Texans in the Cold: A Few Completely Random Thoughts

Houston is the “energy capital of the world.” It is home to 4,600 energy-related firms, according to the Greater Houston Partnership. We have the expertise in our own backyard to ensure energy reliability for the state. However, Texas’s leaders have chosen to prioritize profit over people. When there are no regulations requiring power plants to winterize, and the generous tax abatements they receive don’t have those requirements, it creates an incentive not to do so for once-in-a-decade storms. The added cost of preparing a plant for extreme weather would cause the price of electricity provided to be higher, thus making the responsible plant operator unable to compete in a market where these costs are often skipped. — Heather Golden, “Failing Government, Freezing Texans”, The Bulwark

When a deep freeze shut down half the power generation capacity in Texas this week, the wholesale price of electricity exploded 10,000 per cent, with the financial consequences now being felt all the way from individual households to huge European energy companies. Astronomical bills face customers who opted for floating-rate contracts tied to wholesale prices in the state’s freewheeling electric market.

The wholesale power price was at the maximum allowable $9,000 a megawatt hour for five days from last Sunday. For a household, that translates to a $9 a kilowatt-hour electricity rate, compared with a typical cost of 12 cents.

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In Burleson, a suburb of Fort Worth, Valerie Williams has been charged more than $6,000 by her electricity retailer Griddy to power her 1,400 sq ft home over the past few days. As the storm approached, Griddy told its customers to switch to more typical fixed-rate plans from other providers, but not everyone did, since there was little indication of just how extreme prices would become.

Griddy was charging her credit card multiple times a day, Williams said. She struggled to find a new provider during the crisis before finally identifying one that would switch her service on Friday. “I’m guessing it will be close to $7,000 by the time we get moved,” she said of her bill. . . .

On Friday, the city council in Denton, Texas, met to approve emergency borrowing to cover $300m the city-owned utility would pay Ercot this week — more than quadruple its purchases in full-year 2020. — “Freeze Sends Prices Soaring: Grid Operator Ercot Requires Billions in Payments”, Financial Times

The idea behind Texas energy policy was that a deregulated market didn’t require any oversight to protect the system from crisis, because profit-maximizing utilities would build in robust excess capacity to take advantage of possible price spikes. But they didn’t, even though the price spike has been incredible. — Paul Krugman

Yes, there are numerous places where Smith deplores the impact of government, and specifically the effects of intrusive regulation on trade . . . . But overall the view of Smith as anti-government seriously mistakes him. . . .He was quite clear that markets — and indeed society as a whole — are generally sustained by trust and confidence, and that for these and other things they rely on external institutions, notably of law and government, for their viability. By contrast, if merchants are left entirely to their own devices, the result is corrosive. He robustly asserts that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. No one who has read Smith closely can rationally believe he is an out-and-out free-marketeer. — Jesse Norman, Adam Smith: Father of Economics

The divide in our politics isn’t between proponents of big vs. small government. It’s between those trying to use government to help people and those who just want to troll the other side. When we elect responsible people, we end pandemics. When we don’t, people freeze to death. — Rep. Tom Malinowski (D-NJ)

Sacha Baron Cohen on the Greatest Propaganda Machines in History

The comedian spoke out this week. The problem he discusses may be insurmountable, given that anyone with an internet connection has the technological ability to communicate with everyone else who has one. Nevertheless, it’s encouraging that more people are demanding reasonable limits on the power of these gargantuan, unregulated companies.

The Guardian has a full transcript.

 

Who’s On First? Private Property or Competition?

David Brin trained as a scientist, has written science fiction and consults with the government and corporations regarding what will happen next. He’s not an economist, but he’s written an interesting little article about right-wing ideology. It’s called “Stop Using Adam Smith and Friedrich Hayek to Support Your Political Ideology: The Irony of Faith in Blind Markets”. 

Brin cites John Robb, an author, “military analyst” and entrepreneur, as a big influence on his thinking. Robb isn’t an economist either, but here are a couple of paragraphs from his blog

The only way to manage an economy as complex as [ours] is to allow massively parallel decision making.  A huge number of economically empowered people making small decisions, that in aggregate, are able to process more data, get better data (by being closer to the problem), and apply more brainpower to weighing alternatives than any centralized decision making group.

