Ideology, Magical Thinking, and Public Economic Policy

Montana’s industrial base continues to slowly shut down as the skyrocketing cost of electricity renders aluminum smelting, mining, ore processing, oil refining, paper production, lumber mills, etc. unprofitable. And this is just the first round. Homes and small businesses have been protected from most of the fly up in electric prices by a price cap that has about a year of protection left in it. Then our homes and small businesses will begin to surrender huge chunks of their purchasing power to the out-of-state owners of what were once inexpensive electric generating facilities dedicated to serving Montanans. The state will be substantially poorer. A handful of individuals and two companies will be much, much richer.

We were promised lower electric and natural gas prices and an abundance of alternative sources of supply if only we would just get rid of outdated government regulation of public utilities. With that single act we would slay two evil economic dragons: government involvement in the economy and a monopolistic company with a strangle hold on the economy. With familiar ideological flourishes about free enterprise, free choice, competition, and unleashing the power of free markets, our political and industrial leaders offered Montana up as a guinea pig in a grand ideological experiment.

Now, having transformed the state from one with among the lowest electric costs in the nation to one with among the highest costs, having shut down a good part of the state’s industrial base, having sold off our cheap hydroelectric heritage to easterners, having dismembered one of the few Montana-based large corporations and laid off a good part of its work force, the ideologues who created this fiasco are blithely proposing a brilliant and imaginative solution: government regulation, public power, and the creation of a monopolistic utility.

Without so much as a mea culpa or even a cynical smile, the original architects of deregulation now talk comfortably about the state government becoming a partner with private investors to build electric generating facilities that would be, of all things, dedicated to serving Montana load. The state government would take on the risk, the private owners would pocket the profit. In addition, the Eastern South Dakota Power and Light Company, hiding within the empty husk of the Montana Power Company, would be made the monopolistic supplier of electricity to residential and small commercial customers and any industrial customers who wanted to flee back to the corrupt world of a government regulated electric utility. De ja vu all over again.

Under these proposals being put forth by conservatives, we would have the government even more involved in the electricity industry, we would reestablish power generation that was explicitly insulated from regional markets, and we would go back to relying on the Montana Power Company for electricity. Of course electricity prices would be two to three times higher than they were when we started this grand experiment and government regulation of utilities and protection of consumers would be substantially weakened. In addition, Montana’s environment is likely to go through one more round of mauling as new power plants are built to replace the perfectly functional ones that only a year ago we still owned; new gas fields will have to be drilled; new coal mined and its effluent belched into the air. To encourage all of this duplicative activity, of course, the government will have to relax environmental regulations and subsidize private industry risk at taxpayers expense.

Through careful legislative design we will be poorer, our environment will be further degraded, and we will have less protection from the profit gouging of out-of-state corporations. This, apparently, is what “choice,” “free enterprise,” and economic development are all about.

Of course, all of this could have been avoided if common sense and not ideological magical thinking had prevailed. After all, our neighboring states were not stupid enough to follow our reckless lead. But there is method to this destructive madness. Now we have another energy crisis on our hands and desperate measures must be adopted to assure an expanded energy supply: drill, mine, dam, generate! We don’t, we are told, have the time to invest instead in conservation, improved energy efficiency, or clean, renewable energy sources even if they are far more cost effective. Events have overtaken us; we must ramp up more of the energy supply we have relied on in the past.

Just a year or two ago we were being told that energy was in such abundant supply that it did not make economic sense to try to encourage conservation, efficiency improvements, or alternative sources of supply. Suddenly, now that they do make economic sense, we do not have time to pursue them: Catch 22!

This is not a new pattern. It is a very old one. Rather than planning to avoid energy supply crunches, we swing in manic cycles from the starry-eyed belief that energy will be cheaply available in unlimited amounts forever to panics in which we trust nothing but expansion of conventional supply, whatever the cost.

The result is terribly costly both in terms of money and damage to our environment. Unfortunately, it is also profitable to the energy establishment and consistent with a mindless anti-planning, anti-regulatory approach to public policy. In this Alice in Wonderland ideological world, even amidst the ruin to which that approach has brought us, the very architects of that ruin can assert that more of the same is just what we need. It is medicine that they know is good for us no matter what the results. Just hold your nose and swallow.