Lynne Kiesling, a professor of economics at Northwestern University, has a very astute piece in Tech Central Station on why power industry deregulation is the solution and not the cause for power industry problems.
First, the "deregulation" that has occurred in electricity has primarily been in opening up wholesale markets for power generators and their customers (i.e., utilities), enabling people in Manhattan to continue consuming power (and clamoring now for more regulation) without Con Edison having to build more power plants on the island itself. The existence and growing vitality of wholesale electricity markets has created substantial value in the past decade, through encouraging generation where it is cheapest and sales of power to where it is most needed.
But this limited amount of market liberalization has left the industry in an awkward place. Generation is largely governed by market processes, but transmission and retail distribution remain heavily regulated. The investment decisions of transmission owners and the retail rates that they can charge to their end customers all hinge on rate cases that are decided by state-level regulators. The rates that regulators allow take into account changes in costs, required investments, and the payment to the utility of a rate of return on the assets they own. For much of the past decade this rate of return has been substantially lower than what utilities could earn from doing other things with their money, so they did not invest in building much new transmission capacity or in upgrading existing lines. Nor did a regulatory environment that is a relic from the 1930s, constructed to govern and control local, vertically integrated utilities, either have the incentive or the wherewithal to force the utilities to invest in transmission assets that would carry power to customers in other states.
The power industry is a case in point of how government control creates more instability in the market. Regulations are designed to be static limits on a dynamic system, and that’s exactly the kind of thing that prevents systems from reaching equilibrium. Static regulations are boiling water in a closed container – unless there is a release valve the pressure will build until the entire system fails. This is exactly what occurred with the power grid in the Northeast – the basic laws of supply and demand were turned on their head by government regulation. The system did not have enough redundant carrying capacity to go around the failure of a few key lines because transmission capacity has not been increased at the rate of demand. The reason for this is due to a framwork of regulatory demands that ensure that such additional capacity is too expensive to be built.
Markets adapt to changing conditions. The existing electricity regulations do not, and because of that, the transmission infrastructure has not adapted to the increased demand on it from the increasing vibrancy of wholesale electricity markets.
What Prof. Kiesling suggests is that the market for electricity be based on a system where prices meet the levels of supply and demand. Under such a system, when costs are high prices go up, and when costs are low prices go down. This creates an extra incentive to conserve at peak usage times, meaning that those who try to run their computer, air conditioner, TV, and leave all their lights on will pay extra for their extra usage, while those who use less pay less.
Such a system is based on the very simple and fair principle that those who use the most should pay the most. The current system creates an averaged price that does not reflect the real costs of power generation and transmission, and encourages the wasteful use of the nation’s power grid. A market-based system would also encourage greater energy efficiency by increasing the benefits for energy-efficient technology.
Of course, it’s easier for policymakers to give themselves the ability to play around with the energy market than it is to step aside and let common sense and the free market take its place. However, such a system could easily ensure that we have a safer and more efficient power system – but only if we allow it to happen.
What it’ll mean is, the poor won’t be able to afford to run their air conditioners and fans and we’ll see a whole lot more of them die. Which is fine for conservatives, I guess.
Stuff the ad hominem attacks. They’re childish tactics used be the intellectually weak.
Such a system would likely not see bills go up if people moderated their usage. Yes, some people might have to make the choice between running the TV and the AC or cutting back and paying less.
Or we can continue to subsidize heavy usage and see thousands more die because the hospitals and the nursing homes can’t keep their power on. We can either impose a small burden on people so that they cut back or we can continue with the status quo and watch another 50 million lose power.
What you’re arguing is that we should keep prices arbitrarily low so that people use more and the system fails to meet the demand. That kind of strategy just doesn’t work.
You can tell when someone doesn’t know what the hell they’re saying when the only retort is that they want poor people to suffer, or they want grandma to starve, or any of the other idiotic accusations that cheapen political discourse in this country.
If you have to resort to such infantile tactics you’re infinitely better off to either shut up or start bringing some facts to the table.
Kind of interesting listening to a right-wing ideologue hailing the need for “conservationist energy practices” in a situation where “market forces” will drive supply down rather than up. But in a desperate attempt to draw a single parallel of consistency in anything related to conservative ideology, how can your newfound admiration of “conservationism” in relation to public consumption of electric energy co-exist with the conservative/Bush administration ideology of conservationism “be damned” when it comes to fossil fuel energy providers? Why is it that you guys can defend the Bush argument that “energy policy should evolve to meet the public’s lifestyle” when he uses that argument to defend turning ANWAR into Bush Petroleum, but assail the need for the gluttonous peasants to “choose between their TV and their AC, damn it” when it comes to electric energy?