In other words, central planning cannot cope with the economies of developed nations in the modern world. We need the Invisible Hand of the market. Yet: 

…an extreme concentration of wealth at the center of our market economy has led to a form of central planning.   The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy.  As a result, we now have the equivalent of centralized planning in global marketplaces.  A few thousand extremely wealthy people making decisions on the allocation of our collective wealth.  The result was inevitable:  gross misallocation [of resources] across all facets of the private economy. 

Getting back to Brin, he argues that:

….across 4,000 years we’ve seen that whenever a small group of men become powerful enough to control an economy and command-allocate its resources, they will do so according to biased perceptions, in-group delusions and fatally limited knowledge. Whether they do the normal oligarchic thing—cheating for self-interest—or else sincerely try to “allocate for the good of all,” they will generally do it badly.

So what’s the solution? Brin says it’s competition: “the most creative force in the universe”: 

By dividing and separating power and—more importantly—empowering the majority with education, health, rights and knowledge, we enabled vast numbers of people to participate in markets, democracy and science. This has had twin effects, never seen in earlier cultures.

  1. It means everybody can find out when a person stumbles onto something cool, better or right, even if that person came from a poor background.
  2. It allows us to hold each other accountable for things that are wrong, worse or uncool, even when the bad idea comes at us from someone mighty.

…cutting through countless foolish notions that held sway for millennia—like the assumption that your potential is predetermined by who your father was—while unleashing creativity, knowledge, freedom, and positive-sum wealth to a degree that surpassed all other societies, combined.

Even the most worrisome outcomes of success, like overpopulation, wealth stratification and environmental degradation, come accompanied by good news— the fact that so many of us are aware, involved, reciprocally critical, and eager to innovate better ways.

Some have argued that cooperation has contributed just as much to human progress as competition has, but putting that issue aside, Brin arrives at his major point: the people who call themselves “conservatives” and claim to revere thinkers like Adam Smith and Friedrich Hayek, both of whom extolled the benefits of a competitive market, don’t really believe in competition:

The problem is that it’s all lip service on the right! Those who most loudly proclaim Faith In Blind Markets … are generally also those proclaiming idolatry of private property as a pure, platonic essence, a tenet to be clutched with religious tenacity, as it was in feudal societies. Obdurate, they refuse to see that they are conflating two very different things.

Private property—as Adam Smith made clear—is a means for encouraging the thing he really wanted: fair and open competition….But anyone who actually reads Adam Smith also knows that he went on and on about that “fair and open” part! Especially how excessive disparities of wealth and income destroy competition…. When today’s libertarians praise the creative power of competition, then ignore the unlimited [worship of property] that poisoned it across the ages, we are witnessing historical myopia and dogmatic illogic, of staggering magnitude….

But in rejecting one set of knowledge-limited meddlers—100,000 civil servants—libertarians and conservatives seem bent on ignoring market manipulation by 5,000 or so aristocratic golf buddies, who appoint each other to company boards in order to vote each other titanic “compensation packages” while trading insider information and conspiring together to eliminate competition. Lords who are not subject to inherent limits, like each bureaucrat must face, or rules of disclosure or accountability. Lords who (whether it is legal or not) collude and share the same delusions….

Hence, at last, the supreme irony.  Those who claim most-fervent dedication to the guiding principle of our Enlightenment: competition, reciprocal accountability and enterprise—our neighbors who call themselves conservative or libertarian—have been talked into conflating that principle with something entirely different. Idolatry of private wealth, sacred and limitless. A dogmatic-religious devotion that reaches its culmination in the hypnotic cantos of Ayn Rand. Or in the Norquist pledge to cut taxes on the rich under all circumstances—during war or peace, in fat years or lean—without limit and despite the failure of any Supply Side predictions ever, ever, ever coming true.

