out.

But you need to define what you mean by "shortage".

Re: The Real Cause of Blackouts
 

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A more simple example: Picasso's. Because I want a Picasso and cannot get one doesn't mean that there is a shortage of Picasso's. It simply means the relative scarcity of Picasso's has rendered them out of my purchasing range.

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Yeah, but they're GOUGING!

Re: The Real Cause of Blackouts
 

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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.

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Not to inject reality in to your theoretical world, but does the term "barriers to entry" mean anything? The cost of building and maintaining a power plant of any size or magnitude is substantial. Not to mention trying to locate one in a populated area. You can't throw up a ConEd plant next to the WalMart or McDonalds.

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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.

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Reality check: Power companies (gas/electric/other) are PUBLIC Companies. most are listed on the NYSE or other stock exchange. Heavily regulated, but still profit producing public companies.

As to your other comment about shortages, they happen all the time. While supply and demand are the key factors, DELIVERY of the supply is often the cause of the shortages.
When gasoline prices in GA rocketed to $5 in the wake of Katrina, was it because there weren't millions of gallons of gasoline in SC and FL? Or was it because there was no working pipeline (from the Gulf Coast) available to supply certain areas of the state? And didn't those supplies arrive not too long after that by tanker truck and later by repaired pipeline? There are millions of barrels of oil in the ground in Saudi Arabia, Iran, and even the US. Why aren't there a 100 wells per acre sucking the oil out of the ground as fast as they can at $75 a barrel?? Economically unfeasible? Engineering problems? or are the companies (like the diamond consortiums) creating an artifical shortage, so their quarterly profit is $10 billion instead of $8 billion?

Re: The Real Cause of Blackouts
 

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On a related note, is it ever possible for there to be a "shortage" in the free market?

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Sure. Sometimes there are non-governmental barriers to entering the market for suppliers. Like if consumers want a certain kind of wine that only grows in a certain area. Is that what youi are talking about?

Re: The Real Cause of Blackouts
 

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Not to inject reality in to your theoretical world, but does the term "barriers to entry" mean anything?

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If there is enough profit to be made there are plenty of corporations that would jump at the chance. There's nothing stopping the creation of the McPowerPlant.

Re: The Real Cause of Blackouts
 

riddick,

how much do you know about "natural monopolies"?

Re: The Real Cause of Blackouts
 

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On a related note, is it ever possible for there to be a "shortage" in the free market?

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Sure. Sometimes there are non-governmental barriers to entering the market for suppliers. Like if consumers want a certain kind of wine that only grows in a certain area. Is that what youi are talking about?

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there are other more obvious barriers to entry. Proprietary technology, cartel control of supply, capital intensive cost of duplicating infrastucture (eg proprietary electrical lines already routed to existing
businesses/houses, natural limitations (eg control of a seaport) and so on.

Re: The Real Cause of Blackouts
 

Great post...but it will take long term thinkers to fully appreciate it.

Re: The Real Cause of Blackouts
 

none of the claims made here apply to the Enron blackouts -
which was a prime example of price gouging, natural monoplisitic practices, and typical psychopathic behavior from a corporate entity more concerned with profits then with actually serving the public trust.

http://www.cbsnews.com/stories/2004/...in620795.shtml

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During California's rolling blackouts, when streets were lit only by head lights and families were trapped in elevators, Enron Energy traders laughed, reports CBS News Correspondent Vince Gonzales.

One trader is heard on tapes obtained by CBS News saying, "Just cut 'em off. They're so f----d. They should just bring back f-----g horses and carriages, f-----g lamps, f-----g kerosene lamps."

And when describing his reaction when a business owner complained about high energy prices, another trader is heard on tape saying, "I just looked at him. I said, 'Move.' (laughter) The guy was like horrified. I go, 'Look, don't take it the wrong way. Move. It isn't getting fixed anytime soon."

California's attempt to deregulate energy markets became a disaster for consumers when companies like Enron manipulated the West Cost power market and even shut down plants so they could drive up prices.

