If I were to write a bad satire of 21st century capitalist greed, it might involve something like this: there is an app called “Griddy” (get it?) that is connected to everyone’s bank account. When something bad happens to you, Griddy adds interest to injury by sucking your account dry. “Why would anyone connect to this thing?” you might ask. Because without it their utilities are cut off. There is no limit to Griddy’s greed. It is an “apparasite,” a parasitic app whose job is to slurp up the contents of your bank account and send you cheerful messages about how it is creating value for you.
A characteristic feature of our time is that you cannot satirize it, because anything you come up with already exists, or is about five minutes from existing. Griddy is a real app that connects Texans to their deregulated power grid and aims to “disrupt” the power market. Certainly it has disrupted the lives of Texas energy customers, who are having their savings accounts drained to pay the exorbitant bills they are being charged for keeping their lights on during the storm. The New York Times reports on the case of a veteran who has lost his entire savings thanks to the price hikes, as well as the travails of Griddy user Katrina Tanner:
Katrina Tanner, a Griddy customer who lives in Nevada, Texas, said she had been charged $6,200 already this month, more than five times what she paid in all of 2020. She began using Griddy at a friend’s suggestion a couple of years ago and was pleased at the time with how simple it was to sign up. As the storm rolled through during the past week, however, she kept opening the company’s app on her phone and seeing her bill “just rising, rising, rising,” Ms. Tanner said. Griddy was able to take the money she owed directly from her bank account, and she now has just $200 left. She suspects that she was only able to keep that much because her bank stopped Griddy from taking more.
The extreme price hikes after the storm, hitting people whose only crime was trying to keep their power on during a freezing winter, outraged Texas senator Ted Cruz upon returning from his attempt to scurry away to Cancun in the middle of the crisis. Cruz tweeted:
This is WRONG. No power company should get a windfall because of a natural disaster, and Texans shouldn’t get hammered by ridiculous rate increases for last week’s energy debacle. State and local regulators should act swiftly to prevent this injustice.
Cruz’s demand for regulation of the utility companies was a remarkable shift in tone from previous public comments. Cruz has previously described himself as someone who had “spent my whole life fighting for free-market principles” and said that the “success of Texas energy” was built “on principles of free enterprise and low regulation.” He had said “regulated public utilities” were not “bold” or “innovative.”
But it’s very clear that the deregulation of Texas’ energy market, the free market for power that Cruz championed, directly precipitated the price gouging. A Wall Street Journal investigation put blame squarely on the state’s excessive trust in corporate benevolence. The Journal calculated that “deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities.” The paper noted that champions of deregulation had told stories about how “competition” would miraculously create wealth and innovation for all:
None of this was supposed to happen under deregulation. Backers of competition in the electricity-supply business promised it would lower prices for consumers who could shop around for the best deals, just as they do for cellphone service. The system would be an improvement over monopoly utilities, which have little incentive to innovate and provide better service to customers, supporters of deregulation said.
(Incidentally, the Journal notes that in the debate over Texas’ deregulation, “leading the charge was Enron, the Houston energy company and champion of free markets that went bankrupt in 2001 amid revelations of widespread fraud.”)
Price gouging is a feature, not a bug, of free markets. Libertarian think tanks (and the Wall Street Journal’s own op-ed page) are constantly churning out articles on why price gouging is Actually Good because it allocates goods to those who want them the most and incentivizes greater production. But faced with the reality of extreme post-disaster price hikes, as opposed to the “speculative fiction” of free market economic theory, even die-hard capitalists like Ted Cruz pronounce themselves horrified.
The Journal reports that now, in the aftermath of the storm, companies are “trying to figure out how to pass on the billions of dollars in costs to customers.” The paper quotes an energy economist who says that the crisis is going to be “an incredible transfer of billions of dollars from Texas consumers to generators” with some “spectacular winners and losers,” the biggest loser being “the state of Texas.” (Strangely, this quote about how the crisis will be a windfall for corporations appeared in the paper’s print edition but appears to have been cut from the online version of the article.) The CFO of a natural gas company was giddy in reporting to investors how much money the company was making off the tragedy: “This week is like hitting the jackpot with some of these incredible prices… Frankly, we were able to sell at super premium prices for a material amount of production.”
To fund that jackpot, the city of Denton is “now looking to borrow up to $300 million to cover fuel expenses from last week,” and on one day alone the “municipal utility racked up a $75 million power bill, more than it spent on electricity for all of its last fiscal year.” So cities are faced with the prospect of taking on debt to pay off power corporations, all because they needed to keep the lights on, while those same corporations will be “spectacular winners.”
This is your free market: the entity with control of something people need during a crisis can use their unique position to reap those “spectacular” wins and transfer wealth to themselves. It is akin to a person who sees another drowning and offers to throw a life preserver for $75,000.
Greg Abbott, the Republican governor of Texas, echoed Cruz. “Texans shouldn’t have to face a spike in their energy costs,” he said. Indeed, they shouldn’t. It’s deeply unfair. But can Abbott admit that this discredits all the utopian prophecies about what the Invisible Hand would do? Cruz explicitly calls for new regulation, which is a direct abandonment of the laissez-faire capitalism he professes to stand for. The Wall Street Journal shows that the “let corporations charge what they like” system has resulted in a giant transfer of billions of dollars in wealth from customers to the companies, and it hasn’t even improved the grid, with “little incentive for companies to spend cash on infrastructure that could protect power plants during sporadic severe cold snaps.” Customers are not doing better through this system. Profiteers are doing better. Griddy is giddily siphoning bank accounts, but municipalities are going into hundreds of millions of dollars of debt that will take years to pay off and will result in austerity measures being imposed on other essential government services. What if firefighters’ pensions now have to be cut to make sure energy companies get their windfalls from the disaster?
We can see very clearly here how free market myths run up against the reality that regulation is necessary to serve the public interest, and government cannot “stay out” of the economy without it going haywire and hurting people. Now that even Ted Cruz admits this, let us hope a few more people will abandon the laissez-faire mythology that sees markets as miracles and every regulation as a burden. That’s just not how it works, as Texas has found out the hard way.