From an email I sent my principles of economics students:
Since we can’t have classes this week and the midterm is postponed a week, I felt chatty and wanted to share at least a few thoughts about why so many people are without power.
tl;dr: see the graph below. Prices are fixed. Supply shifts left, demand shifts right = instant shortages. This is not an easy problem to solve.
Issue #1 is that bad weather events increase demand – demand shifts to the right. Issue #2 is that energy prices are really sticky. We’ll be getting to this in March, but in energy markets we sign contracts with our energy providers that lock in the price of electricity for 1-2 years at a time. When demand increases, the price doesn’t! Further, some contracts allow us to smooth the bill out over 12 months, so if I need extra $12 of electricity today, I don’t actually pay for it today: I’ll pay for it by having a $1 higher electricity bill over a 12 month period. That does two things. a) It means that energy demand curves are really vertical, a small change in price doesn’t change my electricity consumption much; and b) when demand increases, prices don’t. That ruins the market price signal that tells you and me to conserve electricity. Issue #3 of course is that it is really amazingly expensive to increase electric capacity. That means that energy supply curves are also really vertical. Even if energy firms COULD raise prices, they can’t increase the quantity supplied in the short run. In the longer run, we have time to build more plants and add capacity, but in the short run we’re stuck with what we have.
The graph above shows the marginal cost of different types of energy. Some are energy that is easy to turn on and off, but expensive (eg. oil). Some are energy that is really, really hard to turn on and off at will (eg. nuclear) but very cheap. And producing more energy than you need is bad. So you build enough cheap stuff that you know for 100% positive will always be needed, and then you build expensive stuff to handle changes in demand. That’s the short version, anyway. It means that producing a little extra electricity is really expensive and there is a hard limit to much extra we can produce – eventually supply curves are completely vertical!
My friends on the right tend to send blame towards green energy. And they have a point! Renewables are temperamental – with too many clouds solar doesn’t do anything, and frozen blades can’t turn wind energy turbines. The impact of the storm is to shift energy supply curves to the left, and the more the grid relies on renewables, the bigger that shift is. The basic problem renewables have had is that it’s really difficult to STORE their energy for future use. If we could create really large energy reservoirs, we could store Texas’ abundant solar and wind energy for a literally-rainy day.
So we have supply curves shifting left at the same time demand curves are shifting right and prices can’t move … the final result is massive shortages! Now what could be done about that?
My friends on the left tend to blame deregulation. Sadly, not one of them is spelling out exactly what regulation they think would solve this problem. Let me be generous to them and imagine they mean the following: if the government ran (rather than regulated) the energy grid, they would build a greater capacity than we typically use.
And they have a point. Energy is like the opposite of the hotel industry. In the hotel industry, you don’t build the hotel based on AVERAGE, normal operations. In Stephenville, you build a hotel large enough to accommodate people who come for graduation. The cost of having unused rooms is fairly low – you still need to keep the room cool in case someone needs it, and you want to hire someone to dust it, but it just sits there most of the time. Then you rake in big money when demand suddenly increases. The energy industry is the opposite: it is very expensive to build capacity and it is also expensive to maintain it. Whether you are a private firm or a government, the money to maintain unused generators has to come from somewhere.
How do we afford that? In the market, energy prices are actually set a little bit higher than equilibrium so that supply > demand. That ensures we have plenty of electricity to handle normal, typical demand fluctuations. We pay for that excess capacity during the normal part of the year so that when temperatures are particularly high or extra low, the grid can handle it.
The government has a different problem, though. If electricity is publicly-run, they will tend to set the price lower than the market would and make up the differences with taxes. That further divorces energy use from the price paid. We would have a higher quantity demanded at all times (wasteful). Add in that governments generally do a bad job running businesses (wasteful) and in order to have that excess capacity we would have to be willing to pay higher taxes (and lower energy bills) for many years to make up for the extra expense. Most governments, like most markets, will therefore tend to undersupply for an emergency because the voters don’t want to pay higher taxes and there is no such thing as a free lunch. So it’s not 100% clear that this would solve the problem. Europe has power outages that affect millions too.
Why? Healy and Malhotra: Governments respond to incentives, and voters give the wrong incentives: “Do voters effectively hold elected officials accountable for policy decisions? Using data on natural disasters, government spending, and election returns, we show that voters reward the incumbent presidential party for delivering disaster relief spending, but not for investing in disaster preparedness spending. These inconsistencies distort the incentives of public officials, leading the government to underinvest in disaster preparedness, thereby causing substantial public welfare losses. We estimate that $1 spent on preparedness is worth about $15 in terms of the future damage it mitigates. By estimating both the determinants of policy decisions and the consequences of those policies, we provide more complete evidence about citizen competence and government accountability.”