Even Charles Krauthammer concedes that the electric power industry is one that can only function within the confines of government regulation and said so on Inside Washington Friday night. It seems you stand almost alone defending the indefensible, but I have to admire that you keep trying to persuade everyone that black is white.
I love when liberals tie themselves in knots when their straw-man view of conservatism is challenged. It’s like watching my cat try to play chess…
Wrong. The point of such a system is to allow the free market to attain a state of equilibrium between supply and demand. If the supply goes down it is necessary to reduce demand on the system. The converse is like letting people water their lawns in a drought – it’s simply wasteful.
This is basic Economics 101 level stuff. Then again, liberalism seems to be based on a complete state of ignorance when it comes to the most basic principles of economic scarcity.
Again, you’re staking a rhetoric position on quicksand. The Bush Administration has pushed for positions dedicated to reducing our dependence on foreign oil and increasing our ability to cleanly use the resources we have. That can be seen in the drilling for oil in ANWR. (Which is supported by the people who actually live there and would have no major environmental impact whatsoever.) It can also be seen in the President’s clean coal initiatives and his support for increased research in hydrogen power.
Then again for some people, it’s easier to regurgitate the same tired old talking point than to actually look at the facts.
It’s funny that you accuse me of a being a "market ideologue" then think that the markets just aren’t conservative enough. Sorry, but if you’re arrogant enough to think that I have to match your shallow straw-man view of what conservatism is to be a real conservative, you’ve got another thing coming.
Rather than giving a serious response to a legitimate question, you’re simply arching your back and hissing at me. Put your back down and pull those claws in Jay, and then see if you can make contact with your second swing. If reducing demand to compensate for diminishing supply with electricity consumption is “Economics 101”, then why is that the same principle can’t apply to fossil fuels. We have the capacity to produce much more electric generation capacity, so we could increase supply just as easily in that market as we could by sending Dick Cheney into northern Alaska with 100 drill bits and one giant smile.
As for the argument that “the natives want drilling in Alaska,” so the rest of us should be fine with it too…just about every scenario where tremendous personal gain can be achieved from certain economic development, those who stand to reap the spoils tend to overlook the drawbacks which are often inherited by somebody else. Be it coal mining practices in West Virginia or logging in state and national forests, the paychecks of the “locals” always seem to motivate them more than the potential consequences of ecological damage. Oil drilling in ANWAR is another example of that.
Your logic here seems to assume that locals always know best what’s good for them. A century and a half ago, the American South seceded from the union upholding the belief that they knew best
how things should operate in their backyard. Beyond that, I’m sure my neighbor would like to smack his wife around from time to time when she gives him some life. His home, his decision, right? Or is it possible that the dollar signs of the people who live in Alaska are obstructing their common sense just as the tidy profits slaveholders earned due to involuntary servitude enticed them to become morally flexible?
You got a very serious answer to a very illogical post. Believe me, if you think that’s being mean I could be far meaner…
Because fossil fuels already are traded within a market system. The price of gas goes up and down based on a whole range of factors. For example, the price of gas is now higher because of the increased supply pressures caused by summer driving – hence people tend to cut back.
The problem with oil is that we will always need a certain amount of it to keep the economy running. We can either get it from the Saudis and help terror, or we can take from the reserves at home. It’s pretty clear which is the better option.
Wind, solar, and hydrogen aren’t ready for primetime yet. In the future, hydrogen could well pan out. However, it’s not smart at all to start basing policy on an energy form that won’t be even remotely practical for at least a decade.
Have you seen the part of ANWR they’re going to drill in? There is quite literally nothing there. It is a massive plain that is covered in permafrost in winter and mosquito ponds in summer. The area that would have a human presence would be a space the size of Dulles airport in an area the size of Maryland. The rhetoric over ANWR is based on nothing more than scare tactics that ignore the real, and minimal, impacts of drilling there. The cost/benefit analysis of ANWR clearly shows that it is a good way of reducing our dependence on foreign oil.
So now wanting to reduce energy dependency is morally equivalent to slavery or beating your wife? That’s a complete ad absurdam argument – and an insult to the people of Alaska including the Gwitchin Tribe who are the strongest advocates of drilling, and would benefit greatly from it.
