Paul Krugman explains how Texas exposed the dark side of 'free-market fundamentalism'

Paul Krugman explains how Texas exposed the dark side of 'free-market fundamentalism'
Paul Krugman speaks to The Commonwealth Club of California, in San Francisco. May 22, 2012. Photo by Ed Ritger.

The deregulation of Texas' energy market has been a badge of honor among Lone Star Republicans, but with millions of Texans having recently found themselves without electricity, heat and running water during freezing temperatures and blackouts, many liberals are aggressively questioning the wisdom of that deregulation. One of them is economist and New York Times columnist Paul Krugman, who slams the "Texas power debacle" as a tragic example of why deregulating the energy market in the way that Republicans did in Texas is a terrible idea.

"The collapse of the Texas power grid didn't just reveal a few shortcomings — it showed that the entire philosophy behind the state's energy policy is wrong," Krugman writes. "And it also showed that the state is run by people who will resort to blatant lies rather than admit their mistakes."

Krugman adds that although Texas "isn't the only state with a largely deregulated electricity market," it has "pushed deregulation further than anyone else."

"There is an upper limit on wholesale electricity prices, but it's stratospherically high," Krugman explains. "And there is essentially no prudential regulation — no requirements that utilities maintain reserve capacity or invest in things like insulation to limit the effects of extreme weather."

To make matters worse, some Texans have been slammed with sky-high energy bills — which, Krugman stresses, shows that electricity should not be regulated the way avocados are regulated.

"Texas energy policy was based on the idea that you can treat electricity like avocados," Krugman observes. "Do people remember the great avocado shortage of 2019? Surging demand and a bad crop in California led to spiking prices, (and) nobody called for a special inquest and new regulations on avocado producers….. But kilowatt-hours aren't avocados…. Having to go without avocado toast won't kill you; having to go without electricity, especially when your house relies on it for heat, can."

Krugman notes how high some recent energy bills have been in Texas. For example, the New York Times reported that Scott Willoughby, who lives in a Dallas suburb, received an electric bill for $16,752.

"At first, those Texans who didn't lose power in the big freeze considered themselves lucky," Krugman notes. "But then the bills arrived — and some families found themselves being charged thousands of dollars for a few days of electricity. Many families probably can't afford to pay those bills; so, we're potentially looking at a wave of personal bankruptcies. And even those who don't face ruin are, predictably, outraged."

Texas Gov. Greg Abbott and other Republicans have been insisting that deregulation of Texas' energy market is great for consumers, but reporting by journalists Tom McGinty and Scott Patterson in the Wall Street Journal this week says otherwise. According to McGinty and Patterson, Texans "have paid more for electricity than state residents who are served by traditional utilities, a Wall Street Journal analysis has found."

"Nearly 20 years ago, Texas shifted from using full-service regulated utilities to generate power and deliver it to consumers," McGinty and Patterson report. "The state deregulated power generation, creating the system that failed last week. And it required nearly 60% of consumers to buy their electricity from one of many retail power companies, rather than a local utility. Those deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state's traditional utilities, according to the Journal's analysis of data from the federal Energy Information Administration."

McGinty and Patterson explain why electric bills suddenly and dramatically soared during Texas' cold snap in a way that they wouldn't with a strictly regulated public utility.

"Now that power has largely been restored, attention has turned to retail electric companies — a few of which are hitting consumers with steep bills," the WSJ journalists report. "Power prices surged to the market price cap of $9,000 a megawatt hour for several days during the crisis, a feature of the state's system designed to incentivize power plants to supply more juice. Some consumers who chose variable rate power plans from retail power companies are seeing the big bills."

Abbott, Fox News' Tucker Carlson and others on the far right have been falsely blaming green energy for Texas' energy woes, but Krugman, in his column, slams that claim as a "big lie" — arguing that "something like a Green New Deal, that is, public investment in energy infrastructure, is exactly what Texas needs." And he wraps up his column by emphasizing that deregulated energy is not serving Texas well.

"While the right-wing political-media complex can't and won't learn anything from the Texas power debacle, the rest of us can," Krugman explains. "We've just been offered a clear view of the dark — and cold — side of free-market fundamentalism. And that's a lesson we shouldn't forget."


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