Market Failure: example for debate

[Lootifer]

Just a little local (for me) bit of interesting debate (i thought it was interesting considering the usual dialog found here)

In New Zealand we have a slightly less centrally controlled electricity sector compared most US states.

We have tried (and for the most part done pretty well) using a free(ish) market to supply electricity to NZ for the past 10-15 years.

Once again the central control vs free market control debate has been sparked when a transmission (powerlines) outage caused an effective monopoly in the system. The transmission outage was planned up to a year in advance and details were widely known.

The outcome was this: The monopoly party priced up their power generation to a level 200-400 times the usual market price for a period of around 6 hours. This resulted in super inflated prices that had no underpinning economic drivers/fundamentals to rationalise them.

The "guilty" (i'll let you make up your own mind as to guilt) party has claimed that other market participants should have hedged and prepared in advance for this kind of thing and they were just trying to recover some costs of their more expensive generating plant.

The affected parties (other generators/retailers etc) claim that the "guilty" party was acting irrationally, immorally, and was actively breaking a market that had, up to this point, been working ok.

Source:
http://www.stuff.co.nz/business/industries/4818281/Mighty-River-Power-hit-by-price-surge
http://www.stuff.co.nz/business/industries/4826960/Genesis-warns-power-industry-on-price-spike

Thoughts on the situation?

[Juan_Bottom]

Do they have Wallaby's in New Zealand?

[Lootifer]

Ha, I should have expected that.

No we don't; Australia only i'm afraid.

[radiojake]

Private enterprise is focussed only on profits -

I don't care what anyone says in regards to profit being 'the motivating factor that makes capitalism work' - I think that profits are the motivating factor for business (and the people within the business) to screw people over in attempt to make more money.

There was my over generalised critique of the capitalist economy.

[Juan_Bottom]

What about Gin Wigmore? Is she still making music in New Zealand or what? It seems like she just fell of the face of the earth.

[Lootifer]

Kiwi artists are short lived. Though I'm pretty sure she's still making material.

Personally I don't like her much

[Timminz]

Isn't that just straight-up price-gouging? There are laws against that here. But laws against gouging aren't exactly holding with free-market principles, are they?

[Snorri1234]

Isn't that just straight-up price-gouging? There are laws against that here. But laws against gouging aren't exactly holding with free-market principles, are they?

IN A TRUE FREE MARKET OTHER COMPANIES WOULD JUST BUILD THEIR OWN INCREDIBLY EXPENSIVE POWERNETWORKS!

[Timminz]

Isn't that just straight-up price-gouging? There are laws against that here. But laws against gouging aren't exactly holding with free-market principles, are they?

IN A TRUE FREE MARKET OTHER COMPANIES WOULD JUST BUILD THEIR OWN INCREDIBLY EXPENSIVE POWERNETWORKS!

Or buy the hedges that the culprit was offering (even during the blackout, they say).

It's their own fault for not hedging properly.

[Lootifer]

Isn't that just straight-up price-gouging? There are laws against that here. But laws against gouging aren't exactly holding with free-market principles, are they?

IN A TRUE FREE MARKET OTHER COMPANIES WOULD JUST BUILD THEIR OWN INCREDIBLY EXPENSIVE POWERNETWORKS!

Or buy the hedges that the culprit was offering (even during the blackout, they say).

It's their own fault for not hedging properly.

Except why would you hedge against market behaviour that is unsustainable, has zero fundamental merits and has never been observed in the market before?

[BigBallinStalin]

Who owns the entire power infrastructure? Who owns the infrastructure sector involved in the alleged forced blackout? Is it just that one state-owned company paying the bill? Are you aware of the fact that infrastructure outages also occur with state-owned infrastructures (guess who pays for it, you, the taxpayer)?

Also, one needs to examine what laws interfere with which incentives in order to get a full understanding of this before declaring, DERP MARKET FAILURE, or DERP, GOVERNMENT FAILURE. Because cases like these are extremely complicated to understand.

I'm really not going to invest the time in answering those questions or conducting research because I'm focusing on different things.

_____________________________________________________________


To understand problems like this (common pool resources: water, electricity, etc), I'd recommend one to read:

Governing the Commons by Elinor Ostrom

book review

If one would like to read a book on privatization of roads, then I recommend:

Walter Block's Privatization of Roads and Highways
Summary

[shieldgenerator7]

that's too bad. Another paradise ruined due to greed.
hopefully prices come down soon. especially gas prices

[oVo]

Thoughts on the situation?

ENRON did this in the US and made huge profits in California.

[Lootifer]

Thoughts on the situation?

ENRON did this in the US and made huge profits in California.

LOL!

[BigBallinStalin]

If you don't want to educate yourself on this, then you're doomed to repeat the same errors in reasoning.

[Snorri1234]

Who owns the entire power infrastructure? Who owns the infrastructure sector involved in the alleged forced blackout? Is it just that one state-owned company paying the bill? Are you aware of the fact that infrastructure outages also occur with state-owned infrastructures (guess who pays for it, you, the taxpayer)?

