Capitalism Fails Texas
You know resources aren’t being allocated efficiently when your power grid fails.
They tell us in school that capitalism has pulled millions, no, billions of people, out of poverty. They say that capitalism is the most efficient economic system for allocating scarce resources. Well, electricity is pretty scarce. In Texas.
For days now, I’ve been reading the headlines and articles about the fairly Red State of Texas. Poor, poor Texas. Home to billionaires, millionaires, and some very poor people. And now, the power grid has failed them in some very cold weather that some very smart people just couldn’t see coming. It’s kind of like the way Larry Summers missed an $8 trillion housing bubble. Even Elon Musk, the sometimes richest man in the world, ready to move Tesla to Texas, lock, stock, and barrel, didn’t see this coming. I submit that he should move to Utah, where the NSA has a giant data center. They will make damn sure we don’t have issues with power.
I’ve had power issues myself. During the last year, I had to suffer through 5 power service interruptions, mostly due to one truck driver who kept running over a transformer. So I bought myself a set of solar panels and batteries in a system designed to switch over to battery and solar power when the grid goes down. I just don’t think I’d last more than a day in the winter though. But in the summer, I think I’d make it for a week. Anyway, I just can’t get Texas out of my mind now. I have relatives who live there.
But there is something else about the situation in Texas. Their power infrastructure failed them under very unusual circumstances — very low temperatures — but that’s not the whole story. Not to me, anyway. I see it as just one more example of how America has become the land of the free for financial engineers. You see, there is a small cabal of capitalists in the world who think it’s better to loan their money for assets that are already there than for something that hasn’t been built yet. I think we call that capital formation.
It’s kind of like this. Banks would rather not loan money for the means of production. So if you want to improve your manufacturing process, or even have one, you’ll have to use any cash you have saved. But if you want to borrow money to buy a warehouse, that’s cool, as long as the warehouse is already there. Banks like that because they know they can foreclose on that warehouse if the borrower defaults. Banks don’t like risk. But they really don’t like the idea that you might use their money to build the means of production. Then you’d make stuff to sell, and that product might really take off, and then you’d pay off that loan early. There goes all that interest and any chance at foreclosing on distressed assets.
No, banks would rather finance asset bubbles while the c-suite at the bank owns a small portion of those inflated assets. That seems to be the point of capitalism these days. Who needs manufacturing service when you can invest in asset bubbles knowing that China, Thailand, and Vietnam will do that work for pennies on the dollar? Who wants Americans to make things that Americans need? Why that’d give them well-paying manufacturing jobs they can use to buy things like houses and the means to start their own businesses making more things to sell.
We kind of got a clue about this disaster in Texas a few decades ago with Enron. Raise your hand if you still remember Enron. The c-suite at Enron was filled with some of the smartest guys in the room. They were all about financial engineering for as far as the eye could see. They weren’t about producing much more than asset bubbles, and when the bubble burst, a few of those really smart people walked away rich while many more people who were involved, lost everything. I’ve met one of them and that person and her family lost everything they had in Enron and had to start over, a lot lighter. Enron had a huge hand in the rolling blackouts of lore in California. Oh, wait. We still have rolling blackouts in California, but not because of Enron. That’s because we’re still having trouble financing the means of electricity production.
So when I see Elon Musk taking the Texas power grid to task for their recent failures, I’m thinking about how he amassed so much wealth. I’m also thinking about all those Wall Street billionaires, too. I would think that American billionaires would rather not be noticed right about now, especially if they live in Texas. Theoretically, those billionaires made something of value, but apparently, that thing is not electricity in Texas.
I also see the same thing with the pandemic. America, the world’s greatest economy, was caught flatfooted with a pandemic. We did not have the infrastructure to prevent hundreds of thousands of deaths due to a tiny thing that we can’t see without very powerful instruments made in a foreign country. We didn’t even have enough masks for everyone. It took a WWII mobilization of the entire country just to make the masks. Then the ventilator games came with Trump moving ventilators around like America was a chessboard. And then with vaccine production. We were not prepared with a vaccine or the means to produce enough of that stuff to do the job. Remember, we’re better at producing asset bubbles than the stuff we really need.
Remember GameStop? Remember how a small cadre of savvy investors got together on Reddit to pump that stock up 1700%, to the delight of GME short sellers everywhere? Yeah. That. Those short sellers were engineering profits, not production. Those investors on r/WallStreetBets were not investing in production, they were investing in an asset bubble. Where did all that money go? To the employee at GameStop? No, but Wall Street is fuming that they lost money on the action, and they can take heart that no GameStop employees made any money on that bubble. None of that money from that bubble went to the purpose of building the means of production.
On the other hand, some very public institutions have been building the means of production. One example that comes to mind is a public utility in a little town called Chattanooga in the fair state of Tennesee. In 2010, they had built a community fiber network that provided gigabit internet access for their subscribers. It kind of happened by accident. The Electric Power Board of Chattanooga installed a fiber network for meter reading and then figured out that they could sell internet access. The EPB built the first “Gig City” where anyone in their service area could have a gigabit connection to the internet for a very reasonable $68 a month. Dang!
Notice that no private company or bank invested in that network. PC Magazine has just rated Chattanooga as the best work-from-home city in the US of A. Imagine that. A public electric cooperative built the means of production that allows tens of thousands of people to work from home. And that’s not the only city. I live in Salt Lake City and here, we have Utopia. Utopia is a public network partnering with a bunch of private ISPs to give me a gigabit internet connection for $80 a month. Again, we see no Wall Street psychopaths involved here. And I don’t have to play that “customer retention” game that Comcast and CenturyLink both like to play every year. My rates have never gone up in nearly 3 years since I started with them. But my data cap did go up, from 2TB to 10TB. I’ll never touch it.
Oh, wait. That public network…that’s, that’s…why that’s SOCIALIST! How awful! I live in one of the reddest of the Red States! I have Mitt Romney, legendary private equity superhero, to represent me in the United States Senate. Yes, he’s the same guy who signed into law as governor of Massachusetts, the state-run health care plan that Obamacare was modeled loosely upon. He’s living here. I guess even psychopaths who use private equity to run a fully functioning company into bankruptcy have a heart.
So when I see Texas, with millions of people out of power, I remind myself that capitalism pays, and it pays well. To some people. In a corner office of a high rise on 5th Avenue in New York. With a wide-open view of Central Park. Now that’s an efficient allocation of capital and resources.