Tod Lindberg

Gray at the end of the tunnel

Posted by Tod Lindberg on July 31st, 2001

The Washington Times

PALO ALTO, Calif. – Rolling blackouts, the bankruptcy of a major public utility whose stock was held in great quantity by pensioners looking for a safe place for their small nest eggs and the sudden depletion of an $8 billion state budget surplus: That is the legacy so far of the California power crisis. Because the effects were largely confined to one state (albeit the nation’s largest and most important) and because of the sheer complexity of the developing crisis itself, it has been altogether too easy for outsiders || including many in Washington || to minimize the significance of this failure. It’s, like, another one of those California things.

That’s all wrong, and people had better start paying attention to it. That’s because there aren’t but two possibilities here, and they each have potentially dramatic consequences. One is that this is primarily a failure of the market. If that’s the case || if, for example, the single biggest contributor to this crisis turns out to be Texas energy companies taking advantage of a bad situation that gave them disproportionate leverage, as California Gov. Gray Davis has charged || then we had better get ready for an abrupt end to the political consensus in favor of looking first and foremost to the market for the efficient allocation of goods and services. If it’s “the market” that’s at fault for something as basic as an inability to keep the lights on, then those forces favoring a different (read: political) means of allocating goods and services will surely press their case with renewed vigor.

The other possibility is that this is primarily a failure of policy. If so, it may be the greatest policy failure in a generation, again for the reason that the power supply is so basic an item on our list of national needs. Again, the particularity of the crisis, its Californianess || combined, let us admit, with a certain regional delight in the misfortune of others || has kept many from fully grasping the magnitude of the failure. What would be comparable? Oh, I don’t know: Suppose the Wilson Bridge actually did fall into the Potomac River, severing the Beltway. Or suppose one day the tap water of the city of New York sickened tens of thousands and was thereafter undrinkable. Something like that.

Notwithstanding the complexity of the crisis || to cite only one aspect of the complexity, electricity, viewed economically, is a tricky commodity to think about, because what you don’t use you can’t store || I think we are ultimately going to know the answer to the question of what kind of failure this was. One of the country’s most distinguished policy economists, James L. Sweeney of the Stanford Institute for Economic Policy Research, is currently completing a major study of the subject that will be published by my colleagues at the Hoover Institution Press. The truth will come out.

But what we do with the truth is a different question, and a more important one. In other words, while “we” are going to know the answer, the “we” to whom I refer consists of the community of open-minded individuals willing to let the facts lead wherever they go. That is not the only possible response to facts. And that is where the California crisis, in which the provision of a basic commodity utterly broke down, has the potential for broader and more alarming meaning.

Faced with a policy crisis (if that’s what this was), a policymaker has two options: to try to solve it or to try to duck it. The question in relation to California power is simple: What was known or knowable to policymakers about the elements of the problem as events unfolded starting more than a year ago, and what actions did they take in response? More pointedly, did the resolution of the power problem (to the extent that it has been resolved) require all the negative elements that in fact took place (as would certainly be true in the case of a major market failure), or was the magnitude of the crisis itself a product of the failure to take action?

More pointedly still, Mr. Davis has portrayed the worst elements of the crisis as largely beyond his control. Were they really? If not, was he ducking?

If he was, then we have a serious problem. Success is not guaranteed to policymakers even in exchange for heroic efforts, but a willingness to address matters before they become crises is a prerequisite for success and something on which our system depends in ways we may not fully appreciate. The lights went out in California, folks. We’d better care enough to find out why.