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October 13, 2003

Deregulation sucks

Deregulation: brought to popularity by two decades ago Reagan, Thatcher and converted into a religion by their successors, has failed. Sure, in a free and efficient market, deregulation should bring better results at lower costs to the consumer. But has this ever happened? Deregulation revolutionized the airline industry and brought cheap flights to all, but are we better off flying today than we were ten years ago? Will the airline industry survive ten years from now? The only other "success" story I can think of is the telephone industry.

The problem, of course, is rooted in the mythical efficient market. It seems that the biggest proponents of deregulation are the least likely to set the conditions necessary for it to succeed: true competition, liquid markets, and available information. The UK railroads was the first large-scale example of this I saw. How can you have competition when only one company is allowed to run trains in a specific region? Predictably, deregulation of the UK rail industry was a total failure, and led to wide-scale deterioration of the infrastructure and several deadly accidents.

On a smaller scale, I was astounded to learn that here in Seattle, only one cable company serves any one house. At our new place, we can only get Millennium; at my last place it was Comcast or nothing. Where is the competition? No wonder cable costs so much.

Check out this article on the effects of deregulation on the energy industry. Not only did the legislators that oversight and maintenance of large-scale public infrastructure, with so few players, could ever represent an efficient market, they ignored the basic physical design of the network and designed rules guaranteed to overstress the hardware. Despite the warnings of engineers and physicists, deregulation of the electricity market in the US was practically guaranteed to result in poorer service from widespread blackouts.

The fundamental problem is that deregulation requires all the generators to be linked together so that they can trade electricity, basically linking the entire grid into one big machine. So when a problem occurs in one area, it spreads widely. You'd think the solution would be to return to the old ways, where energy was generated regionally, without these interdependencies, right? Wrong. The FERC advocates increasing cross-country transmission, and is willing to spend billions and undermine environmental legislation to allow utilities to continue to trade electricity in support of this mythical free market. And who's going to pay for all of this? From the article:


To pay the extensive costs, the utilities and the DOE advocate increases in utility rates. “The people who benefit from the system have to be part of the solution here,” Energy Secretary Spencer Abrams said during a television interview. “That means the ratepayers are going to have to contribute.” The costs involved would certainly be in the tens of billions of dollars. Thus, deregulation would result in large cost increases to consumers, not the savings once promised.

So let me get this straight. Deregulation was supposed to make electricity cheaper and more reliable for the consumer. It didn't work. So now, we're going to make the consumer pay to get the benefits promised in the first place?

Deregulation sucks.

Posted by david at October 13, 2003 10:43 AM | TrackBack
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Comments

It always amuses me when I read about how deregulation or privatization will make a huge difference in costs and/or quality. Perhaps amuse is not the right word. I start thinking about where the supposed slack is located, or where it is likely to be decreased. I think it's often labor that pays the biggest price. It seems like free markets are best at spreading around the suffering, but not the wealth.

There are too many permutations to say categorically that regulation is good or bad. However, the answer to the electrical supply problem is decentralization of generation. Solar panels, windmills, energy storage systems, etc.—every building should be fitted with them. And the answer to any problem with television is simply not to watch. :)

Unfortunately, the latter would decrease the chance of seeing Lily Tomlin do her character Ernestine, the telephone operator, on Saturday Night Live. This sketch is particularly apropos to the current topic:

Here at the phone company we handle eighty-four billion calls a year, serving everyone from presidents and kings to scum of the earth. We realize that every so often you can't get an operator, for no apparent reason your phone goes out of order, or perhaps you get charged for a call you didn't make. We don't care. Watch this—[flips some switches]—just lost Peoria! You see, this phone system consists of a multibillion-dollar matrix of space-age technology that is so sophisticated, even we can't handle it. But that's your problem, isn't it? Next time you complain about your phone service, why don't you try using two Dixie cups with a string. We don't care. We don't have to. We're the phone company.

Posted by: Gary on October 16, 2003 03:54 PM

Is that SNL repeats, or is Lily Tomlin on current episodes? There was a picture of Ernestine the operator on the front page of the NYT business section last Sunday, so it seems like she's in the zeitgeist in any case.

Posted by: david on October 16, 2003 04:40 PM

Wow, in the New York Times at this late date!I t's definitely an old skit, and it's a character that she created on Laugh-In. I can't remember if I saw it on a rented videocassette or on one of Comedy Central's ancient repeats of SNL. (Maybe it will show up in their upcoming fifty-best-episodes marathon.) In my memory, the image quality suggests the very early '80s. This page—which has better action description than my quote (or this one, which claims a voice-over)—cites a particular title and links to a web site that lists an all-Ernestine title.

Posted by: Gary on October 16, 2003 09:10 PM
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