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This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would. The theory i

This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would. The theory is as such: raising prices during a crisis does two things. First it encourages more production, since anyone producing (or more likely, moving) shortage goods into the affected area will be compensated. Secondly it discourages non essential consumption, as everyone cuts back to the bare minimum. This is the basic theory of prices driving resource allocation (one of the cornerstones of capitalism) being applied to a crisis and the resulting resource shortages. The issue here in Texas is that this didn’t happen. In theory producers should’ve run extra capacity to take advantage of the crisis, which should end it. Instead they ran the bare minimum, didn’t winterize, and pocketed the profits. It was also impossible to move extra energy in, both due to diminished excess in nearby states, and a lack of robust cross-grid connections. Secondly a lot of this demand isn’t elastic. If you’re counting on an electric heat pump to warm your home, then you can’t cut consumption during a crisis; you’ll freeze to death. This means that the rising prices don’t cause people to curtail consumption, because nobody will willingly freeze themselves and their water pipes given the choice.

ffggvv 6y ago
no incentive is really going to work in a 2 day period. i don’t think anyone would say some competitor would sprout up that fast. but idk if that’s generalizable to all crises of all durations for all types of good
- ashtonkem 6y ago
  According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. Nor did power plant operators take less expensive steps in order to ensure that their existing equipment was operating during such circumstances in order to capitalize on the price rises. Instead they didn’t spend the money to winterize or have extra production, and Texans suffered for it. And before the whole “who could have predicted this once in a century storm”, this exact issue came up in 2011, and the Federal Energy Regulatory Committee produced a huge report warning about all of the things that ended up knocking the grid offline this year.
  - avmich 6y ago
    > According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. For an unsophisticated observer, this is a proof that free market doesn't actually work. So something better should be used, and those trumpeting raw competition are either ignorant or willingly lie.
    - tialaramex 6y ago
      I actually agree that you should not expect our old friend the "invisible hand" to get what we want here. But to the specifics you're wrong. It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this. It's very Texan to have a situation in which there's a market that will unavoidably cause tremendous problems (but makes the wealthy even wealthier) and then it is somehow not only permitted but seemingly popular to seek to expose ordinary people directly to that market. The right thing to happen is that this arrangement is banned, and the politicians who allowed or worse encouraged it are censured. But I have no confidence that's anywhere close to what will actually happen.
      - danaris 6y ago
        > It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this. A market system, yes. But not a "free market" system in the sense that most libertarian-leaning people mean, where the government just stands aside and lets businesses do as they will. In order for a market system to approximate the ideal free market in a situation like this, there needs to be a boatload of different kinds of regulation on it. Externalities would need to be priced in, all possible costs would need to be clearly disclosed, and many varieties of corner-cutting would have to be prohibited. Even then, it is, in fact, absolutely impossible for electricity to be a genuine free market, just as it is with health care: Both are absolutely essential and time-critical, at least at certain times, which makes shopping around impossible (for health care because you can't shop around while unconscious, even if you did have a fancy phone app to make it nearly instantaneous, and for electricity because when a massive cold snap comes and your choices are "pay for electricity or freeze to death", it's not possible to switch electricity providers on short notice).
fat_pikachu 6y ago
> This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would. There's no way to make that judgement until we see some actual metrics instead of anecdotes. It's possible this could have been worse without increased prices.
- ashtonkem 6y ago
  There is a way to make that judgement; areas with a different regulatory structure didn’t have blackouts as long or as severe.

ffggvv 6y ago

no incentive is really going to work in a 2 day period. i don’t think anyone would say some competitor would sprout up that fast. but idk if that’s generalizable to all crises of all durations for all types of good

ashtonkem 6y ago
According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. Nor did power plant operators take less expensive steps in order to ensure that their existing equipment was operating during such circumstances in order to capitalize on the price rises. Instead they didn’t spend the money to winterize or have extra production, and Texans suffered for it. And before the whole “who could have predicted this once in a century storm”, this exact issue came up in 2011, and the Federal Energy Regulatory Committee produced a huge report warning about all of the things that ended up knocking the grid offline this year.
- avmich 6y ago
  > According to the designer of the Texas system, the incentive was to have extra capacity in order to capitalize on any transient spike in wholesale electricity prices. That obviously didn’t happen. For an unsophisticated observer, this is a proof that free market doesn't actually work. So something better should be used, and those trumpeting raw competition are either ignorant or willingly lie.
  - tialaramex 6y ago
    I actually agree that you should not expect our old friend the "invisible hand" to get what we want here. But to the specifics you're wrong. It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this. It's very Texan to have a situation in which there's a market that will unavoidably cause tremendous problems (but makes the wealthy even wealthier) and then it is somehow not only permitted but seemingly popular to seek to expose ordinary people directly to that market. The right thing to happen is that this arrangement is banned, and the politicians who allowed or worse encouraged it are censured. But I have no confidence that's anywhere close to what will actually happen.
    - danaris 6y ago
      > It's perfectly possible to build a market system in which providers aren't incentivized to do stupid things like this. A market system, yes. But not a "free market" system in the sense that most libertarian-leaning people mean, where the government just stands aside and lets businesses do as they will. In order for a market system to approximate the ideal free market in a situation like this, there needs to be a boatload of different kinds of regulation on it. Externalities would need to be priced in, all possible costs would need to be clearly disclosed, and many varieties of corner-cutting would have to be prohibited. Even then, it is, in fact, absolutely impossible for electricity to be a genuine free market, just as it is with health care: Both are absolutely essential and time-critical, at least at certain times, which makes shopping around impossible (for health care because you can't shop around while unconscious, even if you did have a fancy phone app to make it nearly instantaneous, and for electricity because when a massive cold snap comes and your choices are "pay for electricity or freeze to death", it's not possible to switch electricity providers on short notice).

fat_pikachu 6y ago

> This crisis in Texas is also a good argument for why price gouging during a shortage doesn’t work the way anti-regulatory advocates said it would. There's no way to make that judgement until we see some actual metrics instead of anecdotes. It's possible this could have been worse without increased prices.

ashtonkem 6y ago
There is a way to make that judgement; areas with a different regulatory structure didn’t have blackouts as long or as severe.