Tuesday, February 15, 2011

Another Tale of Deregulation Woe

In theory, deregulation sounds like a good idea.  It's the old "more competition = better prices = better service and product" idea and for those who like their ideas really simple and uncluttered, deregulation is a no-brainer.

But what happened when Mulroney deregulated Canadian air travel?  You may not remember that Canada used to have two viable flag carriers - Air Canada and Canadian Airlines - who became locked in a suicidal death spiral following deregulation.   Canadian Airlines crashed and burned.   Air Canada survived only to pancake in shortly afterward.

More recently, Washington deregulated America's banking system.  How well did that work out?  Let's see, an insane investment/speculation bubble, followed by market collapse, followed by bank failures, followed by Wall Street bailouts followed by a severe recession.

But wait, there's more!  In Texas the state government decided to give its citizens a break by deregulating its electricity market.  In 1999 the government assured Texans the dereg business would lower their electricity costs.  Now a study discloses that deregulation has cost Texas residential consumers more than $11-billion dollars in increased charges.

Before deregulation, Texas had cheaper rates than most states. Between 1999 and the first six months of 2010, however, Texas residential consumers "  suffered greater increases [in electric rates] than residents in all but six other states,"   the report said.

"Had electric prices remained at the national average -- not below it, just at it -- Texas residential consumers would have saved more than $11 billion since the implementation of deregulation," the report said, citing data compiled by the U.S. Energy Information Administration.

The entire deregulated Texas market, commercial, industrial and residential, "would have saved $15.5 billion had prices remained at the national average," the report said.

 When will they ever learn?


double nickel said...

Well sure, but a lot of people got stinking rich, so it's all good.

The Mound of Sound said...

Not as many get stinking rich as the number who expect to get stinking rich. Mulroney 'privatized' Air Canada and most of the employees rushed to pick up stock. When Air Canada subsequently failed, that shareholder equity was wiped out by secured creditors. Once the airline was cleansed of its obligations to its unions, shareholders and ordinary creditors, it was recycled as a new, leaner airline.

Chapter 11 in the US was intended to rescue otherwise valid companies in financial distress. Today it's often used as a convenient management tool.