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S.E. Wood Your place or mine? Some weeks ago I wrote an article comparing
the similarities between the California energy crisis and the
Tennessee health care crisis. They do have much in common. 1. Both were self-inflicted. Predictable,
and preventable. The California problem developed because increased
population created an increased demand for electricity. As is
usually the case in a free economy, with the increased electrical
demand came an increase in electrical costs from an average of
9.6 cents per kilowatt-hour in 1990 to 10.22 cents in 1994. The
politicians stepped in and imposed price controls that dropped
the rate back to 9.54 cents per kwh. (Source: California Public
Utilities Commission.) Of course, you know the rest of the story.
Environmentalists had prevented the building of new power plants
within California, so the utility companies had to go outside
the state to buy power. The price rollback only affected the
selling price to consumers, not costs paid by the utilities,
and the obvious happened. The utility companies went broke, with
the largest, Pacific Gas and Electric, being forced into bankruptcy.
California Gov. Gray Davis blamed the greedy
power-generating companies outside the state for not wanting
to sell California utilities at reduced prices - many of which
had never been paid for previous years' purchases -- and demanded
that the federal government impose further price controls. President
Bush resisted Davis' demands, but since politics always wins
out over economics, the Federal Energy Regulatory Commission
(FERC) did move last week to implement such controls. But let's not forget that with all the whining
over how expensive it has become for Californians to heat their
hot tubs, their current rate is 9.76 cents per kwh. Last month,
I paid Caney Fork Electric 8.2 cents per kwh for TVA-generated
power. So the difference isn't really all that great! Are the new price controls going to work?
Of course not. Even Richard Nixon stayed in office long enough
to see that price controls never work. The reason is obvious.
Price controls increase consumption, not supply. And California's
problem is already too much consumption, and too little supply.
But the price-control message is always popular with the voters.
After all, who wouldn't want whatever one wants at the lowest
price? Especially if that price is lower than one might expect
to obtain under normal market conditions. So what does that have to do with us? Well, our crisis scenarios are the same. California politicians bribed their voters with the promise of cheap electric power. Tennessee politicians bribed their voters with the promise of cheap health care. California politicians have succeeded in requiring all utilities west of the Mississippi to bear the cost of their ill-conceived power utility fiasco. By the time you read this, the Tennessee politicians will have succeeded in requiring all of us to pay even more for the cost of their ill-conceived TennCare fiasco. Another case of treating the symptom, not the disease. And the disease, whether in California or Tennessee, is not going away. |