I had never seen this film until recently when we had to watch it for school. First off I noticed the very blatant anti-free market tone to the film. One area in particular I wanted to ask about was Enron’s play in the California electricity market. The film claims that California deregulated the electricity industry and that Enron was allowed to operate in a “free market”. Of course Enron was found to be exporting power out of the state and going as far as to shut down power stations to drive up energy prices. The video makes it very clear that this is what happens in a free market. One guy in the movie said “free markets become very expensive”.
But if I understand “deregulation” as it is often described is not really “deregulation” at all and certainly not deregulation in the sense of a free market. Was not Enron just granted a state protected monopoly over electricity and “deregulated” to the extent that they had more discretion in setting prices? Because in a free market if Enron was cutting power to boost prices you would be asking for another competitor to come in and serve customers better just like in any other business where you abuse your customers
If I remember right, Enron was eventually caught by a short-seller, which killed it.
Meanwhile, the government “regulators” were busy praising Enron, the ratings agencies were giving it triple A ratings, and the media that always opposes free markets was talking about what a safe investment Enron was and how it was on a good course.
Don’t quote me on that, though. I am definitely not an expert on Enron.
Yeah I believe you are right. I should have written my post as more of a question regarding the “deregulation” of utilities in California because I wanted to bring this up in class tomorrow. So I am asking if I am correct in asserting that “deregulation” of electricity and other utilities is not really deregulation in the sense that free competition will be allowed. Deregulation today means that utility companies are simply given more discretion with setting prices while still being granted a state protected monopoly. So “deregulation” as it is known today is not really deregulation at all. Would you agree?
Hmm… so you can say that a deregulated state monopoly is worse than a regulated state monopoly.
Also, you might want to point out that this COULDN’T have happened in a free market. Enron chose to do this with state cartels for a reason. If they had tried to pay intel and AMD to surpress processors, powerPC would step in. Intel and AMD would also probably cheat on the cartel. And even if it were possible to cartelize an industry, speculators would realize this in advance, and the future’s price of the product would increase (since they’re hypothesizing future monopoly prices), encourages more firms to enter the market preemptively.
California did not completely deregulate the electricity industry. It deregulated wholesale electricity generation only. Retail electricity prices were still regulated.
Companies like Enron were thus caught between a rock and a hard place. Of course, that doesn’t justify the accounting shenanigans it pulled.
Yes Sieben that’s the point I wanted to make. Enron was according to the film creating artificial shortages of electricity so that it could profit. In a free market this abuse of the customer would be seen as a profit opportunity by a competitor to come in and treat the customer right. I don’t think a “regulated monopoly” is better than a “deregulated” one because nothing is really being deregulated because when I think deregulate I think of it in the sense of a free and open market. This is never the case with utility companies today.
The need for regulations arises from the perverse incentives created by State grants of monopoly privilege, to begin with. All the bitching about “deregulation” is smoke and mirrors to keep you paying no attention to the man behind the curtain.