The Fall of the Roman Empire....or Perhaps the Fall of the American Empire

[amicus]

http://www.mises.org/freemarket_detail.aspx?control=347

California's Energy Meltdown
<align=centerGeorge Reisman
</align=center

“…The state of California has experienced a meltdown in its electric power system. For months, the system has repeatedly run at or near the overload point, necessitating brownouts and even rolling blackouts. Incredibly, the fiasco has been blamed on deregulation and the free market.

Economist Paul Krugman, for example, wrote a disgraceful article called "California Screaming" for the New York Times (December 10, 2000). The online lead-in to the article accurately conveyed its tenor: "California's blind faith in markets has led to an electricity shortage so severe that the governor has turned off the lights on the official Christmas tree."

Meanwhile, the governor of the state is proposing what amounts to a state takeover of the system. Instead of permitting private enterprise to build new plants, he proposes the government build them at taxpayer expense.

It is necessary to review the facts that have caused California s fiasco, in order to arrive at a rational judgment of its nature.

Destructionist government policy has increasingly restricted the supply of electric power in California and throughout the United States. For the last twenty years or more, there have been no new atomic power plants constructed and few or no new coal, oil, or hydroelectric power plants built.

Indeed, government policies have caused existing plants of these types to be dismantled. In California, in the last decade, only power plants using natural gas as their fuel have been allowed to be constructed, and such plants now account for most of the state s generating capacity. Such power plants are substantially more expensive to operate, and would quickly be plunged into unprofitability if exposed to the competition of other types of power plants.

Moreover, the government-caused dependence on natural gas as the source of fuel for power plants has contributed to the sharp rise in the price of natural gas to record levels. The rise in the price of natural gas has been especially great in California, where lack of adequate pipeline capacity has limited natural gas supplies more than in the rest of the United States.

Over the same period that the government has restricted the supply of electric power, there has been a substantial increase in the demand for electric power. The rise in demand has been brought about both by population growth and by the increase in power consumption per capita caused by economic progress.

When these facts are combined with government price controls on electric power (which have existed since the early years of the industry), shortages of electric power are an inevitable result. The government's responsibility for shortages of electric power inescapably implies its responsibility for power brownouts and blackouts. Their immediate cause is a demand for power too great for the power system to supply, i.e., a power shortage…”

Amicus...

 

[trysail]

This column by Paul Krugman, an economist I much respect, is where I first heard of this.

I've been Googling, trying to find other cites, but my research skills suck.

Methinks the column by Mr. Krugman (for which you so kindly provided a link) hath made my point:

"Another way in which deregulation was incomplete was that regulators prevented the utilities from entering into long-term contracts to buy power, forcing them instead to buy wholesale electricity in a short-term "spot" market. Soaring spot prices have bankrupted the utilities, and are forcing the state government to spend billions to keep the power flowing. If the utilities had locked in large supplies at lower prices, they would not yet be bankrupt — but they would still be hemorrhaging money."

It is rare for me to agree with Krugman's judgment; nonetheless, I must admit that, in this case, he appears to have accurately reported the facts.

 

[Le Jacquelope]

And the deliberate shutting down of power plants by these same "victimized" energy companies, was very largely responsible for our power crisis in 2004:

http://onlinejournal.com/artman/publish/article_289.shtml

"The 9th Circuit Court of Appeals is expected to issue a ruling soon on a key piece of evidence that will help kick-start the long awaited criminal trial involving Houston-based Reliant Energy and the company's alleged scheme to boost its profits by shutting down power plants in California during the height of the state's energy crisis five years ago."

 

[Le Jacquelope]

For those who are not getting the ramifications of this - shutting down power plants to raise the price of electricity, cut the supply of power, which caused rolling blackouts.

http://www.usatoday.com/money/industries/energy/2004-08-06-enron-trader_x.htm

Former Enron trader pleads guilty to manipulating energy market
SAN FRANCISCO (AP) — A former top executive at Enron pleaded guilty Thursday to charges he manipulated energy markets during California's power crisis and promised to assist California and other public utilities' in their lawsuits seeking to recoup billions from the energy industry.

John Forney, 42, of Ohio, is the third Enron official to plead guilty to manipulating electricity prices from Enron's now-defunct trading office in Portland, Ore. The crisis played a role in Pacific Gas & Electric Co.'s bankruptcy and will leave California consumers paying abnormally high electricity prices for years.

 

[Weird Harold]

It is rare for me to agree with Krugman's judgment; nonetheless, I must admit that, in this case, he appears to have accurately reported the facts.

