Deregulation and American Business—an Endeavor Justified by a Lie

Deregulation of businesses in America is promoted as a way of increasing competition and, as a result, of lowering prices. It’s an old argument that goes back more than 300 years. In the 17^th and 18^th centuries, it may have been valid. Today it is not. Numerous counterexamples exist.

AT&T, Ma Bell as it was known, was broken up in 1982. This breakup promised increased competition and reduced telephone rates. Well, we certainly got the competition. What happened to the rates?

If anyone in America is paying less for telephone service today than he was paying in 1982, he must have cancelled his telephone service.

This counterexample proves that the argument cited above is invalid. Competition does not always lead to reduced prices, pure and simple, because the products themselves can be embellished by bells and whistles and even only apparent bells and whistles that the seller can then charge more for. In the 17^th century, if a community had three chairmakers, the price of chairs most likely was less than it would have been if there had only been one chairmaker, because chairs were relatively simple and pretty much all alike. That is no longer true, and this change has made the argument for competition invalid.

Deregulation of the airline industry has had even worse consequences. Not only have airfares not been reduced, most airlines are in deep financial trouble, some in bankruptcy, and others on the verge of it.

But, of course, the supporters of deregulation won’t admit the argument’s invalidity. The argument now has become that prices are less than they would have been if regulation had remained in place. This argument, always made by someone associated with a deregulated industry whose prices were not lowered by deregulation is a red herring. Nobody knows what prices would have been if.

The argument assumes that the regulations that were in place before deregulation would have remained constant had deregulation not have taken place. But that assumption has no justification whatsoever. Legislators love to change regulations, especially if they fail to satisfy the public.

Four years ago, the electric industry in Texas, which had until then functioned as a public utility, was deregulated with all of the promises of better service and lower rates. Of course, neither has materialized. Instead, there have been a number of scandals involving the company operating the Texas electrical grid, and Texans are now paying some of the highest, if not the highest, electricity rates in the country, and the differences in rates between the competitive providers is negligible. But nevertheless, Mr. M. Ray Perryman, CEO of The Perryman Group, an economic and financial analysis firm, makes the less-than-they-would-have-been argument both on his web site and in the Dallas Business Journal. Supposedly a trained economist, he ought to know better.

What does he cite as evidence?

1.  “more than 2 million electricity customer switches have been completed.” (What a dog of a construction. Perhaps he flunked English composition.)

2.  “1,900 megawatts of electric capacity have been added by wind-power generation plants over the last four years.”

3.  “the amount of metric tons of emissions from electric utility facilities has dropped dramatically (no figures supplied).”

4.  “more than $11 billion has been invested in new plant in potential capacity now in various phases of implementation.”

5  He also cites a multitude of dollar values that have resulted in a stimulus to the state’s economy but doesn’t tell us how these figures were arrived at.

What he doesn’t claim is a reduction in rates. As a matter of fact, he admits the opposite, justifying the increases with the would-have-been argument.

Now look at Mr. Perryman’s claims. They prove nothing.

So what if a lot of customers have switched? Have they benefited with lower prices? So what if new capacity has been added? Has it increased supply enough to reduce rates? Nothing prevented electric companies from providing this capacity under regulation? And his claim that toxic emissions have been reduced “dramatically” is dubious at best, since Texas has some of the worst air pollution problems in the nation, and no dramatic reduction of that pollution has been evident. Of course, again Mr. Perryman doesn’t tell us what was measured, how it was measured, when it was measured, or justified the validity of the measurements. Everything Mr. Perryman cites amounts to nothing more than what is known in logical studies as a giant non sequitur. Any careful thinker who reads Mr. Perryman’s words would have to conclude that he is engaged in nothing more than self serving propaganda, as so many people in so called American think tanks, business organizations, and government service are these days.

  It seems that Americans live in a nation of lies, propagated by liars who believe that suckers are born every minute, and who pick the pockets of the public while claiming to be do-gooders. But in spite of all the propaganda, the bottom line is that Texans are paying more, a lot more, that they paid for electricity before deregulation, that the competition has not resulted in reduced rates, and that Texans are poorer because the industry was deregulated. And I challenge Mr. Perryman to refute this.