December 10, 2000 RECKONINGS California Screaming By PAUL KRUGMAN http://www.nytimes.com/2000/12/10/opinion/10KRUG.html California's deregulated power industry, in which producers can sell electricity for whatever the traffic will bear, was supposed to deliver cheaper, cleaner power. But instead the state faces an electricity shortage so severe that the governor has turned off the lights on the official Christmas tree — a shortage that has proved highly profitable to power companies, and raised suspicions of market manipulation. - snip - Maybe California power companies aren't rigging electricity prices. But they clearly have both the means and the incentive to do so — and you have to wonder why the deregulators didn't worry about this, why they didn't ask seemingly obvious questions about whether the market they proposed to create would really work as advertised. And maybe that is the broader lesson of the debacle: Don't rush into a market solution when there are serious questions about whether the market will work. Both economic analysis and British experience should have rung warning bells about California's deregulation scheme; but those warnings were ignored — just as similar warnings are being ignored by enthusiasts for market solutions for everything from prescription drug coverage to education. Tom Walker Sandwichman and Deconsultant Bowen Island, BC
