The school economist

I

When rolling electrical blackouts take place, we ask our friends, the economists, why.

After a blackout, one of them tells us it was because of all that underinvestment in the transmission grid you get when treating the grid as a public good. During a blackout, another assures us that having to shed load reflects the negative externalities associated with prices not reflecting electricity’s full cost to consumers, who “thus” over-consume and overload power lines.

Before a blackout, a different economist says energy deregulation will guarantee the reliability we want because it reflects the Efficient Market Hypothesis–remember, the idea that won a Nobel Prize–where nothing can be better than market prices in reflecting what is known about energy supply and demand, like our willingness to pay for transmission.

To which still another adds: Whether or not there is a blackout at all, rational expectations theory–remember, the idea that won another Nobel Prize–tells us that policy interventions are ineffective anyway.

If we aren’t sufficiently convinced and press our friends about what we should do to prevent blackouts altogether, they tell us not to worry—as long as electricity services are in market equilibrium, with reserve margins optimal, everything is okay.

II

But, hey, why ask economists at all? They’ll tell you no one listens to them anyway.

“Energy deregulation was never really tried,” they plea. Society never reallyReally tried thorough-going cost-benefit analysis, economics in law and regulation, market designs engineered for efficiency, and far greater use of RCTs (as in: Economists are society’s plumbers–so please, don’t step on our randomized controlled trials!)

And when an economic market design is adopted whole hog, we have the 2021 Texas power and grid debacle: In the view of the Harvard economist who designed it, the energy market “worked as designed.” “It’s not convenient,” he added, “It’s not nice. It’s necessary.”

All of which is a bit like wanting to believe the Cultural Revolution would have succeeded if only Madame Mao and the Gang of Four were really given the chance.