December 10, 2000
RECKONINGS
California Screaming
By PAUL KRUGMAN

http://www.nytimes.com/2000/12/10/opinion/10KRUG.html

California's deregulated power industry, in
which producers can sell electricity for
whatever the traffic will bear, was supposed to
deliver cheaper, cleaner power. But instead
the state faces an electricity shortage so severe
that the governor has turned off the lights on
the official Christmas tree — a shortage that
has proved highly profitable to power
companies, and raised suspicions of market manipulation. 

 - snip - 

Maybe California power companies aren't rigging electricity prices. But
they clearly have both the means and the incentive to do so — and you
have to wonder why the deregulators didn't worry about this, why they
didn't ask seemingly obvious questions about whether the market they
proposed to create would really work as advertised.

And maybe that is the broader lesson of the debacle: Don't rush into a
market solution when there are serious questions about whether the
market will work. Both economic analysis and British experience should
have rung warning bells about California's deregulation scheme; but those
warnings were ignored — just as similar warnings are being ignored by
enthusiasts for market solutions for everything from prescription drug
coverage to education.  
Tom Walker
Sandwichman and Deconsultant
Bowen Island, BC

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