An idolatry that leads, inevitably to the ruination of all competition and restoration of the traditional human social order that ruled our ancestors going back to cuneiform tablets — Feudalism

As Paul Krugman has often pointed out, it’s not the 1% that’s the problem. It’s more like the 0.001% (Brin’s “golf buddies” and their ilk around the world) whose vast wealth makes them modern-day aristocrats. It’s also those who Krugman called “enablers” in today’s column – the minions who spread the “private property is sacred” and “government destroys liberty” gospel. If these so-called “conservatives” were true to the spirit of Adam Smith, they’d celebrate “mass education, civil rights, child nutrition and national infrastructure etc.”, which Brin mentions, as well as antitrust enforcement, workers’ rights and environmental protection, all of which have “empowered greater numbers of citizens to join the fair and open process of Smithian competition”.

PS – Brin’s article is on a site called Evonomics: The Next Revolution in Economics. It’s worth visiting.

It’s Alright, Ma (I Was Only Bleeding)

Here’s one of those inventions that sounds too good to be true. From Suneris Inc.’s site:

Constantly experimenting with different natural materials in the lab as a young adult, Joe Landolina conceived an adhesive hemostatic gel composed of plant-based polymers that could adhere to a wound site and simultaneously support the natural clotting process.

In other words, you squeeze some of this stuff on an open wound and it stops the bleeding in seconds. In addition, it apparently grows new tissue.

Discovery News reported on this Star Trek-like technology three years ago (warning: video contains jokes and blood):

Vetigel is now being sold to veterinarians. Let’s hope it works well enough to be used one day on soldiers, accident victims and other human beings, including iconic bleeding rock stars:

Pro-Market or Pro-Big Business?

“Donald Trump, Crony Capitalist” is a nice little article by Luigi Zingales, a professor at the University of Chicago’s business school. He analyzes one aspect of Trump’s surprising presidential campaign: the fact that Trump presents himself as a critic of big business, even though he’s a long-standing member of “the pro-business establishment”.

One of the best parts of Zingales’s article is his explanation of the difference between big business and the free market. He says the Republican establishment has spent years obscuring that difference, claiming to be champions of the free market while serving as “big business’s mouthpiece”.

Supporting the market means being in favor of competition and against concentrated economic power. Zingales cites Theodore Roosevelt, a Republican President from a century ago. From Wikipedia:

One of Roosevelt’s first notable acts as president was to deliver a 20,000-word address to Congress asking it to curb the power of large corporations (called “trusts”). He also spoke in support of organized labor to further chagrin big business … For his aggressive use of United States antitrust law, he became known as the “trust-buster”. He brought 40 antitrust suits, and broke up major companies, such as the largest railroad and Standard Oil, the largest oil company.

Being pro-market means you’re against monopolies (in which one company controls a market) and oligopolies (in which a few companies do). It also means you’re in favor of government regulations and policies that help make markets competitive. A fair, properly functioning market requires that the playing field be level, not slanted to the advantage of insiders or the powerful.

Big business, however, is totally in favor of special advantages when it increases profits. As Zingales says, “business executives are only pro-market when they want to enter a new sector”. But:

[Once] they become established in a sector, they favor entry restrictions, excessive licensing, distortive regulation and corporate subsidies. Those policies are pro-business (in the sense that they favor existing businesses), but they are harmful and distort a competitive market economy.

Zingales points out, for example, how rare it is for Republican politicians to call for antitrust enforcement, the prosecution of white-collar criminals and pro-market policies like fostering competition in the market for prescription drugs. That’s because the men who run the Republican Party are in the business of protecting big business, not the market.

Many of his supporters think Trump is fervently pro-market, but:

As a businessman Mr. Trump has a longstanding habit of using his money and power aggressively to obtain special deals from the government… He is, in short, the essence of that commingling of big business and government that goes under the name of crony capitalism.

Anyway, it’s a good little article that’s worth reading even if you’re sick of hearing about the Republican freak show currently touring the country.

Parting thought:

The Bill of Rights would have been better if the Second Amendment, including its call for a properly-regulated militia, had never been written. In its place, we could have had an amendment like this:

A well-regulated Market, being necessary to the prosperity of a free State, the right of the people to enjoy the benefits of fair competition shall not be infringed except to benefit the Nation as a whole.