More demand or less supply?

David Schwartz davids at webmaster.com
Fri May 18 22:21:19 UTC 2001


> On Fri, 18 May 2001, David Schwartz wrote:

> > regardless of the price. There is absolutely no rational
> > defense for this
> > ruling that I can imagine, and with no bargaining power, the
> > utilities were raped by the generators.

> Without the high prices companies like Kaiser Aluminum would not have
> sent 7,000 workers home so they could sell their power to California.

	Right, because the lost productivity would have been greater than the value
of the power. This is just a really awkward way of saying that power became
so expensive that Kaiser Aluminum couldn't affort to buy it anymore.
Kaiser's productivity was lost because of high energy prices.

> Like it or not, the higher prices did make more energy available to
> California than would have been otherwise the case.

	Of course, because it priced consumers with smaller budgets out of the
picture. To put it another way, higher energy prices hurt some customers
more than others. Marginal users of electricity, those for whom the value of
what they could do with the electricity wasn't much more than its cost, were
squeezed out. Net productivity decreases because these marginal benefits are
lost and the sum total of a large number of marginal values can be quite a
bit.

	Prices do need to rise when demand exceeds supply. But to eliminate the
checks and balances on the process for an essential item destroys the
natural market forces that keep prices stable. One of the most important
checks in the system is that a buyer won't pay more for something than it's
worth to them. Remove that check and prices will rise until the buyers are
broke. That can't be good for anyone.

	DS





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