Also, one needs to examine what laws interfere with which incentives in order to get a full understanding of this before declaring, DERP MARKET FAILURE, or DERP, GOVERNMENT FAILURE. Because cases like these are extremely complicated to understand.

I'm really not going to invest the time in answering those questions or conducting research because I'm focusing on different things.

It's not the blackout that is the problem, it's the price-gouge.

These were scheduled maintenance blackouts, they were planned to happen. There is nothing actually complicated about this matter: The one party had a monopoly for a few hours so they increased their prices by several orders of magnitude for that time. The companies buying the power had to pay those prices or not supply any power to their customers.

That's straight up being a dick. it's not even market failure because that would imply a deeper problem.

[BigBallinStalin]

Who owns the entire power infrastructure? Who owns the infrastructure sector involved in the alleged forced blackout? Is it just that one state-owned company paying the bill? Are you aware of the fact that infrastructure outages also occur with state-owned infrastructures (guess who pays for it, you, the taxpayer)?

Also, one needs to examine what laws interfere with which incentives in order to get a full understanding of this before declaring, DERP MARKET FAILURE, or DERP, GOVERNMENT FAILURE. Because cases like these are extremely complicated to understand.

I'm really not going to invest the time in answering those questions or conducting research because I'm focusing on different things.

It's not the blackout that is the problem, it's the price-gouge.

These were scheduled maintenance blackouts, they were planned to happen. There is nothing actually complicated about this matter: The one party had a monopoly for a few hours so they increased their prices by several orders of magnitude for that time. The companies buying the power had to pay those prices or not supply any power to their customers.

That's straight up being a dick. it's not even market failure because that would imply a deeper problem.

If it's simple than answer those questions and write about it. You would overnight become an economist on public policy, knowledgeable on common pool resources, and the relevant laws.

[Juan_Bottom]

Thoughts on the situation?

ENRON did this in the US and made huge profits in California.

A little different though. ENRON engineered the whole thing and then lied about it.
Schwarzenegger was linked to it all too, as was the Republican party, before he was endorsed for governor. California is one messed up state. My state is corrupt, but at least our politicians have the decency to hide it.

[Snorri1234]

Who owns the entire power infrastructure? Who owns the infrastructure sector involved in the alleged forced blackout? Is it just that one state-owned company paying the bill? Are you aware of the fact that infrastructure outages also occur with state-owned infrastructures (guess who pays for it, you, the taxpayer)?

Also, one needs to examine what laws interfere with which incentives in order to get a full understanding of this before declaring, DERP MARKET FAILURE, or DERP, GOVERNMENT FAILURE. Because cases like these are extremely complicated to understand.

I'm really not going to invest the time in answering those questions or conducting research because I'm focusing on different things.

It's not the blackout that is the problem, it's the price-gouge.

These were scheduled maintenance blackouts, they were planned to happen. There is nothing actually complicated about this matter: The one party had a monopoly for a few hours so they increased their prices by several orders of magnitude for that time. The companies buying the power had to pay those prices or not supply any power to their customers.

That's straight up being a dick. it's not even market failure because that would imply a deeper problem.

If it's simple than answer those questions and write about it. You would overnight become an economist on public policy, knowledgeable on common pool resources, and the relevant laws.

Which questions? The ones that are irrelevant to this particular case?

The blackout wasn't forced, it was for maintenance.

This was basically like being the only store open on a Sunday and then increasing all your prices by 1500%.

[BigBallinStalin]

Thoughts on the situation?

ENRON did this in the US and made huge profits in California.

A little different though. ENRON engineered the whole thing and then lied about it.
Schwarzenegger was linked to it all too, as was the Republican party, before he was endorsed for governor. California is one messed up state. My state is corrupt, but at least our politicians have the decency to hide it.

Really, he was? I never heard about this side of the story. Would you care to educate us?

[Juan_Bottom]

http://www.democracynow.org/2003/10/6/s ... ment_in_9b

Arnold Schwarzenegger’s “solutions to California’s energy woes” reflect those of former Enron chief Ken Lay. On May 17, 2001, in the midst of California’s energy crisis, which was largely caused by Enron’s scandalous energy market manipulation, Schwarzenegger met with Lay to discuss “fixing” California’s energy crisis. Plans to “get deregulation right this time” called for more rate increases, an end to state and federal investigations, and less regulation. While California Governor Gray Davis and Lieutenant Governor Cruz Bustamante were taking direct action to re-regulate Califonia’s energy and get back the $9 billion that was vacuumed out of California by Enron and other energy companies, Schwarzenegger was being groomed to overthrow Davis in the recall. Thus canceling plans to re-regulate and recoup the $9 billion.

Now I'm remembering how angry I was when I first stumbled across the broadcast. Google "Enron Schwarzenegger Greg Palast blackouts" and you can find everything. It was Greg Palast who must have done the digging. But he wasn't the one I saw doing the reporting.

[Juan_Bottom]