Libertarian Perspective
Lights Out, Thanks to Energy Fascism
by Anthony Gregory
Mon, 3 Sep 2007

When was the last time the shoe industry urged customers to buy fewer shoes? Can you imagine a soft drink producer running out of soda and pleading people to cut back on their consumption? Or a software company threatening that if too many users upgrade their systems this year they won't be allowed to do so next year?

We typically don't suffer shortages in goods that are primarily produced and distributed in the framework of a free market. However, when government is deeply involved in regulating production, distribution, and pricing, what often results is shortage or surplus – some extreme disparity between what consumers demand and what is available to those willing to pay for it.

So it is that the State of California declared a "Stage 1 Power Emergency" last week. If the power problem reaches Stage 2, as it did last summer, the first customers to be hit will be businesses that buy energy at a discount with the understanding that they will be the first cut off. But everyone is being encouraged to conserve energy, to use less than they're willing to pay for. California's power facilities simply cannot keep up with the demand.

If a free market industry made such errors in predicting and accommodating consumer demand, it would surely be attacked as a "market failure." But when government fails, the situation is generally tolerated, accepted, even seen as a reason to give the state more power and money.

That was the reflexive response many had to the 2000-2001 energy crisis and its Stage 3 rolling blackouts: They blamed it all on the market. Why? Because of the phony "deregulation" of the energy sector in 1996. Back then, libertarians and true free marketers warned that the "deregulation" left far too much of the bureaucracy intact and, in effect, added some new regulatory burdens. After 1996, California still had price caps that dramatically reduced the profitability of producing energy in a world where wholesale energy costs fluctuate. This meant fewer new producers, fewer power plants, and less competition. Along with overbearing environmental restrictions, limits on energy contracts, and other regulations, the price controls virtually guaranteed that supply would fail to meet demand.

The energy market is anything but free. Entrepreneurs and consumers are not free to make deals with their own money at any mutually agreeable price. Big companies profit with the current system, but the monopolizing force of the state is there to set prices and mandate the standards of production. Today's industry better resembles mercantilism, corporatism, or even fascism – an economic system of private profit, socialized risk, and immense state control.

In a real free market, sellers and buyers can come to a "clearing price" – the price at which the needs of both parties are most closely met. Competing buyers and sellers, all vying for a good deal, ensure that resources are put to the uses people most value. Under government central planning, in contrast, there are gross misallocations, wasteful gluts, shortages, and even famines.

Only voluntary exchange can determine how much a good is actually worth to people. Regulation obstructs the discovery process of market pricing. Prices are artificially made too low or too high given the long-term needs for production and distribution. Instead of prices rising to meet increased demand, we have shortages.

The discount California offers to certain companies in exchange for less predictable service might be better than setting a uniform price, but it illustrates a flaw in central planning. No government planner can take account of all the shifting needs of millions of people. Perhaps these companies have not been charged enough. We cannot know without market pricing.

The state of California might tinker and enact minor reforms and fixes to try to improve its energy operation, but until we have an unfettered free market in energy, Californians must face problems of uncertain service, minor shortages, rolling blackouts, or worse. On the other hand, if we wanted to begin rationing shoes, computers, and food, getting the government to manage these industries the way it manages electricity would do just the trick.

© Copyright 2005 by Libertarian Party of California