There was quick reaction in Washington to the Enron audiotapes first aired by CBS News last night, and the tapes have become part of the debate over the President's massive energy bill.

"People were talking about market manipulation. People were talking about schemes, people were making jokes," said U.S. Sen. Maria Cantwell, D-Wash.

"While the president would like to have an energy bill, I'd like to have an energy bill that protects consumers," said Cantwell.

Consumers like Grandma Millie, mentioned in one exchange recorded between two Enron employees.

Employee 1: "All the money you guys stole from those poor grandmothers in California?

Employee 2: "Yeah, Grandma Millie man.

Employee 1: "Yeah, now she wants her f-----g money back for all the power you've charged right up, jammed right up her a—for f-----g $250 a megawatt hour."


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Watch "The Corporation" - Enron is not a bad apple - it is standard operating procedures for corporations -

you guys put way too much faith in the altrustic motives of the free market when time and time again the market is proven it cannot be trusted with the responsibility to regulate itself without seriously screwing over the American people.

They do business and enjoy the protections of our armies and our economy, they should be subject to regulations that prevent them from price gouging and screwing consumers -

and we, the people, don't want them screwing us over on important stuff like water and electricity, so yes, long live the public trust.

RB

Re: The Real Cause of Blackouts
 

Keep sticking it to the man, Russ.

Re: The Real Cause of Blackouts
 

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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.

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Reality check: Power companies (gas/electric/other) are PUBLIC Companies. most are listed on the NYSE or other stock exchange. Heavily regulated, but still profit producing public companies.

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I think you're confused. "Private enterprise" and "PUBLIC Comapnies" are not mutually exclusive. In the first sense, "private" = non-governmental and "public" = governmental. In the sense you're using, privately-held and publicly-held companies are both "private" (i.e. non-government-owned) enterprises.

Re: The Real Cause of Blackouts
 

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none of the claims made here apply to the Enron blackouts -
which was a prime example of price gouging, natural monoplisitic practices, and typical psychopathic behavior from a corporate entity more concerned with profits then with actually serving the public trust.

http://www.cbsnews.com/stories/2004/...in620795.shtml

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During California's rolling blackouts, when streets were lit only by head lights and families were trapped in elevators, Enron Energy traders laughed, reports CBS News Correspondent Vince Gonzales.

One trader is heard on tapes obtained by CBS News saying, "Just cut 'em off. They're so f----d. They should just bring back f-----g horses and carriages, f-----g lamps, f-----g kerosene lamps."

And when describing his reaction when a business owner complained about high energy prices, another trader is heard on tape saying, "I just looked at him. I said, 'Move.' (laughter) The guy was like horrified. I go, 'Look, don't take it the wrong way. Move. It isn't getting fixed anytime soon."

California's attempt to deregulate energy markets became a disaster for consumers when companies like Enron manipulated the West Cost power market and even shut down plants so they could drive up prices.

There was quick reaction in Washington to the Enron audiotapes first aired by CBS News last night, and the tapes have become part of the debate over the President's massive energy bill.

"People were talking about market manipulation. People were talking about schemes, people were making jokes," said U.S. Sen. Maria Cantwell, D-Wash.

"While the president would like to have an energy bill, I'd like to have an energy bill that protects consumers," said Cantwell.

Consumers like Grandma Millie, mentioned in one exchange recorded between two Enron employees.

Employee 1: "All the money you guys stole from those poor grandmothers in California?

Employee 2: "Yeah, Grandma Millie man.

Employee 1: "Yeah, now she wants her f-----g money back for all the power you've charged right up, jammed right up her a—for f-----g $250 a megawatt hour."


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Watch "The Corporation" - Enron is not a bad apple - it is standard operating procedures for corporations -

you guys put way too much faith in the altrustic motives of the free market when time and time again the market is proven it cannot be trusted with the responsibility to regulate itself without seriously screwing over the American people.

They do business and enjoy the protections of our armies and our economy, they should be subject to regulations that prevent them from price gouging and screwing consumers -

and we, the people, don't want them screwing us over on important stuff like water and electricity, so yes, long live the public trust.

