David J. Phillip/AP Photo
Texans wait in line to fill propane tanks, February 17, 2021, in Houston, in the wake of a historic snowfall and widespread power failures.
The Texas power fiasco is the emblematic case of why and how deregulation fails Americans. In theory, it promotes innovation and competition, benefiting both consumers and entrepreneurs.
But in practice it promotes cost-cutting, stinting on network capacity and maintenance. It also hurts workers—because one cost center is employees. Since deregulation, wages and benefits have been cut, and fewer workers kept on the job for maintenance and for emergencies.
This is true of the electric-power industry, but it’s true of other deregulated industries such as cable companies and airlines as well. To appreciate why, consider the logic of profit maximization in regulated industries and deregulated ones.
In the old days (between Franklin Roosevelt and Jimmy Carter), major industries such as utilities and airlines were regulated. This meant that they filed proposed rate schedules with their regulator, building in enough income to pay workers decent salaries, invest in maintenance and innovation, and keep some money for profit. Regulators allowed them decent profits but not exorbitant ones.
In that system, those incentives produced a business strategy of continuous innovation and careful attention to network efficiencies. Why innovation? Because new technology allowed you to provide electricity (or airline or phone services) at better quality and lower cost.
That, in turn, expanded your customer base. And with rates fixed by law, serving more customers was the only way to increase profits. The regulators also kept a close watch on attempted company fraud and price-gouging schemes. These were headed off at the pass.
Regulation was good for labor peace and decent wages. Since rates were fixed, cutting wages did not increase profits, since the regulator would adjust the permissible rates downward. So all of the regulated utilities had strong unions, skilled workers, good pay and career prospects.
When I wrote my comprehensive study of a regulated economy and a deregulated one, Everything for Sale, I found that electricity rates and airline fares fell at a faster rate before deregulation than afterward. Why? Because of all that innovation.
In the case of airlines, predictable profits meant that airlines could invest in new generations of more fuel-efficient planes. Power companies could invest in more efficient generation techniques and grids.
Deregulated competition was billed as cutting prices. But in practice it has led to monopoly concentration and price-gouging in some sectors, and free-for-all chaos in others, with inadequate incentive to invest in the overall system.
Regulation also meant that companies could build in spare capacity for emergencies. But today planes run full; if you are bumped from a flight, good luck getting on another one. And those Texas power companies maximized profits by minimizing spare capacity.
The experiment in deregulation was another of the great con jobs of neoliberalism. In the case of Texas, it is state deregulation on top of federal deregulation.
This is about a lot more than electric power. It’s about two different ways of running an economy.
One way—letting private business run wild in sectors with tendencies to monopoly abuses—produces massive inconvenience combined with price-gouging for consumers, and inadequate pay for workers. The alternative of a regulated economy produces more consistent investment in technology and networks, fairer and more predictable rates, as well as more job security.
When the inevitable commission and congressional hearings study what went so badly wrong in Texas, they should look at the larger picture: why deregulation as a whole has been a hoax.
And in some industries, such as electricity, we need to combine re-regulation with public ownership. Ever since the New Deal built the great Western dams and the TVA, and wired rural America with nonprofit REA co-ops, public power has consistently done a better job than private.
Beyond those lessons is the demonstrated fact that markets underinvest in infrastructure generally. When President Biden proposes his large-scale initiative measure to modernize public infrastructure in America, his mascot should be a freezing, market-loving Texan.
Let Republicans try to oppose it as socialistic. It will bring more recruits for socialism.
The larger question is not how to fix the mess in Texas but what larger lessons we will draw from it. As my daughter likes to say, AFGO: Another Effing Growth Opportunity.
