The California power crisis has made the headlines again, as the state’s Public Utilities Commission has declared that the culprits all along were the power companies, who deliberately created the crisis by “withholding electricity.” Princeton’s Paul Krugman, the economics columnist for The New York Times, has joined in, declaring that the crisis was nothing more than a “$30 billion robbery” that took place “in broad daylight.”
George Reisman, who is a much better economist than Krugman ever could claim to be, thoroughly debunked the commission’s charges in a recent article on Mises.org. It is now time to debunk Krugman, not only for his errors in economic analysis, but also for his insistence that the government engages in a regime of forced labor. Although the 13th Amendment to the U.S. Constitution abolished slavery in this country, the left wishes to bring it back--in the name of the public interest, of course.
Krugman’s statements speak for themselves. In a recent column, he writes:
“ ‘You are one of only a handful of major players selling wholesale electricity. Surely, the thought has occurred to you: what would happen to prices if one of my plants just happened to go off line? And when companies act on that thought…well, you get the picture.’
“I wrote that in March 2001, when the California electricity crisis was at its height. Even then the experts I talked to--economists who followed the situation closely, and kept an open mind--believed that energy companies were deliberately creating shortages. But only in the last few weeks, with a series of damning reports and judgments, has conventional wisdom grudgingly accepted the obvious.”1
Actually, in one fell swoop, Krugman proves that he is not an economist, or at least that he does not understand basic economic terms he should have learned when he took his first undergraduate economics course. He declares, “…energy companies were deliberately creating shortages.” Had Krugman paid attention to his instructor the day shortages and surpluses were the topic of class discussion, he might have found that shortages are always tied to prices. A shortage is not a reduction in supply, but rather is a condition that is created when the price for a good is held below its “market” level.
Whenever a shortage occurs, prices send the mistaken signal to consumers that more of a good is available than actually might be on hand. Shortages are tied to price controls, and--surprise--the government of California had slapped price controls on the sale of electricity to residential and business customers. In other words, the government of California mandated that electric utilities could only charge relatively low prices that all but guaranteed excess demand by the state’s electricity consumers.
To put it another way, it was impossible for electricity producers to have created shortages, if we are to follow the correct definition of the word. It might be true that power companies located outside of California were reluctant to sell large amounts of electricity to the state when it was clear that the government’s policies had bankrupted in-state utilities and that the outside suppliers had no guarantees of being paid.
Krugman writes that “most of the blackouts that afflicted California between November 2000 and May 2001 took place, not because generating capacity was inadequate, but because the major power companies kept much of their capacity off line.” Furthermore, he hints at a dark conspiracy between power companies and the Republican Party, writing that “severe power shortages began just after the 2000 election, and ended when Democrats gained control of the Senate.”
Since Krugman never mentions price controls as a culprit, he assumes that the power companies were at fault, since they refused to generate electricity and give it to California for free. (In other columns, he claims that price controls actually increased supplies of electricity and ended the crisis; that was before he decided that it must have been the Democrats who ended by whole thing by having a 51-49 majority in the Senate.) While his first contention--that price controls increase supply--is ludicrous, his second claim is downright dangerous.
What Krugman is advocating is nothing less than a government-run regime of slavery. If someone is forced to engage in work that he otherwise would not do, and he is not paid compensation to which he agrees for that work, then we call this slave labor. It cannot be defined by any other term. Krugman and his followers believe that the state should force people to do its bidding, even if it means they will not receive payment for their work.
Notice that Krugman never claims that the outside power companies and power traders were violating contracts they had with California’s utilities. No, he claims that they “created shortages” by withholding supply, something the government should not have permitted to happen. How he would make power officials perform such tasks is anyone’s guess. Would he send in soldiers, would he imprison executives, or would he kill a few workers to put fear in the hearts of everyone else?
I do not know what methods he would choose, but I do know that Krugman does advocate the government using its coercive powers to force people to do work they otherwise would not choose to do. He writes, “So we ignore California’s experience at our peril. It’s all too likely to be the shape of things to come.” The way to avoid future shortages, he declares, is simply for the state to step in and create a regime of slavery.
Yes, I know that Krugman does not use that word, but there is nothing else in the language that can describe his recommendations. No doubt, many politicians will cling to his words as a “solution” to future shortages. That this man is likely to be a future Nobel Prize winner also gives us this pertinent warning: It’s all too likely to be the shape of things to come.
- 1Paul Krugman, “In Broad Daylight,” The New York Times, September 27, 2002, editorial column.