RB

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I'm not defending the actions of these Enron employees, but you have to be out of your mind to think that Enron was operating under free market conditions. The California energy situation is as far from free market as you can get outside of Cuba.

natedogg

Re: The Real Cause of Blackouts
 

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none of the claims made here apply to the Enron blackouts -
which was a prime example of price gouging, natural monoplisitic practices, and typical psychopathic behavior from a corporate entity more concerned with profits then with actually serving the public trust.

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My thoughts exactly, great post.

Re: The Real Cause of Blackouts
 

You are correct. I was in a hurry as I was posting from the office. I was attempting to refute Riddick's original inference that private enterprise wasn't actually "providing the essentials of life" in this case electrical power.

I live in Colorado. My power and natural gas are supplied by the XCel Energy Company, which is a private enterprise (non-governmental) as well as being a publicly traded company.

Re: The Real Cause of Blackouts
 

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Not to inject reality in to your theoretical world, but does the term "barriers to entry" mean anything?

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Are we talking about economic barriers to entry that exclude less efficient, less productive firms and provide the greatest consumer benefits, or are we talking coercive-violent-intrusion-on-the-market barriers to entry hoisted up by government as in case of these blackouts?

Re: The Real Cause of Blackouts
 

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Like if consumers want a certain kind of wine that only grows in a certain area. Is that what youi are talking about?


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Not exactly. This rare form of wine's price would be determined by its relative scarcity, in this case, probably a very high price, but it doesn't mean that if you had to $$$ to spend you couldn't get it. This sounds similar to my Picasso example.

Re: The Real Cause of Blackouts
 

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riddick,

how much do you know about "natural monopolies"?

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About as much as I know about Unicorns.

In all seriousness, it is my understanding that a monopoly cannot exist naturally.

Re: The Real Cause of Blackouts
 

Let's see..

* Complete government centralized control of the food supply. Everybody dies.

* For the large part free market in food supply: complete and total abundance in everything at low, low prices. So low that even the poorest part of society can be fat pigs.

Hmm... correlation?


Something people never, ever, ever mention about their fascist/communist economy they are 'selling': there is simply no mechanism or motive for the monopolist group (govt) to PROVIDE any decent service to their slaves (yes, the word is slaves, NOT customers).

Re: The Real Cause of Blackouts
 

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Watch "The Corporation" - Enron is not a bad apple - it is standard operating procedures for corporations -

you guys put way too much faith in the altrustic motives of the free market when time and time again the market is proven it cannot be trusted with the responsibility to regulate itself without seriously screwing over the American people.


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Nice leftist rant, but it has nothing to do with reality.

I hold a senior engineering position at a small aerospace corporation, Orbital Sciences. (We have about 2900 employees, which is small as far as aerospace companies go.) I design spacecraft in the space systems division.

Our "standard operating procedure" is to make money by producing value to our customers, in this case by making small spacecraft and launch vehicles. To do that successfully requires the highest degree of dedication and integrity at every level of the corporation. The aerospace business is competitive, and to design and build spacecraft which are technically reliable as well as profitable requires the solution of formidable engineering and managerial/fiscal problems. Any attempt to "screw over" anyone will result in painfully obvious technical or business failures (or both).

It is true my motives aren't altruistic, nor should they be. For my career to flourish along with my coworkers, we must scrupulously fulfill our obligations to our shareholders and customers. That means producing technically sound, innovative aerospace products at a competitive price.

We can debate what went wrong at Enron, but most corporations can thrive only one way: by producing genuine value, not by committing fraud or stealing. The free market will ultimately and ruthlessly punish anything else (unless a company is propped up by the government).

Re: The Real Cause of Blackouts
 

There can be shortages especially in areas where products have very special properties. Electricity is one of those products.

There are high costs to entry.

It takes a lot of time to increase the output of a generator by small amounts. I.e. if you want to output 10% more then u are currently it can take hours to get there.

Electricity consumption changes by the minute in huge directions.