He may be accurate, but he is incomplete as well. The article Amicus posted has a point about the effect over-dependence on natural gas -- which was a big part of the news coverage at the height of the summer heat a year or two ago.

However, the answer to your insistent question is much simpler than economics and free-market vs regulation:

California is the only state that had problems with "deregulation" because California is the Land of Fruits and Nuts!

Offhand, I can't think of a single legislative action the State of California has taken in the last half-century that I agree with. Even their leadership in smog-reduction is heavy-handed and micro-managed by legislaors who haven't got a clue (about anything.)

 

[Le Jacquelope]

He may be accurate, but he is incomplete as well. The article Amicus posted has a point about the effect over-dependence on natural gas -- which was a big part of the news coverage at the height of the summer heat a year or two ago.

However, the answer to your insistent question is much simpler than economics and free-market vs regulation:

California is the only state that had problems with "deregulation" because California is the Land of Fruits and Nuts!

Offhand, I can't think of a single legislative action the State of California has taken in the last half-century that I agree with. Even their leadership in smog-reduction is heavy-handed and micro-managed by legislaors who haven't got a clue (about anything.)

This country wouldn't break step if you superior Nevadans disappeared into oblivion. Without us California Fruits and Nuts, America would collapse and you'd starve. The world would starve.

When you start dissing us Californians, please stop and think about who is more important on the food chain. It's us. By a long shot.

 

[cloudy]

This country wouldn't break step if you superior Nevadans disappeared into oblivion. Without us California Fruits and Nuts, America would collapse and you'd starve. The world would starve.

When you start dissing us Californians, please stop and think about who is more important on the food chain. It's us. By a long shot.

I consider California my home, but please, let's not get into a quien es mas macho thing, ok?

Stereotypes about different areas of the country abound. Most who have never been to California have this idea that Hollywood is California, and they're just as wrong as the people in California that think that the south is all backwoods shacks and inbred retards.

 

[BlackShanglan]

This column by Paul Krugman, an economist I much respect, is where I first heard of this.

I've been Googling, trying to find other cites, but my research skills suck.

Thanks, Rob! Much appreciated. It's an interesting read. Same to you, LT.

 

[Le Jacquelope]

I consider California my home, but please, let's not get into a quien es mas macho thing, ok?

Stereotypes about different areas of the country abound. Most who have never been to California have this idea that Hollywood is California, and they're just as wrong as the people in California that think that the south is all backwoods shacks and inbred retards.

I'm not gonna sit around let some desert dwelling cactus eating casino valet boy bust on the 8th largest economy in the world. And I'll never not give someone a dose of their own medicine.

 

[Weird Harold]

This country wouldn't break step if you superior Nevadans disappeared into oblivion. Without us California Fruits and Nuts, America would collapse and you'd starve. The world would starve.

When you start dissing us Californians, please stop and think about who is more important on the food chain. It's us. By a long shot.

Stereotypes about different areas of the country abound. Most who have never been to California have this idea that Hollywood is California, and they're just as wrong as the people in California that think that the south is all backwoods shacks and inbred retards.

Since you quoted LT past my ignore list, I'll respond to him: I may live in Nevada now, but I'm an Oregonian by birth and rearing. I don't dismiss the importance of California to the economy, or fail to recognise it's political influence, but I still can't think of a single legislative action in the last fifty years or so that I agree with. I'm constantly amazed that California does as well as it does, considering it's tradition of screwball governors and inept legislators.

Cloudy, I'm not unfamiliar with California (I was stationed in California for three and a half years) and it isn't Hollywood that "is California;" it's the difference between Weed on one side of the border and Klamath Falls on the other or Susanvile and Reno on opposite sides of that border -- as far from Hollywood as you can get and stay in California -- that form my bad opinion of California. But at least I can tolerate Northern Californian idosyncracies long enough to drive through that corner of the State. I avoid southern California as much as possible, and if I could liberate Disneyland and move it away from the corrupting influences of Southern California, I'd never go there again.

 

[Le Jacquelope]

Since you quoted LT past my ignore list, I'll respond to him: I may live in Nevada now, but I'm an Oregonian by birth and rearing. I don't dismiss the importance of California to the economy, or fail to recognise it's political influence, but I still can't think of a single legislative action in the last fifty years or so that I agree with. I'm constantly amazed that California does as well as it does, considering it's tradition of screwball governors and inept legislators.

