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What Happens When You Abandon The Price Mechanism to Allocate Resources

When the government does not allow prices to float in real time in response to changes in supply and demand, then gluts and shortages are inevitable.  When shortages occur, due to prices that are capped or not allowed to move upwards sufficiently quickly, queues and/or spot shortages occur.  When the government decides it does not like this, the jack-booted thugs step in and we have government-enforced rationing.  California, famous for its stupidity in letting wholesale electricity prices float while capping retail prices and thus creating an economic disaster several years ago, is at it again in the electricity market:

What should be controversial in the proposed revisions to Title 24 is the requirement for what is called a "programmable communicating thermostat" or PCT. Every new home and every change to existing homes’ central heating and air conditioning systems will required to be fitted with a PCT beginning next year following the issuance of the revision. Each PCT will be fitted with a "non-removable " FM receiver that will allow the power authorities to increase your air conditioning temperature setpoint or decrease your heater temperature setpoint to any value they chose. During "price events" those changes are limited to /- four degrees F and you would be able to manually override the changes. During "emergency events" the new setpoints can be whatever the power authority desires and you would not be able to alter them.

In other words, the temperature of your home will no longer be yours to control. Your desires and needs can and will be overridden by the state of California through its public and private utility organizations. All this is for the common good, of course.

I can't think of anything that better illustrates the tie between free exchange and freedom.  And by the way, how long before the greenies in the legislature suggest using this mechanism even when there are not shortages to turn down everyone's air conditioner, just because they can.

Update: Exercise for the reader -- Figure out how, once this policy goes bad, the state of California will again blame Enron for their failure.

Posted on January 8, 2008 at 08:54 AM | Permalink

Comments

This certainly creates a disincentive to live in California. I wish that were all that it created. It will likely also create a precedent for other state governments to look at and crave.

Posted by: mjh | Jan 8, 2008 9:28:44 AM

Of course, the attitude of the author of the American Thinker article is a good indicator of why government continues to grow. To paraphrase: "Government building codes are good, except for this one that I do not like."

He thinks it is perfectly okay to interfere with the choice in shingle color or pipe diameter for a pool, but not the temperature of a house. There is absolutely no difference between one regulation or the other. In this case, you cannot even claim safety, which is already a dubious reason. Instead, it is for force people to use less electricity, which as Warren already pointed out, would be better served by the price mechanism.

Posted by: Reformed Republican | Jan 8, 2008 9:35:32 AM

Too easy to circumvent. A thermostat does'nt 'know' it's controlling, or connected to anything. Wire a state mandated thermostat to a 24 volt source, and let is sit there. Keep an illicit thermostat wired into your heating/cooling system. You're still out 60 bucks for the thermostat...and California will find a way to impose a 'modest' fee to cover costs associated with controlling/monitoring your thermostat...but the only solution to that is to leave the state.

Posted by: DngrMse | Jan 8, 2008 9:57:22 AM

Another example of how the government hurts the people it tries to help. All you need to do is put a candle near the thermostat to drive the heat up to make it kick on. I guarantee someone will do this and start their house on fire. In order to avoid this I would recommend putting an incandescent light by the thermostat to get it to kick on which would be safer than a candle. Better yet, have a timer on it to get the thermostat to cycle on and off every 15 or 30 minutes.

Posted by: franco | Jan 8, 2008 10:23:38 AM

The only solution is NOT to leave the State! That's how things like this get started. Too many people just don't want to be bothered, until it is too late. What is the percentage of eligable voters in California or any other State who actually vote? I'm betting that it isn't more than 60%. That is how these clowns get away with this crap.

Posted by: Jim Collins | Jan 8, 2008 10:27:10 AM

Glad you put "non-removable" in quotes.

I foresee a new market opening in certain skills :-)

Posted by: Jens Fiederer | Jan 8, 2008 10:39:58 AM

i predict a bull market in lead antenna covers...

imagine the outcry the first time this system is hacked (not so hard to replicate FM signals with a quick trip to radio shack).

this is a system so foolish it's hard to even imagine its implementation.

what has been working on a small scale is industrial parks agreeing to give the utilities the ability to reduce the power they get from the grid in times of peak demand. in exchange for this flexibility, the industrial parks get lower overall rates. it's a simple, elegant, voluntary solution the benefits both sides. similar plans are being tested for lower prices for off peak usage in the same way that cell phone companies give you cheap nights and weekends. do your laundry at night and save. imagine price being adjusted as a function of demand. what a wild idea...

Posted by: morganovich | Jan 8, 2008 10:52:21 AM

i predict a bull market in lead antenna covers...

imagine the outcry the first time this system is hacked (not so hard to replicate FM signals with a quick trip to radio shack).

this is a system so foolish it's hard to even imagine its implementation.

what has been working on a small scale is industrial parks agreeing to give the utilities the ability to reduce the power they get from the grid in times of peak demand. in exchange for this flexibility, the industrial parks get lower overall rates. it's a simple, elegant, voluntary solution the benefits both sides. similar plans are being tested for lower prices for off peak usage in the same way that cell phone companies give you cheap nights and weekends. do your laundry at night and save. imagine price being adjusted as a function of demand. what a wild idea...

Posted by: morganovich | Jan 8, 2008 10:52:44 AM

But franco, California banned incandescent bulbs, too, didn't they? If not, the federal energy bill did.

Posted by: Craig | Jan 8, 2008 12:01:32 PM

See President Jimmy Carter for how this turns out in the end.

Posted by: bill-tb | Jan 8, 2008 12:22:16 PM

Are hospitals exempted? Data banks (yes, it seems that one fool decided to save energy by turning off the air conditioning of his [former] company's equipment room)? or, to the point, legislator's offices?

Instead of a heat-sink for your PC's motherboard, connect it to your thermostat?

Posted by: teqjack | Jan 8, 2008 2:06:06 PM

Easy.

Gov. X will hold a press conference and hold up a California ISO report showing that the growing demand for electricity has predicted this crisis for several years, but his incompetent predecessor and the greedy utility companies failed to build the necessary capacity. And he has authorized the ISO to purchase the necessary electricity on the spot markets from neighboring states.

A compliant press will fail to ask any tough questions.

Posted by: Jeff | Jan 8, 2008 2:45:26 PM

This is easy, you just have Harry Tuttle come fix your air conditioning so it actually works how you want it to. Someday soon, there's going to be a huge market for renegade engineers with technical skills to work around annoying regulations. (I plan to supplement my income by smuggling incandescent light bulbs and partially hydrogenated oils from Mexico)

Posted by: SuperMike | Jan 8, 2008 4:46:57 PM

IMO, these type of temperature controls are a great idea as long as they only target laziness and indifference. Notice that there's only a 4 degree adjustment made - if you set your thermostat at 70 degrees and can't stand 74, then you can just set it for 66 degrees. The emergency override is a hugely useful tool - it will keep the power on at critical sites (ie; hospitals, nursing homes, food warehouses) when blackouts loom.

These kind of monitors can also empower electricity consumers. They can notify you when demand is low and power is cheap - that way you can schedule your power intensive tasks (ie; Laundry, vacuuming, charging batteries) at a time that saves you money and makes the whole power system more efficient.

Posted by: George | Jan 10, 2008 10:40:10 AM

"The emergency override is a hugely useful tool - it will keep the power on at critical sites (ie; hospitals, nursing homes, food warehouses) when blackouts loom."

^ Screw that- that's what battery backups and generators are for. Those who need more reliable power pay for it in whatever quantity it's worth to them.

Posted by: Nick S. | Jan 10, 2008 9:33:18 PM

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