Electricity cant be stored (a truly rareproperty). ANy extra produced is waste. And you can't produce a certain amount in the morning and then see how demands develop over the day. You need to produce the perfect amount at every given time.

So to maximize profits as a company you only want to produce exactly what demand is. But demand can change quickly, and even though the marginal cost of production might be low ($) wise, in terms of time you can't simply "up your output" it takes hours. But the demand doesnt last that long.

Not your standard good in other words. So yes you could have shortage even though marginal utility > marginal cost of production.

Re: The Real Cause of Blackouts
 

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none of the claims made here apply to the Enron blackouts -


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which was a prime example of price gouging

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What is price gouging? Is that when market prices get too high for your personal liking?

When demand for a good plummets, like say, winter clothing in the spring, should the government step in and stop vendors from lowering the price of the winter clothing? Why, afterall, aren't evil consumers taking advantage of the vendors??

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natural monoplisitic practices

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What exactly was natural about Enron? The permits obtained to trade in the state operated energy pool? The billions of taxpayer dollars that Clinton gave them throughout the 1990's?? When a firm is so deep in the pockets of the politicians who routinely favored and/or bailed out Enron for a decade, why would any other firm dare step into the fray a compete???

I guess that's natural monopoly theory for you though.

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and typical psychopathic behavior from a corporate entity more concerned with profits then with actually serving the public trust.


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Why should I care if a business cares about me? I sure as hell don't care about the business. God forbid a business care about profits.

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you guys put way too much faith in the altrustic motives of the free market when time and time again the market is proven it cannot be trusted with the responsibility to regulate itself without seriously screwing over the American people.


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I'd like to read about one example, just one, of the free market screwing over the American people, where in fact it wasn't the government actually screwing over the American people.

Re: The Real Cause of Blackouts
 

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riddick,

how much do you know about "natural monopolies"?

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About as much as I know about Unicorns.

In all seriousness, it is my understanding that a monopoly cannot exist naturally.

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you're wrong.

Re: The Real Cause of Blackouts
 

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riddick,

how much do you know about "natural monopolies"?

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About as much as I know about Unicorns.

In all seriousness, it is my understanding that a monopoly cannot exist naturally.

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you're wrong.

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Perhaps you could provide an example, then.

Re: The Real Cause of Blackouts
 

pvn,

not sure what you are asking for. there aren't a lot of examples that people who disagree with me fundamentally couldn't point to and say it was the government's fault or some such. however, whenever the fixed costs are so high and the variable costs relatively low, average cost is actually much lower when only one firm produces the product/service than when two firms produce it. competition or not.

Re: The Real Cause of Blackouts
 

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pvn,

not sure what you are asking for. there aren't a lot of examples that people who disagree with me fundamentally couldn't point to and say it was the government's fault or some such. however, whenever the fixed costs are so high and the variable costs relatively low, average cost is actually much lower when only one firm produces the product/service than when two firms produce it. competition or not.

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There aren't a lot of examples of unicorns, either. I wonder why that is.

Re: The Real Cause of Blackouts
 

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pvn,

not sure what you are asking for. there aren't a lot of examples that people who disagree with me fundamentally couldn't point to and say it was the government's fault or some such. however, whenever the fixed costs are so high and the variable costs relatively low, average cost is actually much lower when only one firm produces the product/service than when two firms produce it. competition or not.

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There aren't a lot of examples of unicorns, either. I wonder why that is.

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let me try this again.there aren't a lot of examples that people who disagree with me fundamentally couldn't point to and say it was the government's fault or some such.

and even so, there are plenty of examples where one company provides a service in one area with almost no competition. there would obviously be more if not for various laws.

Re: The Real Cause of Blackouts
 

xorbie,

An article to consider on natural monopolies.

Re: The Real Cause of Blackouts
 

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riddick,

how much do you know about "natural monopolies"?


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About as much as I know about Unicorns.

In all seriousness, it is my understanding that a monopoly cannot exist naturally.


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you're wrong.


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Perhaps you could provide an example, then.

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How about the road system?