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Help me out here. One tactic during the Enron Wild West energy market era was to turn off generating capacity so that prices would rise. With a price cap, such

Help me out here. One tactic during the Enron Wild West energy market era was to turn off generating capacity so that prices would rise. With a price cap, such a strategy would become unworkable, wouldn't it? At least for the naive onlooker it would.

logicalmonster 4y ago
Without reading up about this history, I have no idea about the context and the particular details there. Was that energy market they were participating in an actual free market, or heavily regulated to prevent easy competition? I'd guess the latter, but can't definitively say so. But in general, if there's free entry into a marketplace, there's a check against this sort of behavior. Rising prices are not bad: they are a flashing signal that society desperately wants more of a particular good and to provide more of it as quickly as possible. If company X tried to cut production of any good in an area and boost up their prices, every entrepreneur out there gets a neon flashing message that there's a new way to profit mightily if they can provide that good.
- HarryHirsch 4y ago
  That's the theory, the practice is different. Also, the purpose of a market isn't to have a market, it's to have robust infrastructure. That's why the Texas electrical grid is such a basketcase. Generators are paid for production but what you really need is spare capacity on peak days. The price excursions on a few hot or cold days are not nearly enough to incentivise building capacity that sits unused most of the year. In New England, on the contrary, generators are also paid for capacity, which is why one grid works and the other not at all.
  - logicalmonster 4y ago
    I'm not an expert in energy policy and differences between different states. Surely some states manage certain aspects of energy better than others. But what is your overall argument and response to me here? Is it that because one heavily regulated and controlled market has some flaws, this means that free markets don't work in practice?
- ratsmack 4y ago
  >heavily regulated Just another form of price control, without calling it price control.

logicalmonster 4y ago

Without reading up about this history, I have no idea about the context and the particular details there. Was that energy market they were participating in an actual free market, or heavily regulated to prevent easy competition? I'd guess the latter, but can't definitively say so. But in general, if there's free entry into a marketplace, there's a check against this sort of behavior. Rising prices are not bad: they are a flashing signal that society desperately wants more of a particular good and to provide more of it as quickly as possible. If company X tried to cut production of any good in an area and boost up their prices, every entrepreneur out there gets a neon flashing message that there's a new way to profit mightily if they can provide that good.

HarryHirsch 4y ago
That's the theory, the practice is different. Also, the purpose of a market isn't to have a market, it's to have robust infrastructure. That's why the Texas electrical grid is such a basketcase. Generators are paid for production but what you really need is spare capacity on peak days. The price excursions on a few hot or cold days are not nearly enough to incentivise building capacity that sits unused most of the year. In New England, on the contrary, generators are also paid for capacity, which is why one grid works and the other not at all.
- logicalmonster 4y ago
  I'm not an expert in energy policy and differences between different states. Surely some states manage certain aspects of energy better than others. But what is your overall argument and response to me here? Is it that because one heavily regulated and controlled market has some flaws, this means that free markets don't work in practice?
ratsmack 4y ago
>heavily regulated Just another form of price control, without calling it price control.