For too many years now, one of the most important things that we consumers buy on a daily basis, electricity, has been rationed by a system of state control and central planning. This method of distributing electricity is not unlike the way things were done in the former Soviet Union. And like the Soviet Union, electrical socialism was doomed from the start. For the last few years the electrical industry has been undergoing its own Perestroika.
In Austin, like the former Soviet Union, state control will not die without a fight. Years of monopoly power create deep and vested interests. Such interests are so strong as to defy logic. For instance, although every economist outside of Cuba agrees that competition through free markets creates lower prices and better service for consumers, the electrical oligopoly, surprisingly enough, seems to believe that their little billion dollar corner of the world is the exception.
In a study titled “The Impact of Retail Wheeling on Tax Revenues in Texas,” the electrical utilities claim to have discovered the single instance where the free market does not work — electricity. Their study makes two basic claims: first, breaking the centralized oligopoly in electric power will causes prices to rise; and two, if some prices fall, there will be less tax revenues.
Before reading this study, it is important to remember the importance of this issue to the industry advocacy groups which back the research. Monopoly profits create a problem that few consumers have, too much money. As a result, an almost unlimited amount of money can be thrown into defense of their legally sanctioned position.
The first claim of the study is based on the sort of thinking that generated this huge, state-controlled centralized monster of an electrical system in the first place. The thinking, distilled to its most basic form, is that bureaucrats in Austin can make better decisions about what you want to buy than you can. But no system of central planning has ever gotten prices below the market. This is because, as we learn in high school economics, centralized economies are inherently inefficient. No Soviet five year plan ever worked, and neither have/will the same theories applied to electricity in Texas.
The second assumption of the study regards tax revenue. According to its authors, there would be a massive decrease in tax revenues if electrical Perestroika proceeds. Again there are two reasons given. The first is that because the cost of electricity would go up, people would have less money to spend on other things, and therefore there will be less sales tax revenue. This assumes that the state can keep electricity below its competitive price, which, of course, is impossible. Second, the study argues that under the new regime all kinds of tax revenue to the state will fall because of a decrease in profits for utilities. This money, it is argued, is needed for important state projects.
The claim that a billion dollar, inefficient state-controlled centralized oligopoly is good because it generates taxes is incredible. This claim cannot pass the straight face test. Imagine if Governor Bush were to appear before the state legislature and say, “We have budget shortfall, so let’s create a giant bureaucratic agency to dig holes in the ground and then fill them up. Everyone employed to support this work pay sales taxes. Their administrative offices will generate property taxes. We will be awash in tax revenues!” Absurd. Yet this is quite literally the electrical monopoly’s last ditch argument. We might be an expensive dinosaur, but at least you can tax us by the pound.
If tax revenues are the problem, we all know there are plenty of legitimate ways the legislature can devise to recapture some of the money saved by having a free market in energy. It could, for instance, tax something else. However, there can be no doubt that the most efficient way to tax, is to tax; not to create a billion dollar bureaucracy.
There will always be resistance to Perestroika. The old guard in the electric utility industry also has a vested interest, and they are ready and willing to fight. In Russia, it was a coup d’tet. In Austin, it is by scare mongering and academic tom foolery. In any case, history is on the side of freedom and you, the consumer. If the Berlin wall can crumble, even the electrical utilities can be broken.
Michael Weiss is the Research Director for the Texas Public Policy Foundation, a non-profit, independent research institute located in San Antonio, TX.