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If the market solves all problems why would the government even need to mandate winterization? Wouldn't smart businesses have done the risk analysis and done th

• JumpCrisscross 6y ago
  > If the market solves all problems Straw man.
• PragmaticPulp 6y ago
  In a truly free market, Texas would have simply received power production from nearby states that were connected into their grid. This isn't a free-market situation because the state has gone to great lengths to keep this power system isolated.
  • jtbayly 6y ago
    The other states that were struggling with blackouts? No. Being on the same grid wouldn’t have solved this, as far as I can tell.
• josephg 6y ago
  Free markets seem to do a bad job with resiliency. Redundancies, winterisation, warehousing N95 masks just in case, etc is treated as inefficiency by a free market and eliminated. These aren’t externalities - is there an economics name for this? I’m sure it’s been noticed before.
  • kortilla 6y ago
    Free markets do account for huge shortages, but we’ve eliminated the motivation for actors to do something about it with anti price-gouging regulations. There would be tons of stockpiles if businesses could appropriately upcharge when there was mass panic buying. Instead we stupidly lock prices, which wipes out most of the point of paying extra storage costs compared to a just in time competitor. The problem is we’ve as a society don’t like when prices go up with demand so we’ve crippled markets in their ability to deal with these types of events.
    • hexane360 6y ago
      You'd need to make a strong argument to convince me that situation would actually be much better than the one we have currently. At least with the current price-gouging laws, we're able to semi-select for the people who are willing to spend the most time pursuing goods, which has a much better correlation with actual need than who's willing to spend the most money. Furthermore, I'm not entirely convinced that removing price gouging laws would really prevent these sort of events. Capitalism has a tendency to optimize for the short term, and to select for firms that are perfectly optimized for the current environment, however unrepresentative that may be. Sure, counterculture firms exist, but there's rarely enough of them to make a big dent, and the markets often remain irrational longer than they can remain solvent.
      • Guthur 6y ago
        The problem is that markets, controlled or free, are at a level of complexity far beyond our capacity to effectivel control from a top down perspective, there have been countless examples with top down legislation have had unforeseen consequences (or overtly controlled markets in Soviet Union). The idea with free market capitalism is that as much as possible the transactions/pricing between parties should allow for systemic optimisation. There are two main problems, a) not all transactions are captured appropriately, b) we fuck with the system from a top down perspective so much as to completely undermine the premise of the low level optimisation. Oftentimes it's in relation to (a) that we do (b), in (b) we should be aiming to provide recompense to the side of the hidden transaction via the government; unfortunately the government oversteps here and tries to optimise the system themselves.
      • jacobr1 6y ago
        There seem to be two cases. Rare, but on human scales regularly reoccurring disasters (hurricanes in the east, fires in the west, etc ...) and more-rare "black-swan" events, basically 100+ frequencies. The more regular disasters seem to be dealt with in markets. Insurance companies will have requirements to reimbursement, some companies will stockpile goods, multi-region firms will have DR plans etc. Alternatively governments regulations can require preventative measures and have stockpiles in place. In practice both happen to varying degrees of success. Price gouging allows for more inter-region support on a for-profit basis, but probably also disincents some charitable actions. On net we probably should allow "entrepreneurial gouging" (like a guy buying a water truck in a non-disaster area, driving it to a disaster area and charging high prices) It might be distasteful, but if it is providing net-benefit of otherwise unattainable resources that is still better. But companies organizing and planning around this, seems much more sinister. Like the water company charging more for potable water, rather than spending their time and effort fixing the system for everyone. That type of thing is probably better prohibited and regulated. But the more rare events, nobody seems to handle well. Governments and private enterprises alike tend to only prepare for the last crisis. I'm not sure there is a government vs private comparison, so much as a human failure. I suspect good government regulation is going to be better, because it can sustain longer-term initiatives, but getting the policy to be "good" and not corrupted by grift is difficult, especially with out the feedback loop of reality.
• mrDmrTmrJ 6y ago
  Strongly agree. Free markets often fail to adopt low cost protections to tail events. E.g. the free market didn't get us 100% of new cars having seatbelts and airbags, government requirements did. And those standards were fought by the car manufacturers. My point is we need regulations to mandate our energy system to be resilient to outlier events (heat/cold/flooding/high wind etc.) and that's a government function separate from the free market structure of ERCOT and actually upstream of the market ERCOT creates. Said differently, I don't want people to critique ERCOTs market structure (a huge success) when the real issue is the government resiliency regulations in Texas (a huge failure).