Bottom line: there isn’t an easy solution to weather events that happen once in a hundred years, whether it’s floods or hurricanes or … whatever this white, powdery substance is that’s blanketing my lawn. The basic problem is scarcity in a market where price signals don’t work (by design) at a time when supply shifts left and demand shifts right. To the extent climate change means more frequent extreme events, this will be a growing problem.
I am still working from home. The weather has been spectacular here over the past few days. I immediately head outside with the kids at 5 o’clock. We just run around and play. The younger one likes throwing the football around in the grass. The older one likes to play with the ants in the cracks of the sidewalk.
I was looking forward to going to Oslo this fall, but I just received news that the event has been postponed. I’ve still got the inaugural family camping trip to Ouachita to plan, so that’s exciting.
The political landscape here is much different than it is on the west coast or in Austin. Authority is decentralized. There are more black and Mexican people here, and fewer other minorities (including Central Americans). I have more black friends now than I ever did in California. It’s odd. In some ways, the non-South is now more racist than the old South. I can’t put my finger on it but I swear it’s true. You can carry on a friendly conversation with anybody here, something that’s missing out west and up north.
My guess is that this has something to do with the fact that segregation was blatantly racist in the South during the Cold War, and Washington felt it had to do something about it in order to win friends (despots) abroad. The racism in the north and the west was less blatant, and as a result nothing has ever been done about it.
I mean, I didn’t grow up with any black people. Or Mexicans. There are tons of them in California, but they don’t live in white residential areas. Down south, at least in the parts of Texas I’ve lived in, this is not the case. There are still “sides” of town, but at least we all share the same town. There’s still racism here, but the racism is more honest than, say, the zoning found up north and out west. This familiarity between blacks, Mexicans, and whites is something you as an individual have to work hard on to achieve in the non-South.
The federal government forcibly dismantled Jim Crow. It did so only after it conveniently ignored the 14th Amendment for decades, but at least it finally did so. There’s a place for Washington down here in Texas. Decentralized tyrannies are still tyrannies. I just started watching Waco, the Netflix series. It’s good. Washington is responsible for the deaths of several innocent women and children. It’ll never pay the price. Those people were just too strange for the broad public to really give a shit.
It’s a never-ending balancing act: finding a comfortable equilibrium between federal, state, and local governance. The feds are better at protecting the descendants of slaves than the state and local governments. But the state and local governments are better at protecting non-conformists and religious extremists than the federal government.
Libertarianism hasn’t been able to shake its racist stigma yet. Sure, leftists call us racists all the time, but a kernal of truth is still a kernal of truth. I have witnessed several people I once respected sweep libertarianism’s ugly, recent past under the rug and then turn to grab their paycheck. Libertarian Inc. has its place in our society, but it won’t be effective so long as the racist label sticks with us. And the racist label won’t come off until we grapple with the brutal truth of what we’ve become comfortable with and what we will tolerate.
This past weekend I finally got to go to the grocery store and, like Rick, I was hoping to catch a glimpse of what my neighbors valued.
All of the shelves were fully stocked, except for the toilet paper aisle. Diaper wipes are being limited, too. The grocery store I shop at, H-E-B, actually opens the boxes of diaper wipes and sells the packs in singles. (A box will usually have 6 to 8 packs in it.) I got the maximum number of single packs allowed (2), just in case.
For diapers and wipes, we have a pre-paid automated thing with Amazon, and it has worked smoothly, but we’ve also tried to stock up just in case.
I tend to buy in bulk, so we still don’t need any toilet paper. The last time I bought butt paper was in January, and we’re still pretty stocked. But being a bulk buyer has made me anxious in the grocery store. I don’t like it when some of the stuff I always buy in bulk is being limited because some people want to hoard.
The pasta sauce and pancake mix is mostly gone, too. Texas has the best food and the best amateur cooks in the republic, but when you’ve got 4 or 5 or 6 people crammed into the house all day, ain’t nobody wanna cook.
The surgical masks don’t bother me. I lived in west LA for years (Go Bruins!) and people shopped in those masks all the time. The gloves don’t bother me. The employees are friendly, as usual, but I would have quit. I know some of them feel the same way.
- Behind the Iron Curtain: Soviet space art (gallery) Kadish Morris, Guardian
- The year I left the Soviet Union Alex Halberstadt, New Yorker
- Free speech, libel, and privacy rights Mark Hemmingway, RealClearPolitics
- 8 out of 10 Texans already live in cities and metropolitan areas Steven Pedigo, Dallas Morning News
My latest at RealClearHistory deals with Texas and its secession from Mexico. An excerpt:
There are other similarities, too, starting with the fact that Texas was not the only state in Mexico to try and secede from Mexico City. The self-declared republics of Rio Grande, Zacatecas, and Yucután also asserted their independence from Mexico, though Texas was the only state to actually succeed in its rebellion. Unlike the 13 North American states attempting to secede from the British Empire, the Mexican provinces did not band together to form a united front against a common enemy.
