Deregulation California Style

USA Today (Society for the Advancement of Education), July, 2001 by Tim D. Kane

The final chapter in the California story remains to be composed. At this point, though, several conclusions may be drawn. First, markets have a demonstrated capacity to balance unlimited consumer wants against economic reality. Regardless of the intensity of these wants, or the cost of resources, there is a price at which consumers receive the amount they are willing to purchase while sellers receive sufficient compensation to remain in business. Only a free market has the ability to determine and adjust this price to maintain balance continuously in light of ever-changing circumstances. When regulators attempt to set a retail price, the inevitable result is shortage or surplus. Second, consumers are not protected from exploitation by government, but through knowledge of the prices offered by other sellers and the opportunity to do business with whomever they choose.

Third, whenever governments attempt to choreograph the activities of private individuals--and inevitably fail as they did in this instance--they are unlikely to be repentant. After all, why take responsibility for creating a multi-billion-dollar mess for taxpayers when you can blame the free market? As Davis put it, deregulation has been "a colossal and dangerous failure. It has neither lowered consumer prices nor strengthened utilities. In fact, it has resulted in unconscionable price gouging and an unreliable supply of electricity." He promised that "Never again can we allow out-of-state profiteers to hold California hostage." Profound ignorance of the nation's market system and an unwillingness to trust buyers and sellers to manage their own affairs turned a desirable objective into the world's most-expensive train wreck.

Tim D. Kane, Associate Economics Editor of USA Today, is professor of economics, The University of Texas at Tyler.