  • roenxi 6y ago
    What if I've got a prepper bent and am OK with losing power for a few days in a 1:100 year event? Can I still get cheap, slightly unreliable power? Not to make light of the events in Texas - it sounds scary and they need to be prepared for next time. But the answer isn't automatically "they should have had a gold plated the grid!". The answer might be "they should be have been prepared for a few days without power in extreme conditions". Every new 9 gets added to 99.9...% reliability figure costs a lot more than the 9 before. At some point, it is more effective for rare events to be handled on a case-by-case basis.
    • thechao 6y ago
      This is a week about every 10 years best case, right now, where I’m at (near Austin). We lose water for twice that long every 5 years. The reliability is probably less than 99% for power, and 95% for water.
      • xibalba 6y ago
        Fellow Austinite here. To what events are you referring? I have no recollection of multiday power or water outages in the last 10 years.
        • AgentOrange1234 6y ago
• ggm 6y ago
  Externalities are, in my opinion, one of the primary reasons for market failure. This. Amongst other reasons (market distortions, gaming, profit incentives which misalign to the actual role of the markets target service) The demand pricing thing, is entirely sensible inside the construct of market for energy. But, the system itself demands both load shedding and load returning and has transmission system dependencies. Price driven load shedding can (if understand it correctly) drive more things off-line when you need to keep the, online. It's cascading failure stuff. But, not everyone's bidding model is tuned to optimise the overall goal of delivering power.
• rhodozelia 6y ago
  Vertically integrated government owned and operated utilities have imploded too- notably Ontario hydro failed due to costs related to their nuclear plants, and the rate payers had an extra line item on their bill - $10/mo? - for I don’t know how many decades to pay down the stranded debt. I don’t think markets are the right tool for electricity generation transmission and distribution - too much coordination is required between the different functions, central planning optimizes the outcomes, and the lead times are so long on significant projects that a high $/MWh for a week in 2021 isn’t going to result in a new nuclear plant. There are natural monopolies in distribution and maybe transmission as well. 100% regulated even if there are private players is the way.
  • imtringued 6y ago
    The Chinese model is pretty spot on. Just let the government own voting shares in private companies. The question isn't whether public vs private is better, it's about how to harness the best parts of both. You want the government to step in and prevent unfair and counter productive behavior and you want the private company to run the infrastructure as efficiently as it can.
    • pjc50 6y ago
      This would have gone a lot better if you'd said "the French model", or even the "British pre-1970s model". China is a country without a free press; it may appear effective but it's also highly corrupt.
• GhostVII 6y ago
  I don't think anybody said the market solves all problems. It's completely possible to have a free market with some regulations, you just say that to participate in the market you must meet certain reliability standards, like being able to withstand low temperatures for a long period of time. Private businesses can count on being bailed out when once in a few decade disasters happen (which makes some sense, imo, since it's not efficient for each business to prepare for disasters), so the only way they will prepare is if they are required to.
  • ncmncm 6y ago
    Many people do, in fact, insist the free market solves all problems. Many of them are in public office, many of them in Texas. In practice, there is nothing your typical free-market evangelist likes better than a government-subsidized monopoly, but preferably without any pesky regulations.
• seventytwo 6y ago
  Socialize the costs, privatize the profits! The capitalist mantra!
• TwoBit 6y ago
  My personal definition of a libertarian has been: someone who read a capitalism economics textbook but skipped the chapter on externalities.
• Camillo 6y ago
  > If the market solves all problems why would the government even need to mandate winterization? But Texas has a government and it _hadn't_ mandated winterization. So it doesn't seem to have done better than the market in practice.
  • ceejayoz 6y ago
    The party controlling Texas’s government openly opposes the use of government to solve issues like this.
• austincheney 6y ago
  > Wouldn't smart businesses have done the risk analysis and done the work? That is complicated. How do you validate costly infrastructure changes that are only testable or necessary once about every 10 to 20 years? Proving winterization for Canada or Wisconsin weather is challenging if you rarely have Canadian weather extremes.