Cloudy, I'm not unfamiliar with California (I was stationed in California for three and a half years) and it isn't Hollywood that "is California;" it's the difference between Weed on one side of the border and Klamath Falls on the other or Susanvile and Reno on opposite sides of that border -- as far from Hollywood as you can get and stay in California -- that form my bad opinion of California. But at least I can tolerate Northern Californian idosyncracies long enough to drive through that corner of the State. I avoid southern California as much as possible, and if I could liberate Disneyland and move it away from the corrupting influences of Southern California, I'd never go there again.

So what if you don't agree with our legislative actions. On the balance, they have helped shape us into a far better place than the land of prostitutes, gamblers and bell boys where you live now.

The only politician anyone in the world cares about in Nevada is Harry Reid - a Democrat.

 

[rgraham666]

Another column by Krugman on how the crisis was ended. And it turned out that natural gas, which played a big role in electricity prices, was also gamed in order to raise prices.

The problem with capitalism, as we imagine it is that it has two goals. One to provide goods and services, the other to make a profit. These two goals are somewhat contradictory.

Providing goods and services costs money, which reduces profit. As the generators found in California you can increase your profit by reducing the goods and services you provide. This raises the price as supply drops and, well, prices are high.

There are only two things that can rein in this sort of behaviour.

The first is a system of ethics that everyone subscribes to. Good luck with that. You can't even get everybody to sing the National Anthem in the same key.

The other is government regulation. That's a government's purpose, to balance out the dichotomies in existence and ensure that goods and services are delivered and that profits are made.

And LT, I'm disappointed in you. Ad hominem is no way to debate things that we do need to debate.

 

[trysail]

Krugman.... it turned out that natural gas, which played a big role in electricity prices, was also gamed in order to raise prices.

The problem with capitalism, as we imagine it is that it has two goals. One to provide goods and services, the other to make a profit. These two goals are somewhat contradictory.

Anybody who thinks the natural gas market was manipulated or "gamed" is smoking something. That market is so vast and deep that I defy anybody to prove prices can be moved by anybody. Believe me, Exxon couldn't do it even if it tried (and Exxon ain't so stupid as to even try 'cause they know full well that if they ever did [and were caught] they'd all spend the rest of their lives in jail). Over a long period of time, Krugman has repeatedly displayed a fundamental lack of understanding of basic principles of economics.

Study and think about this quote from Boone Pickens (whom I do not like but who in this instance, like it or not, stated a profound truth):
"The solution to high prices is.................................................................

.................................................... high prices."


If you understand free market economics, you'll understand the truth of the statement. If you don't understand natural law and free market economics, I submit that you're beyond help.

Life IS competition and conflict. Ask Adam Smith or Charles Darwin. Anybody who understands the phrase, "the struggle for existence" accepts that capitalism is as natural as birth and death.
____________________________________



Once again, I offer the following as a universal rule:
The less someone understands free market economics and sociobiology, the more likely they are to propose hare-brained interpretations of history, economics, and politics.

 

[rgraham666]

Have you heard that you catch more flies with honey than vinegar? You might try it sometime.

Anyway, I thought we were human beings, and so capable of freeing ourselves from the base dictates of nature.

If you want to live in a society where only the strong thrive (and please define 'strong') and the rest end up miserable first and then dead, go ahead.

I don't have to like it. And I don't.

 

[trysail]

Anyway, I thought we were human beings, and so capable of freeing ourselves from the base dictates of nature.

If you want to live in a society where only the strong thrive (and please define 'strong') and the rest end up miserable first and then dead, go ahead.

I don't have to like it. And I don't.

I don't like it any more than you do, pal. Do you think I (or anybody else) likes conflict and struggle? It is, like it or not, the way the world works. Do you have to like it? No......., BUT you must also be willing to accept the consequences of your choice and your behavior.

Don't shoot the messenger. I don't make the rules. If there is a god (and I doubt it), she's laughing at us.

Below is an interesting passage from a book (and an excellent one, at that) written in 1990 by William Pfaff, titled Barbarian Sentiments. You can tell it's somewhat dated by the initial paragraph (obviously written before China's emergergence as an industrial power- by the way, it has been reasonably proposed that China and India's decisions to embrace Western free market economics were directly attributable to the collapse of Soviet communism and the Iron Curtain). Be sure to read on to the second paragraph.

"China is backward economically and technologically, but in other respects the United States or Britain is backward by comparison with China, India, or Egypt. These Asian or African civilizations are far more coherent, and this is both a strength for them and a wall of resistance to industrialization and economic development along Western lines. Of course, Western industrial society has a coherence of its own, in that it rests on generally held assumptions about accomplishment and mastery as central to the meaning of our lives- about exploration and exploitability of material acquisitions, the value of knowledge, the value of work.

