“This is your free market”

Nathan J. Robinson, in Current Affairs:

But it’s very clear that the deregulation of Texas’ energy market, the free market for power that Cruz championed, directly precipitated the price gouging. A Wall Street Journal investigation put blame squarely on the state’s excessive trust in corporate benevolence. The Journal calculated that “deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities.”

The CFO of a natural gas company was giddy in reporting to investors how much money the company was making off the tragedy: “This week is like hitting the jackpot with some of these incredible prices… Frankly, we were able to sell at super premium prices for a material amount of production.”

To fund that jackpot, the city of Denton is “now looking to borrow up to $300 million to cover fuel expenses from last week,” and on one day alone the “municipal utility racked up a $75 million power bill, more than it spent on electricity for all of its last fiscal year.” So cities are faced with the prospect of taking on debt to pay off power corporations, all because they needed to keep the lights on, while those same corporations will be “spectacular winners.”

(Incidentally, the Journal notes that in the debate over Texas’ deregulation, “leading the charge was Enron, the Houston energy company and champion of free markets that went bankrupt in 2001 amid revelations of widespread fraud.”)

The Journal reports that now, in the aftermath of the storm, companies are “trying to figure out how to pass on the billions of dollars in costs to customers.” The paper quotes an energy economist who says that the crisis is going to be “an incredible transfer of billions of dollars from Texas consumers to generators” with some “spectacular winners and losers,” the biggest loser being “the state of Texas.”

We can see very clearly here how free market myths run up against the reality that regulation is necessary to serve the public interest, and government cannot “stay out” of the economy without it going haywire and hurting people. Now that even Ted Cruz admits this, let us hope a few more people will abandon the laissez-faire mythology that sees markets as miracles and every regulation as a burden. That’s just not how it works, as Texas has found out the hard way.