  • CraigJPerry 6y ago
    I suspect the parent is fully cognisant of this. They are illuminating one of the fallacies of the free market extremists.
    • austincheney 6y ago
      Free market vs regulation are irrelevant to my comment. Neither make rare conditions required for testing less rare.
      • CraigJPerry 6y ago
        Apologies - I misunderstood the intent of what you wrote. For testing would it not be possible to use modelling instead? E.g. in the way that you might fire drill recovery from a nuclear reactor instability without first melting part of the core. Or how you might test a martian lunar rover before sending it off to Mars. Even if modelling the entire system wasn’t possible with sufficient fidelity, why couldn’t you replicate the system in a geographic environment with the requisite conditions?
• mabbo 6y ago
  > Maybe the problem here is that loss of electrical power has a significant external cost that isn't absorbed by the utilities. The utilities don't have to pay for the deaths caused by not providing power, or charging so much they might as well not be providing it.
• burlesona 6y ago
  I generally agree that externalities are a common cause of problems from free markets, perhaps the most common. But I would suggest that free markets generally create good outcomes, and when we identify bad outcomes we should correct the rules of the market. In this case, it probably would make sense for there to be a penalty that providers had to pay if they failed to deliver service after it was committed. My understanding is that the people who put the market together expected that the huge rate increase which would accompany an unusual storm or other peak demand event was expected to be sufficient incentive for providers to harden their equipment so that it would be able to cash in on those peak rates. This event showed that the incentive is not enough for events that are extremely rare. It also showed that a lot of the supply infrastructure to the gas plants failed, and hardening that infrastructure is really up to the producers who aren’t directly part of the energy market. So regulation to increase preparedness standards for gas plants supply infrastructure might make sense. But it may be possible to accomplish the same thing more efficiently via fines and penalties for market participants who go off-line during severe weather. My point is simply: the market itself isn’t really the problem, it’s creating the right set of incentives and regulations around that market. One last thought: living in Austin and having lived through this whole ordeal (still living it), I can’t say that I would necessarily want to pay twice as much for energy every single month to avoid one crappy week per decade. I’m thinking that I could probably get myself a backup heat and power source, and do some winterization on my own house that would be more valuable to me than paying twice as much for “the grid” to be upgraded to handle events of this rarity. I admit, we don’t know if these will become significantly more frequent due to changing climate, and that makes the decision more difficult, but I don’t see it as flat out wrong that a significant natural disaster damaged the power system, nor do I think having an “invulnerable power grid” is necessarily a realistic or achievable goal.
  • DontGiveTwoFlux 6y ago
    I haven’t done the analysis myself, but I highly doubt winterization would double the cost of energy. It’s probably some small portion of the capex to build the plant in the first place. Would you pay an additional 5% or 10%? Probably, especially if you get to avoid your home being flooded by burst pipes, rendering it potentially unlivable for much longer than the week of power outage.
• nicoburns 6y ago
  "Free" markets don't solve these problems. But it's worth noting that regulated markets are still markets.
• AtlasBarfed 6y ago
  My conclusion of modern "free markets", as you crank the iterations of the, uh, market simulation, will result in cartel or monopoly. That's what practically all markets have collapsed into if there is any degree of entry cost due to technology or infrastructure. Also, I've noticed a HUGE drop in that term from the various GOP politicians that used to parrot that daily back in the 80s/90s). That leads me to consider their monetary overlords (I'm not suggesting the other side doesn't have them, just that the GOP is a bit more eager to directly funnel their sponsor messages) DON'T want free markets, because they all have won free markets. Which is really a bad state of affairs. I've also realized that money in politics is way up in the same period, and regulation to allow more money into politics has risen at the same time. Monopolies get more ROI on lobbying to help control their monopoly market positions, and keep antitrust at bay. It's tough because free markets result in predatory pricing in times like this. Heavy regulation (especially these days, see above with money in politics) is highly resistant to change and not necessarily reflective of the common good or even "reality" or even physical laws. Anyway, Texas is modern america: a rapidly failing government, and a rapidly failing economic system, all being undermined by steady shadowy corruption that doesn't become apparent until a sudden external stressor appears.