Texas itself was the northern part of a larger state called Coahuila y Tejas. When Mexico originally seceded from Spain, Coahuila y Tejas joined the new republic as its poorest, most sparsely populated member state. In addition to economic and demographic problems, Coahuila y Tejas shared a border with the Comanche and Apache Indians, who in the 1820s were still powerful players in regional geopolitics. Life in Coahuila y Tejas was nasty, brutal, and short.
Please, read the rest.
That’s the topic of my latest at RealClearHistory. (Remember, I have a Tuesday column and a weekend column over there.) Here’s an excerpt:
In the mid 16th century, then, in what is now Texas and Oklahoma, world powers and regional polities bobbed and weaved with each other in an intricate, unpredictable game of geopolitics to settle who gain hegemony over a region destined to be important for transcontinental trade for centuries to come. The defeat forced Spain to give up its designs for the region entirely, and France was never interested in the region being anything other than a resource-rich frontier for its American port cities in New Orleans and Quebec.
The defeat also caused a minor rift between Tlaxcala and Spain, which was a big deal at the time because without Tlaxcala, Spain would have never been able to conquer the Aztec Empire as thoroughly as it did.
Please, read the rest. Texas ain’t no joke…
I’ve always said “garbage,” but down here in Texas they use the word “trash.” I have no idea where I found this, and I can’t verify the source, but it looks right to me.
Any contrary arguments about this map?
My topic over at RealClearHistory today is the Mexican-American War and slavery, so be sure to show me a little extra love and have a peek. An excerpt:
The British, for their part, played an ingeniously devious role. London convinced Mexico to finally recognize Texas independence in 1845, as long as Texas agreed to avoid annexation by another sovereign polity. This put enormous pressure on factions in Washington, Austin, and Mexico City, so much so that Tyler, by then a lame-duck, urged Congress to put aside its differences and offer statehood to the Republic of Texas (which it did). In Austin, the process was a little trickier. The Congress of the Texan Republic had to vote on whether to be independent or to be annexed, but so did a newly-formed convention of elected delegates, which was one of the requirements imposed on Texas by the United States. (Washington felt that a convention of elected delegates better fit the profile of an incoming state than a Congress that had been independent for 10 years.) Both the Congress and the convention of delegates voted in favor of annexation over independence. The convention of delegates then drew up a state constitution, turned it over to the people of Texas to be ratified, and then sent it to Washington for Congressional acceptance. On Dec. 29, 1845, the U.S. Congress finally ratified statehood for Texas.
Please, read the rest. Annexation is a topic I will continue to explore, albeit from NOL rather than RealClearHistory, so stay tuned. “Entrance” is just as important as “exit” in libertarian theory, even though the latter gets all of the fame and fortune these days.
Speaking of entrances, I’d like to officially, warmly welcome Shree Agnihotri to the consortium and highlight her first thoughts with NOL: “Role of a Citizen in Hegemonic Authoritarianism.” I’m not going to spoil it for you, but it’s about Hannah Arendt, so if you haven’t read it yet, now would be a good time (don’t forget to say ‘hi’ while you’re at it). Here is her bio. Here is more from NOL on Hannah Arendt. I’m stoked to see what she has to say over the years!
My topic over at RealClearHistory today is the Mexican-American War. I lay out a general background on all the players, hoping that a primer will do readers there some good. An excerpt:
Texas. In 1821, the newly-established Mexican government was having severe trouble with the Comanche in the area and invited Americans to settle the region. This pushed the Comanche west and helped weaken them, but it also laid the groundwork for a Texian secession from Mexico. Texas declared independence from Mexico in 1835, but of course nobody in Mexico City recognized this declaration. Texas and Mexico fought for more than a decade before representatives from the Lone Star Republic finally succeeded in lobbying Washington to annex Texas and incorporate it into the American federation. It’s worth noting here that immigration was not the cause of Texian secession from Mexico, as some nativists are apt to claim today. Texas was, like Yucatán, tired of being governed poorly from Mexico City. The anti-immigration argument would be much stronger if Mexico wasn’t facing revolts and secessions everywhere it turned.
Please, read the rest. I’m going to, as I promise in the piece, delve into slavery and the war next Tuesday, but there’s also other topics to think about. Secession comes to mind for me, as I can’t help but ask what could have been if the Senate had not rejected Yucatán’s bid for annexation. Also, is annexation the missing piece of the puzzle when it comes to not only “exit” in libertarian circles, but entrance as well?
Speaking of entrances, I’d like to officially, warmly welcome Mary Lucia Darst to the consortium and highlight her first thoughts with NOL: “The Sad Retreat.” I’m not going to spoil it for you, so if you haven’t read it yet, now would be a good time (don’t forget to say ‘hi’ while you’re at it). Here is her bio. I am extremely excited to read what she shares here over the next few years.