If I wanted to debate like a liberal I’d say that you want to help the Saudis fund terrorism, keep hundreds of thousands of Alaskan Natives in poverty, and weaken America. Then again, I don’t need to – all I need to say is that what your advocating is bad policy. In the end, one can trade ad hominem attacks until hell freezes over, but in the end what matters is not the person who bashes the other the most but who can produce the policies that produce the best results.
For example, the price of gas is now higher because of the increased supply pressures caused by summer driving – hence people tend to cut back.
Huh? August is when people drive the most. I mean, if the demand is so high that prices are up, they can’t very well be cutting back, can they?
How is it that a thinking person can contradict themselves in the space of a single sentence? Amazing!
In the end, one can trade ad hominem attacks until hell freezes over, but in the end what matters is not the person who bashes the other the most but who can produce the policies that produce the best results.
Well, that would largely be liberalism. Like the 40-hour workweek? Like freedom of religion? Like government-subsidized student loans? Like America in general? Thank a liberal, for instance the founding fathers.
The Founding Fathers were classical liberals in the sense of John Locke and Adam Smith. If you’d read the Constitution you’d see a document that stands for individual liberty and limited government.
They certainly weren’t what are now called "liberals", which is a big misnomer. Modern liberalism is more quasi-socialist statism than anything else. It is a system of government based on the rights of groups over individuals, a reduction in personal (espcially economic) freedom, and ever-expanding government.
The latter certainly has nothing to do with the vision of the Founding Fathers.
It is a system of government based on the rights of groups over individuals, a reduction in personal (espcially economic) freedom, and ever-expanding government.
Funny – you’ve essentially described exactly what’s been happening in the post-9/11 Bush administration, but they’re conservatives, to my knowledge. I mean, the Patriot Act and the Dept of Homeland Security are exactly what you’re talking about, and liberals opposed those at every turn.
Liberalism hasn’t changed since the founding fathers. What’s changed is what conservatives have been saying about liberals. They’re attacking straw-men with such effectiveness that while the majority of Americans support liberal ideas – plurality of religion, labor regulation, personal freedom – most Americans are too afraid to admit to being liberal. Disgusting lies, basically.
"Liberalism hasn’t changed since the founding fathers."
You’ve just flunked Political Philosophy 101.
As I said before, classical liberalism is entirely different from modern liberalism. Classical liberalism descends from people like John Locke, Adam Smith, and J.S. Mill. They specifically argued that government should not control the commanding heights of the economy, they argued that a federal government should only exercise a small amount of power and no more, and they argued that government has no right to involve itself in people’s lives unless there is a concrete harm being done.
Contrast that with modern liberalism, which advocates the nationalization of major industries like health care and power, advocates a system in which the government sets wages and prices, and generally controls the commanding heights of the economy. Liberals are the ones wanting to ban SUVs, ban religious expression in public, ban people from contributing to political groups, ban people from investing their own Social Security funds in private accounts, and generally create a government that has its hands in your pockets from cradle to grave.
Classical liberalism influenced the founding of this country. The language of the Declaration of Independence is nearly identical to the language of John Locke’s Second Treatise of Government. There is a direct line between classical liberalism and modern conservatism – Edmund Burke was considered a liberal in his time, but he is now considered one of the intellectual fathers of modern conservatism.
Modern liberalism is a mismash of philosophies from the Populists of the late 19th Century and the New Deal in the 1930s. It’s based on group rights for minorities above individual rights, it has shown open hostility to religion, and pushes for all-encroaching government.
Classical liberalism is not modern liberalism. Conservatives are classical liberals, modern liberals are statists.
If you’re still confused about what conservatism is, I suggest starting with The Conservative Mind by Russell Kirk and perhaps actually reading some conservative magazines like National Review or The Weekly Standard.
they argued that a federal government should only exercise a small amount of power and no more,
Who does this sound most like? The Dept. of Homeland Security, or the ACLU?
and they argued that government has no right to involve itself in people’s lives unless there is a concrete harm being done.
Who does this sound more like? Inclusion of all walks of life, or laws prohibiting homosexual relationships and marriage?
It’s based on group rights for minorities above individual rights
This you’re making up.
it has shown open hostility to religion
Hostility to government-sponsored religion, just like Thomas Jefferson intended.
and pushes for all-encroaching government.
Nope, that’s your Bush administration, remember?
If you’re still confused about what conservatism is
If you’re confused about what modern conservatism is, I suggest you look at the actions of your administration and his big-business buddies. There it is, writ large. Privileges for the rich on the backs of the working guys. That’s conservatism.
