THE REAL CAUSE OF BLACKOUTS
Power company failures suggest markets, not the state, should determine how energy is organized
BY LEW ROCKWELL

Lew Rockwell is a paleolibertarian political commentator and economist in the United States. Rockwell is the founder and President of the Ludwig von Mises Institute in Auburn, Alabama and Vice President of the Center for Libertarian Studies. Other stories by Lew Rockwell

Sometimes (well, often) you just want to say: down with the state! Consider that an outburst, the kind you feel like making when the lights won't come on. And the heat wave - and the public utility response - is the news that prompts it. 

Last month, major parts of Queens, New York, were without electricity following a failure of power that plunged major parts of the city into darkness amidst sweltering heat for more than a week. Thousands were without air conditioning, lights, refrigeration and modern life generally. 

And get this: no one is sure why, precisely, it happened, other than to say that the system became overloaded. What will happen as a result? Hearings, reports, meetings, yammering, resolutions, reforms and, in time, another blackout followed by hearings, reports, meetings, etc., all of which will be filed in that huge warehouse where all the other reports on past blackouts reside. What do the consumers do about it? They follow the news and keep paying the bills, to the same company that let them down. They can't switch. They can't influence the production process. They are powerless in more ways than one. 

Meanwhile, on the other side of the country, California residents are putting up with blackouts, threats of more blackouts, denunciations from politicians, and even death: 56 people so far. All because of a heat wave, and all because the structure of the industry is not designed for extremes. Now, if markets were in charge, a heat wave would not be looked at as a problem but an opportunity. Entrepreneurs would be swarming to meet demand, just as they do in every other sector that is controlled by markets.

After all, do shoe manufacturers see a massive increase in footwear demand as a problem? Do fast food companies see lunchtime munchies as a threat? On the contrary, these are profit opportunities. Just who is in charge of getting electricity to residents? A public utility, which, in the absurd American lexicon, means "state-run" and "state-managed." If you look at the electrical grid on a map, it is organized by region. If you look at the jurisdiction of management, it is organized by political boundaries. 

In other ways, the provision of power is organized precisely how a central planner of the old school might plan something: not according to economics but according to some textbook idea of how to be "organized." It is organized the same way the Soviets organized grain production or the New Deal organized bridge building. 

All centralization and cartelization began nearly a century ago, as Robert Bradley points out in Energy: The Master Resource, when industry leaders obtained what was known as a regulatory covenant. They received franchise protection from market competition in exchange for which they agreed to price controls based on a cost-plus formula - a formula that survives to this day. 

Then the economists got involved ex-post and declared that electrical power has been considered a "public good," under the belief that private enterprise is not up to the job of providing the essentials of life. It is a government privilege that subjects them to regulation and immunizes companies from business failure. It's great for a handful of producers, but not so great for everyone else. 

There are many costs. Customers are not in charge. They are courted only for political reasons but they are not the first concern of the production process. Entrepreneurial development is hindered. Our current system of electrical provision is stuck in time. Meanwhile, sectors that provide DSL and other forms of internet and telecommunication services are expanded and advancing day by day - not with perfect results but at least with the desire to serve consumers. 

What we are learning in our times is that no essential sector of life can be entrusted to the state. Energy is far too important to the very core of life to be administered by a bureaucracy that lacks the economic means to provide for the public. How it should be organized should be left to the markets. 

We need full, radical, complete, uncompromised deregulation and privatization. We need competition and the absence of legal barriers to enter the market. If that market is served by a single company, fine. Competition exists so long as the state is not prohibiting other companies from trying their hand. 

Just think about this general principle. When some good or service is in high demand, and economically feasible to deliver to those who demand it, and it is not being delivered in a way that is consistent with consumer welfare, you can bet that the state is involved. Get the state out of it, and you will see the dawning of a new time where we fear no blackouts. LW