KUFM / KGPR
T. M. Power
The Tumbling
Dominos of Energy Deregulation
The collapse of the international energy giant Enron provides dramatic backlighting to the collapse of our own local energy mini-giant, the Montana Power Company. Both companies have lost almost all of their equity value over the last year as their stock value has collapsed and creditors have refused to lend them any more money. The much smaller company that was going to take over collapsing Enron backed out of the deal when Enron’s bonds were downgraded to junk status by financial markets. Montana Power’s remaining electric operations may still be purchased by a small South Dakota Company, but that deal may well depend on the details of several regulatory decisions that the Montana Public Service Commission has to make.
These once powerful companies were the architects of the brave new world of unregulated electric markets that our political leaders were suckered into supporting. These companies arrogantly peddled their vision of a new competitive world in which we would all prosper. They were going to help remake our economy, change our households, and challenge almost all existing businesses. They were brilliant business visionaries who were chartering our path into the future.
In reality, of course, they were nothing of the sort. They were simply speculative gamblers who recklessly put both their own financial futures as well as those of the state and the nation on the line. While claiming to be visionaries, they were bankrupting themselves, their stockholders, their workers, and the economies in which they were embedded. Given their spectacular business failures, you would think that the politicians who took their money and did their bidding would be backing away, embarrassed to have been sullied by that association. But free market ideology is more blinding than that. The fact that these economic visionaries were actually colossal business losers and their restructuring schemes confusing fiascos has not shaken their political partners’ faith in that public policy dead-end. The free marketeers continue to shout “full speed ahead!” as our economies plummet downward in free fall.
It is time to reassert some basic facts.
First, businesses, even large wealthy businesses, do not always act in rational, thoughtful ways. They often do spectacularly stupid things like getting out of the energy business just as it is expanding and into telecommunications just as it is collapsing. Private businesses are not the repositories of economic wisdom and insight, careful, thoughtful analysis, or sound, practical decisions. Since the days of Adam Smith, two centuries ago, economists have pointed out the business community’s tendency towards collusion, its interest in political corruption, and its susceptibility to primordial “animal spirits” that leads it from one irrational enthusiasm to another.
Second, public regulation of market activity is not some outmoded, medieval remnant. It is public policy, sometimes legislated, sometimes in the form of standards of behavior adopted by the business community itself, that lays the basis for a productive market economy. A functioning market economy is not just a free-for-all driven by predatory greed. That only leads to the chaos and waste of organized crime wars and other forms of bandit capitalism. Public regulation is a prerequisite for a well-functioning, productive market economy. In light of the spectacular stupidity of the state’s and nation’s largest energy companies, past government regulatory policy does not look bad at all.
Third, international commodity markets are notoriously volatile and unpredictable. Although it may be appropriate to allow private business firms to gamble their stockholders funds in this crap shoot, it is not appropriate to insist that individual citizens, small businesses, governments, and entire economies stand defenseless in the wake of these speculative fluctuations. We can and should seek to insulate ourselves appropriately from these wild swings in prices and try to provide the stability that allows rational long-term investments to be made so that we and our communities can get on with our lives.
We have been through the dot-com boom and bust in which, up to the very last, expert financial commentators were telling us that it did not matter that these companies were not making any money and that the value of their stock was totally out of proportion to their profitability. What was going up would keep going up; trust me.
We have been through electric deregulation where our largest industrial companies told us that the low electric prices in the newly created competitive electric markets would last forever; trust me!
Then when the opposite happened and electric prices skyrocketed, we were told confidently that those high prices were here to stay and that the only solution was a crash program of building new nuclear and coal-fired generation; trust me.
During the stock market boom these same free-marketeers confidently assured us that we should privatize Social Security so that everyone could participate in the stock market expansion that would go on forever; trust me.
One would think that after all these very recent and spectacular errors by the business community, the architects of these failed economic visions would have been shamed into hiding. But that unfortunately is not the case. They dominate the political leadership in both Montana and Washington DC. Needless to say, this does not bode especially well for our futures.