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Comment by kortilla | Hacker News Reader

Free markets do account for huge shortages, but we’ve eliminated the motivation for actors to do something about it with anti price-gouging regulations.

There would be tons of stockpiles if businesses could appropriately upcharge when there was mass panic buying. Instead we stupidly lock prices, which wipes out most of the point of paying extra storage costs compared to a just in time competitor.

The problem is we’ve as a society don’t like when prices go up with demand so we’ve crippled markets in their ability to deal with these types of events.

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I don’t think what you’re saying jives with the reality of what happened in Texas. The price of electric and natural gas skyrocketed during the shortage. A company that winterized their equipment stood to make a killing. And yet, despite the massive profit incentives, large swaths of Texas were blacked out due to lack of preparation. Besides that, the economic damage of the outages far outweigh how much winterization would have cost. The power companies are unlikely to bear the burden of that. All together, that’s not a good recipe for a pure free market system.

People also find the idea that only the rich can afford to have heat so that the pipes in their walls don’t burst distasteful.

>The price of electric and natural gas skyrocketed during the shortage.

AFAIK the price was capped.

https://news.ycombinator.com/item?id=26160546

For context, the cap is nearly 100x the normal price. In colder states power companies manage to be profitable at around the normal price of electric in Texas. The price of winterization isn’t that high, and a company that did it could have made a year’s worth of profit last week. The cap was very high and did not contribute to the outage.

In your other post you say this is a once in a century event. It really isn’t. This is the 3rd time since 1989 that Texas has had outages due to insufficient winter prep. It’s more like a once in 10 years event.

Wholesale prices are capped. They contribute to but don't limit the price paid by retail customers.

there is also another externality, due to perception (regardless of whether it is true) that it affects non rich people more means that it build distrust. trust (and in particular systemic trust, e.g. rule of law) reduces transaction costs; i.e. you can rely on others to do their job properly without having to continually monitor them and build in unnecessary contingencies.

There is no way it would be effecient to perpetually store 1000X your regular demand just to upsell in an unprecendented crisis, regardless of price gouging policies.

This is true, but it would be just as true whether you did it in a free market or through some government program because the inefficiency comes from having to make and store that stuff. A free market just gives us more ways to quantify that inefficiency.

This is super predictable behavior in storm areas like Texas. Hurricanes come, everyone goes for gas, places start to run out of gas, nobody can raise rates, they run out of gas. Even a double normal price could easily pay off a much larger tank.

This is a fringe event. Large scale grid storage is at least 10 years away. It's not a market failure. The irony is that all the complaints about grid storage will disappear once we have it because running a grid without grid storage will be considered insanity by that point.

The technology isn't there. The real solution would have been to cut demand to non essential uses.

I don’t see how that is a technology problem. The technology to run power grids that are resilient to cold temperatures exists, otherwise Canada, Alaska or any northern country wouldn’t have power. It’s just expensive and any player investing into cold-proofing their grid would have been priced out of the market in Texas long ago.

Yes. And then the incentive will be to buy up all available capacity and create artifical scarcity. If you believe that we are dealing with profit maximizing actors then this is the likely outcome in the absence of any price control. Lets say you believe that a competitor may come up to provide the service as soon as the price becomes attractive. Power generation is not something that can be stood up (at least not yet) at the drop of a hat. There are far better solutions to this problem and they all involve more and not less regulation.

> And then the incentive will be to buy up all available capacity and create artifical scarcity

This makes no sense. Which market is it you think can be cornered here? Someone buying up all of the natural gas in the world? All of the generators? What?

The thing about market prices is any time someone tries to corner a market and drive up prices, it incentivizes more sellers to enter the market.

If you’re talking about small periods of time, like cornering it for a week, that’s not really easy considering futures traded against this market would smooth the price like they do for every other commodity.

Same thing applies to oil, oranges, natural gas itself, coal, refined copper, etc.

There is nothing special about electricity other than the fact that people feel entitled to have it at all times and cheaply despite the fact that generation costs vary widely.

> There are far better solutions to this problem and they all involve more and not less regulation.

The California power system is a bastion of regulated electricity and it’s an unmitigated disaster. The prices and reliability are worse than the one in Texas. You just don’t notice because the fallout (other than burning down half of the state) doesn’t freeze people to death.

You'd need to make a strong argument to convince me that situation would actually be much better than the one we have currently. At least with the current price-gouging laws, we're able to semi-select for the people who are willing to spend the most time pursuing goods, which has a much better correlation with actual need than who's willing to spend the most money.

Furthermore, I'm not entirely convinced that removing price gouging laws would really prevent these sort of events. Capitalism has a tendency to optimize for the short term, and to select for firms that are perfectly optimized for the current environment, however unrepresentative that may be. Sure, counterculture firms exist, but there's rarely enough of them to make a big dent, and the markets often remain irrational longer than they can remain solvent.

There seem to be two cases. Rare, but on human scales regularly reoccurring disasters (hurricanes in the east, fires in the west, etc ...) and more-rare "black-swan" events, basically 100+ frequencies.

The more regular disasters seem to be dealt with in markets. Insurance companies will have requirements to reimbursement, some companies will stockpile goods, multi-region firms will have DR plans etc. Alternatively governments regulations can require preventative measures and have stockpiles in place. In practice both happen to varying degrees of success. Price gouging allows for more inter-region support on a for-profit basis, but probably also disincents some charitable actions. On net we probably should allow "entrepreneurial gouging" (like a guy buying a water truck in a non-disaster area, driving it to a disaster area and charging high prices) It might be distasteful, but if it is providing net-benefit of otherwise unattainable resources that is still better. But companies organizing and planning around this, seems much more sinister. Like the water company charging more for potable water, rather than spending their time and effort fixing the system for everyone. That type of thing is probably better prohibited and regulated.

But the more rare events, nobody seems to handle well. Governments and private enterprises alike tend to only prepare for the last crisis. I'm not sure there is a government vs private comparison, so much as a human failure. I suspect good government regulation is going to be better, because it can sustain longer-term initiatives, but getting the policy to be "good" and not corrupted by grift is difficult, especially with out the feedback loop of reality.

The problem is that markets, controlled or free, are at a level of complexity far beyond our capacity to effectivel control from a top down perspective, there have been countless examples with top down legislation have had unforeseen consequences (or overtly controlled markets in Soviet Union). The idea with free market capitalism is that as much as possible the transactions/pricing between parties should allow for systemic optimisation.

There are two main problems, a) not all transactions are captured appropriately, b) we fuck with the system from a top down perspective so much as to completely undermine the premise of the low level optimisation. Oftentimes it's in relation to (a) that we do (b), in (b) we should be aiming to provide recompense to the side of the hidden transaction via the government; unfortunately the government oversteps here and tries to optimise the system themselves.

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