Tuesday, January 29, 2008

This should be pointed out

I don't really like blogging about South Africa so I'll keep this short. There is a very simple way to ration South Africa's "fixed supply" of electricity; raise the damn price. Worried about the poor? Give them money. Who knows, with higher prices for the same amount of electricity, Eskom might even be able to use the money to build more capacity sooner (this is partly what profits are for by the way, investment for the future).

Also the whole saga reveals a pretty entrenched bias about the way "we" think about economics. The world markets have been in trouble recently so cue the amusing columns predicting the final collapse of capitalism and the more earnest brow furrowing articles about the need to regulate capitalism's excesses so that this kind of thing will never happen again. When government screws up though we don't get many outraged denunciations about the excesses of government (well maybe you do, but only in pretty niche publications). Instead we get grand plans which curiously involve more government involvement. Seems like clear anti-market bias to me.


Tracy said...

Yeh, I have become quite convinced that in most cases government interference makes things worse in the long run, by protecting institutions that need to die as they are no longer providing what people need in an efficient manner, providing symptomatic relief that makes people dependent on that aid, and in general being rather crap administrators themselves that the money that people work so hard to earn. Combine this with the inevitable corruption and it's a pretty bleak picture.

Swart Donkey said...

Government Intervention in China seems to be doing a fairly good job... (see Dom's Facebook note for a more qualified opinion)

I think the problem here is more of a democracy problem than a capitalism problem.

Democracy promotes the most popular, not the best qualified (see JZ)and forgives even the corrupt.

Raising the prices gives electricity to the rich, not to the most efficient. Long Term, yes... market forces would favour the efficient, but hopefully in the long term there is enough electricity to go around.

If you could somehow give electricity to `those with the best potential' in a market of such, maybe it would work cause the `small caps' would also get... but thats not realistic.


1) Gov can't do it
2) Raising Prices Can't do it

2 is probably the best of bad options.

1 is probably the most likely.

mutt said...

I agree that democracy sucks.

I didn't read Dom's whole post, but I probably read the relevant paragraph. I find it bizzare that the word communism even comes up there. It's true that china still has large state involvement in the economy and generally throws its weight around. I'd still argue that most of the improvements come from moving in a free market direction. I've read pretty terrible accounts of some of the bits where government is still involved.

I can't agree with you that raising prices "gives" electricity to the rich. the rich will simply not adjust their consumption much, incentives take place at the margin so it will change consumption patterns.

The idea that pricing a good below the market price causes shortages is so standard that I suggest the burden of proof lies with those contesting it.

Swart Donkey said...

You're right that raising the price would remove the shortage. I am not contesting that.

The thing is, electricity is a `public good'... so if you could charge the public and commerce different rates then maybe...

But you would have to think widely of subsidising sole traders/small business etc. Then `middle' business loses out to big business...

I just think electricity is such a fundamental resource, and because it is such a sudden shortage, only those `who have already made it' would survive and electricity would be a new barrier to entry.

On the plus side... the shortages do force people to look for alternatives.

Maybe SA will challenge Holland with windmills, or `Sunny South Africa' will harness the `Sunny' with Solar Panels.

Stuart said...

Fuck. apparently I cannot correctly hit "ctrl" and "c" simultaneously.

short form.

I don't think of power as a public good in the same way as you.

dont wanna subsidise power for anyone (just the poor for "life", which may or may not include power).

High prices provide a better signal for innovation (plus cash to invest in that).

why do we treat petrol so differently. its pretty much the same stuff we're buying.