Sunday, April 08, 2007

Steffy: Deregulation Muddleheadedness

I cannot determine if Loren Steffy just does not know what he is talking about or just cannot communicate it very well. Here is his latest column on energy deregulation and current prices. He was going well at the start:
"Consumers don't give a damn about choice," said Geoffrey Gay, an Austin attorney who represents about 120 Texas cities on utility matters. "What they care about is reliability and price. What they see is all this complexity and their prices continuing to go up."

Prices have risen mostly because natural gas prices tripled in a little over five years, and gas prices set the market price for electricity.

That, however, doesn't excuse deregulation's failure to lower rates.
I question the literary value of referring to deregulation as some sort of entity unto itself rather than a process. If the process of electricity deregulation has failed to lower prices, then that is an indictment on the process not the overall concept of deregulated markets. The way Steffy uses language, he implies that deregulation in general is a failure.

Then Steffy totally falls off the rails:
What makes the utility attractive is its lower-cost generation. The buyers can produce electricity for less using coal and nuclear plants, then sell the power at the higher market price.

And who, by the way, paid for those coal and nuclear plants? Why, we did.

In the 1970s and 1980s, nuclear plants were deemed uneconomic because of all the government regulations surrounding them. Regulators allowed utilities to pass those costs on to consumers in the form of higher rates.
Um.....I hate to point out to the esteemed business reporter, but consumers always bear the costs of government regulation, regardless of the industry. Always have, always will. To single out the nuclear industry in this regard for passing on costs with the consent of the regulating authority is just nonsensical.

He continues to drive in the weeds:
The deal illustrates the one tangible result of deregulation: the transfer of risk from producers to consumers.

We are left to fend for ourselves, to find the best deal we can amid a myriad of offerings.

Meanwhile, fast-buck investors are scooping up profits that are virtually guaranteed by the system that masquerades as a free market.
First of all, I would argue that government regulation places more risk on consumers, both in terms of availability and cost than deregulation does. I would also argue that free markets do not shift the responsibility for both supply, demand and price points to either party; it is mutually and freely negotiated situation. I fail to see how we wish no regulation in most markets, but single out electricity for special treatment. We don't have a price-regulated market in food, clothing, or shelter - all life necessities; why electricity? We are left to find the best deals in all of life's necessities, why not electricity as well?

I also ask why a deregulated electricity market masquerades as a free market system instead of being one in fact (that is Steffy's opinion). Perhaps because the entire industry is not completely deregulated. It is my understanding that the wholesale and production operations are still heavily regulated which results in market distortions. Without deregulating the entire chain, how can Steffy expect market-based behavior?

Of course, Steffy realizes this situation in his next line:
As it stands now, we buy our electricity not from a monopoly and not through competition, but through an amalgam of both.
So he realizes the market is not totally deregulated, cries about the prices not dropping and then is surprised by that realization. Amazing. In Steffy's mind, deregulation is a failure because the situation is a mix between a monopoly and competition. So instead of insisting that the entire industry move to deregulation instead of parts, he implicitly advocates going back to deregulation.

Of course, Steffy falls perpetually on the side of government control over markets and against freely operating markets. His is the common, anti-capitalist position that people should be protected from market choices and responsibility for those choices. He continually minimizes the positive affect of complex markets operating extremely efficiently to match demand, supply and price when market distortions (mostly generated by government action) are eliminated.

I guess I should suspend my surprise when he habitually repeats these anti-capitalist positions. And yet, for a country entirely built upon a market-based economy which has shown itself to repeatedly deliver the goods, I am amazed that the prevailing business columnist for the Houston Chronicle to be consistently against the market. Perhaps this reflects the creeping socialist fever in this country and Steffy is just riding the wave. It is sad, nevertheless.


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