FREE MARKET MYTHOLOGY

Back in the early 90s I was taking a course at the University of Texas on the economics of the cable television industry. For one lecture, the teacher brought in a guest from Austin Cablevision. At the time, there was some pending legislation in Congress that would regulate the payment rates for cable TV. A classmate asked this guy what he thought about it. Instead of going into the specifics of the bill, or the intricacies of revenue and profits, he simply said with a smile, "Anytime the government tries to regulate business it hurts everybody, both industry and consumers," and he left it at that. At the time, I was a bit angry that our teacher never really made any attempt to discuss his remark--I mean, obviously, there's another point of view about this little bit of economic conventional wisdom. Is it true that government regulation always results in inefficiency that hurts both business and consumers? Or, put differently, does deregulation always result in a more competitive business environment that benefits everybody?

Well, putting aside our economics textbooks for a moment, let's take a look at the real world. From the Houston Chronicle editorial board:

Electric bills: Higher prices through
competition is not the way it was supposed to work.

Still, the fact remains that the regulated markets are outperforming the competitive markets, eroding claims that the free market will always outperform regulated or government-owned providers. John Wilder, CEO of TXU Corp., a large competitive provider, said his company had made no money on retail electricity sales.

Meanwhile, in addition to enjoying lower prices, consumers in some regulated markets also escape the bother and expense of having to shop around. Texas' competitive electricity providers face a stiff challenge in demonstrating the superiority of competition.

Click here for the rest.

Texas deregulated its power companies a few years back. So far, it doesn't seem to have resulted in the debacle that we saw in California, with power giants like Enron manipulating the system to jack pay rates sky high while causing numerous rolling blackouts at the same time. Nonetheless, simply because Texans have been spared from the worst ravages of robber baron capitalism in the energy industry, it doesn't mean that deregulation is a success. Indeed, competition, according to the priests of free market fundamentalism, is always supposed to result in lower prices. In this case it hasn't, which suggests that economics, as an academic field, is, at the very least, wildly more complicated than the corn-pone platitudes offered by conservative politicians about "the way the world works" would seem to indicate.

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