The power of ideas

Posted: Jan 19, 2001 12:00 AM
When we conservatives are old and gray and hobbling about with canes, there is one thing that is certain -- we will still be outraged at press bias. The most recent example of their settled prejudices was on display last week in coverage of the California power problem. As everyone knows, Californians are being forced to endure rolling blackouts because the state's power supply is suffering a drastic shortage. Unreliable power is a mark of primitive countries. How did this come about in the largest state in the most prosperous and advanced country on earth? The answer -- if you believe The New York Times, ABC, CBS and the other outlets of liberal opinion, er, news -- is "deregulation." National Public Radio even inserted this bit of "explanation" in its top-of-the-hour news highlights: "George Bush arrived in Washington today to begin inaugural festivities. ... California is suffering rolling blackouts in response to a power shortage thought to have been caused by deregulation." As former Delaware Gov. Pete du Pont explained in a cogent article in The Wall Street Journal, the problem with California's energy supply is not deregulation but the opposite -- stupid, self-defeating regulation. Yes, in 1996 the state enacted a regulatory scheme that partially deregulated electricity prices -- but only at the wholesale level. So while power generators were able to increase and decrease the prices they charged utilities, the utilities were forbidden to pass the higher rates on to consumers. The legislature cut rates for electricity by 10 percent and then froze those prices for six years. Recently, wholesale prices for power have jumped. Pacific Gas and Electric was forced to purchase power out-of-state for $1.7 billion but had to sell it to California consumers for only $70 million. Guess what? The utilities have been squeezed to the point of bankruptcy. And Silicon Valley may yet see its liquid crystal displays go dark. California's energy usage has increased by 30 percent during the past decade while generated power has increased only 6 percent. Why? In part because a coalition of lefty environmentalists -- du Pont calls them Bananas, "Build Absolutely Nothing Anywhere Near Anyone" -- has made it impossible to build new power plants. Nuclear power (cheap, safe) is anathema, of course, but the environmentalists have opposed even windmills on the grounds that they might damage birds. With retail prices frozen for six years (also courtesy of the California legislature), consumers have had no incentive to conserve. Producers have had little incentive to run the environmentalists' gauntlet to build new plants because prices were fixed not by the market but by politicians in Sacramento. And so, surprise! California is suffering shortages. As Thomas Sowell (and every elementary economics text) has pointed out, in the absence of price controls, shortages are passing things. Consumers buy less and producers make more when prices rise. But if the price is not permitted to rise, consumers don't get the information that the commodity is scarce and do not conserve, and producers have no incentive to make it less so. The result: shortages and rationing. One might have thought that with the fall of the Soviet Union, these debates about government interference in the market had been settled. Remember the joke: What happens after the communists take over the Sahara Desert? Answer: Nothing for ten years and then a shortage of sand. But that object lesson was missed, as was the more recent reminder in the form of the S and L crisis. Recall that the federal government limited the interest S and Ls could charge for loans while interest rates were rising. Thrifts found themselves offering market rates for deposits but obliged to charge less than market rates for loans. The result: bankruptcy. As for deregulation, when it is truly implemented (permitting prices to rise for utilities but not for consumers is not deregulation), whether in the trucking, airlines or package delivery markets, it has always resulted in greater competition and lower prices to consumers. This does not invalidate all government regulation of the private economy. Citizens like health and safety regulations, and expect the government to test foods, medicines and drugs for efficacy and safety. But what Californians, to say nothing of the liberal media, should learn from this is that the laws of economics are not optional.