It’s the Bush administration that’s pushing us the closest to a police state we’ve ever been, not people who care about fair wages and affordable housing. I know you’d like to co-opt the trappings of classic liberal ideas for your bankrupt political philosophy, but it just won’t fly. The American people know who’s on their side, and it’s not Cheney and Rumsfield.
The Department of Homeland Security wasn’t Bush’s idea. It came from the Hart-Rudman Commission which was a bipartisan agency. Had we instituted their plan in 2000 when it came out, we very likely could have prevented September 11.
Then what is affirmative action other than the giving of special rights based on membership of a group? What about minority set-asides? Are those not special group rights that infringe on the rights of the individual. Hell, all of liberalism is predicated on the notion that the group deserves more protection than the individual – why else the emphasis on economic redistribution. It doesn’t matter that a rich person may have earned their wealth – they’re rich, therefore they have less rights to what they’ve earned.
Liberalism is a shell game, a sham, and a lie. Liberalism can’t even meet its own goals. Liberal social programs have consistantly failed the people they were supposed to help. Go look at a public housing complex is you don’t believe me.
No liberalism is an ideology that can only survive by passing on the lie that anyone who isn’t a liberal wants to hurt the poor, hurt the elderly, hurt everyone, etc, etc. It’s a way of dodging the issues – why if all conservatives are evil, we don’t have to listen to what they say! It doesn’t matter that the policies conservatives advocate are better, they must be mean because their conservatives.
Look at your own damn logic! Conservatives are all mean and only like the rich. Why? Because they’re conservative.
Thankfully the American people know the score, which is why the Democrats got their asses handed to them in 2002 and will get it again in 2004. They’re sick of the liberal nanny state ideology and the constant stream of invective over innovation that comes from the left. If all liberals want to do is accuse conservatives of being mean and evil and generally bad, that’s fine. Just don’t expect anyone to listen or care that hasn’t already swallowed the liberal statist Kool-Aid.
Then what is affirmative action other than the giving of special rights based on membership of a group?
It’s an attempt to right an imbalance that should have never happen in the first place. Quite frankly I don’t support affirmative action, at least not racially motivated – it should be instituted in regards to economic status, however.
It doesn’t matter that a rich person may have earned their wealth – they’re rich, therefore they have less rights to what they’ve earned.
Once again, you’re attacking a straw-man. Liberals support progressive tax schemes because the rich benefit far more from public services and government access than the poor. Since they get more, it’s reasonable to ask them to pay more. What could be more fair – or more capitalist – than that? Paying for what you get?
Look at your own damn logic! Conservatives are all mean and only like the rich.
Eh? I didn’t say that. (More straw-men, I guess.) What is true, however, is that every initiative to promote social justice and equality has been consistently opposed by conservatives. Giving black people the vote? Opposed by conservatives. Labor reform? Opposed by conservatives. Conservatism is defined by opposition to social change.
Thankfully the American people know the score, which is why the Democrats got their asses handed to them in 2002
What country do you live in? A one-senator majority is not an “ass-whupping”. If the American people have given one clear mandate, it’s this: “We have no clear mandate”. This liberal ass-kicking exists only in your imagination.
The Democratic party largely lacks great leadership, this is obvious. Conservatives have made one hell of a coup – they’ve made “liberal” a dirty word, despite the fact that most Americans support liberal ideas. What are Democrats to do? It’s hardly easy to figure out how to sell liberal programs while avoiding the word “liberal”.
I hate that people keep trotting out this argument as it’s patently stupid.
Last time I checked, I don’t see many millionaires standing in line at the welfare office. I don’t see many millionaires on food stamps. If fairness is defined by who uses pays, then the poor should be paying more taxes than the rich.
What about property rights then? Again, the argument that the rich get more out of the system doesn’t hold water. Yes, they have more property, but if you have a million dollars the utility is such laws are less in all but the most extreme of circumstances.
Let’s say Donald Trump and myself both have our TV sets stolen. Let’s say that for some reason I have the same 42′ plasma screen picture-in-picture TV as he does. (If only that were true!)
The utility of property rights is greater in my case because that $4,000 TV represents a much greater share of my total wealth – so that if I lose it, I’m screwed, while all Donald Trump has to do is pick the change in his Corinthian leather sofa and get a new one.
In other words, the utility of property rights is greater in my case because I have a smaller income.
So, if you’re going to make the argument that the people who get the most utility from the system pay the most, then the rich should be paying far less. Granted, that’s not a fair system, but that is also the consequences of trying to make such a fundamentally flawed argument.