Market failure

Nearly a week after a nasty ice storm knocked out power in Kentucky, more than 700,000 Kentucky homes and businesses are still without electricity. Currently, it is estimated this storm killed 43, most from hypothermia or carbon monoxide poisoning.

This alone is outrageous and indicates inadequate electricity infrastructure (i.e. weak power poles), inadequate maintenance of that infrastructure (i.e. not enough pruning of trees away from the wires) and insufficient on-call employees (i.e. not enough repair crews). But, now residents who rely on electric power are being told to evacuate their houses since they are now considered unsafe.

This strikes me as a classic example of the failure of a free market. I would guess that the residents couldn’t, at any cost, buy more dependable electricity. In the rush to greater profitability corners have been cut and there is nothing the consumer can do about it. Except seek greater government regulation.

Are there some things that are so important, so expensive to compensate for after the fact? Is your health and safety more important than allowing companies free rein? Would we be better off with a transparent and accountable government agency?

Let us not forget the Bay City, Michigan man who froze to death inside his home just days after the municipal power company restricted his electricity because of unpaid bills. Now I’m sure we don’t have the whole story, but it would appear Bay City Electric Light & Power didn’t value his life at more than $1,000 (his unpaid electric bills). As a business they have every right to refuse service to those who don’t pay. But, perhaps the provision of electricity can’t be left to the profit motives of the market?

The costs of these sorts of market failures, when utilities fail to invest sufficiently in maintenance or crews to rapidly repair damages, are still born by all of us. They don’t go away. In Kentucky, there have been millions of dollars lost from damage to homes, spoiled goods, and forgone productivity. And they have had to call out every single one of their National Guard members. We all pay. It just isn’t factored into the price we pay for electricity.

When we get injured by a faulty product or when there is a breach of contract, we would normally have the right to sue for recompense, damages or negligence. Utilities, however, are often protected from such recourse. They are a protected industry. Which is probably fine because otherwise nobody would want to take on the risk of providing our electricity, water, sewer, etc.

It all adds up to a colossal failed market. De-regulation of essentials doesn’t work.

3 Responses

  1. Market failure? Are you a goof? Is this a joke. Life has certain risks. If those poles were engineered to never fail under any conditions you would be squaking about how much electricity costs. Are you that clueless?

  2. Jason, I’m sure you’d use similar arguments for nuclear accidents and I’m sure the folks still suffering the after effects of Three Mile Island appreciate your care.

  3. Power lines should be buried. It may cost more upfront, but saves tremendous costs in the long run.

    You are right. It is a market failure. And in the poor man in Bay City, it was a failure of epic proportions. Even after the incident, city council voted to continue its practice of shutting off utilities.

    In Michigan?! In the winter?!

    What have we become for a society? Sad.

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