Let me be specific, since the issues come down to practical things. To run a factory requires workers and managers who want economic prosperity badly enough to spend a major part of their working lives doing things that are often boring, exhausting, and unpleasant. They also need, usually, the ability to read and write, to make complicated plans and analyses, to use sophisticated tools, to understand machinery and feel at home with it, and even to take pleasure in machines and in the concepts that lie behind them. A dependable supply of such workers exists in the United States, Canada, and Western Europe, because fathers and sons have done this kind of thing since the Industrial Revolution first emerged, during the eighteenth century...."

 

[amicus]

I don't like it any more than you do, pal. Do you think I (or anybody else) likes conflict and struggle? It is, like it or not, the way the world works.

~~~

Trysail...there are so many adamantly opposed to anyone advocating a free society that I loathe to be critical of the few who do and I count you as one of them.

I offer that there is great joy in overcoming 'conflict and struggle', as you put it.

Once upon a time...I purchased a lovely thirteen acre plot of land overlooking the Columbia River. There wasn't even a road into the property, although an adjacent one for access.

It took a year of planning and financing, thanks to the capitalist banks and the investments of others, I was able to borrow and mortgage the property and the building supplies. I put a lot of 'sweat equity' into the project, built the road myself, dug the septic system and installed needed equipment, hired a well driller for a water supply and had a home built on the land.

Everyone associated with the project made an income, maintained their own existence while working at something they chose to work at and I tied myself to a 30 year mortgage.

Another example: in my early years of radio, I had to compete with the many others who wanted to work in broadcasting and that too, took a good year before I acquired the job I sought and another year to become established.

After the successful accomplishment of both dreams, I was able, for the moment, to stand back and feel the pride of achievement and the joy of the independence and free will I exercised to choose a goal, work towards it and finally arrive.

Those are small stories, small potato's, in the much larger world of corporate enterprise, be it Microsoft or General Motors, but the issue remains, the freedom to dream, the freedom to plan and accomplish and realize a dream.

How one cannot love, admire and respect a free society that enables and protects one's rights to 'try', I simply cannot comprehend.

Amicus...

 

[rgraham666]

So what you're saying, trysail, is that we're not free? That we have no choice at all except vicious conflict? That the game is winner take all and the devil take the hindmost?

That's sad.

 

[trysail]

Even the former Communists are privatizing and deregulating. Hmmm. Do you think they might know something about central planning?
______________________________________
E.ON and Gazprom Invest $8.6 Billion on Russian Power (Update2)
By Yuriy Humber

Sept. 15 (Bloomberg) -- E.ON AG, Germany's biggest utility, and Russian gas monopoly OAO Gazprom agreed to spend a combined 217.6 billion rubles ($8.58 billion) to each gain control of a Russian power generator as the state exits the industry.

The companies made the highest offers in separate bids for shares in two units of national utility OAO Unified Energy System. E.ON bid for at least 69 percent of OAO OGK-4 and Gazprom a minimum of 47 percent in OAO TGK-1, said Anatoly Chubais, chief executive officer of Unified Energy.

``The Russian, or Soviet, power industry has never seen anything like this; it's a record,'' Chubais told reporters in Moscow today. E.ON offered $753 per kilowatt of installed power capacity, the highest bid ever submitted in Russia, he said.

Russia will split up Unified Energy by July 2008 to increase competition and raise $120 billion needed to upgrade and expand power generation and the grid. The state utility has raised more than $8 billion from four share sales in three generators before today's transaction.

``With increases of 5 percent annually, Russia is one of the largest and fastest growing energy markets in the world,'' E.ON said in a statement. ``E.ON's long-term goal is to build up a strong position'' in Russia.

More Investment

Sales of Moscow-based OGK-4 and TGK-1, based in St. Petersburg, are being conducted in two parts. The next stage will be the sale of new shares by the power companies. The Russian government yesterday auctioned its stakes, which it owns via a 52 percent holding in Unified.

Russia's power industry needs more investment in its infrastructure, said Lueder Schumacher, an analyst with Dresdner Kleinwort in London who has a ``buy'' rating on E.ON shares.

``President Putin has said that not having sufficient power capacity has cost the country 5 percent of GDP growth in recent years,'' Schumacher said. ``An awful lot of investment is needed in the power sector in Russia. I think this gives you a certain amount of political protection.''

E.ON offered 3.35 rubles ($0.13) a share in OGK-4. The Dusseldorf-based utility will pay Russia 100 billion rubles for 29.8 billion state-owned shares and bid for all of the newly issued shares. Unified will retain 22.5 percent in OGK-4.

`Golden Hen'

E.ON probably made the investment because of OGK-4's earnings potential in four years, said Dmitry Tsaregorodtsev, an analyst with Moscow-based KIT Finance. ``Once Russia liberalizes electricity prices by 2011, the company is not a golden hen but a diamond one.''

Apart from selling power plants, Unified Energy has also put its 23-story Moscow headquarters up for sale. Spokesman Timur Belov said Aug. 22 that the company plans to sell the building and the lease to the 2.46-hectare lot on which it stands in the fourth quarter.

Gazprom offered 0.035 rubles a share for TGK-1, or $710 per kilowatt of capacity. The gas producer will pay the state 38.7 billion rubles for 1.1 trillion shares and seek to buy as many as 925.7 billion new shares. Unified's stake will drop to 13.6 percent in TGK-1.

``I'm happy with the OGK-4 price, it's an old asset and there's a lot of uncertainties,'' said David Herne, a former Unified Energy director who manages $500 million including power assets at Halcyon Advisors Inc. in Moscow. ``This is embarrassing'' for TGK-1, he said. Herne estimated TGK-1's value at $900 a kilowatt of capacity.

Enel Purchase

Enel SpA, Italy's biggest utility, paid $669 per kilowatt of installed capacity for OAO OGK-5 generator in a June auction. OAO Norilsk Nickel's price for OAO OGK-3 generator was $601 per kilowatt, and the rest were sold at about $500.

The final figures for the size of the stakes Gazprom and E.ON will acquire will be announced Sept. 25, said Yury Makushin, chairman of OGK-4, at today's briefing.

``Unified Energy wants to see one, single strategic investor acquire control in each company,'' Makushin said.

OGK-4 operates five power plants with an installed capacity of 8,630 megawatts. Its revenue was 26.1 billion rubles last year. TGK-1, also known as TGC-1, operates 55 power plants in Russia's northwest with a capacity of 6,248 megawatts. Sales were 21.6 billion rubles last year.

 

[rgraham666]

You didn't answer my questions. Not that I find that surprising.

And you're going to hold up Russia, a land ruled by oligarchs with a past head of the KGB enabling it, as an example of the success of deregulation? A place where corruption is an everyday fact of life? A place where vor (crime boss) is an honoured position in society?

Really?

 

[Le Jacquelope]

You didn't answer my questions. Not that I find that surprising.

And you're going to hold up Russia, a land ruled by oligarchs with a past head of the KGB enabling it, as an example of the success of deregulation? A place where corruption is an everyday fact of life? A place where vor (crime boss) is an honoured position in society?

Really?

He's overjoyed that the stopped clock that is Russia manages to be right twice a day.

 

[trysail]

And what, pray tell, were your questions?

If you are asking whether I believe in the theories of Charles Darwin, Adam Smith, and E. O. Wilson, the answer, in the main, is "yes."

"There are millions of wildebeast on the African plain. Not one will die of old age."

 

[Le Jacquelope]

And what, pray tell, were your questions?

If you are asking whether I believe in the theories of Charles Darwin, Adam Smith, and E. O. Wilson, the answer, in the main, is "yes."

"There are millions of wildebeast on the African plain. Not one will die of old age."

And you'd prefer that human society be like that?

 

[rgraham666]

And what, pray tell, were your questions?

If you are asking whether I believe in the theories of Charles Darwin, Adam Smith, and E. O. Wilson, the answer, in the main, is "yes."

"There are millions of wildebeast on the African plain. Not one will die of old age."

And your point is? That human beings are no better than wildebeest?

I'll repeat my questions then.

So what you're saying, trysail, is that we're not free? That we have no choice at all except vicious conflict? That the game is winner take all and the devil take the hindmost?

 

[trysail]

And you'd prefer that human society be like that?

Lord, ahmighty! Do you know who E.O. Wilson is? Have you read Sociobiology?

Have you heard that homo sapiens is a mammal?

 

[Le Jacquelope]

Lord, ahmighty! Do you know who E.O. Wilson is? Have you read Sociobiology?

Have you heard that homo sapiens is a mammal?

Oh rly? And yet you choose to live in a civilized society where true natural selection is routinely suppressed?

Why am I not surprised?