Texas power crisis revealed flaw in market’s design
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Texas power crisis revealed flaw in market’s design
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Re: Texas power crisis revealed flaw in market’s design
#2I suppose we've come full circle and stopped trusting in free markets to fully solve all problems.
Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?
Re: Texas power crisis revealed flaw in market’s design
#3I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?
Wasn't this the promise of 'prediction markets'?
(you can read promise as 'value prop' too, I don't know much about these, just that they exist and are a recent creation)
Re: Texas power crisis revealed flaw in market’s design
#4This is classic “efficiency” vs “antifragility.” There are some things that are okay to ocassionally fail, and for those it’s often good to pursue efficiency. But for something critical like electricity, the market all decided - with good financial justification - that it would be more profitable to just let the system fail occasionally than to be hardened against long-tail events.
In systems engineering if we want this to not happen we usually intentionally add volatility, things like putting chaos monkey into your infra so that long-tail failures become common and thus the necessary hardening can’t be missed.
I’m not quite sure what this would look like for an electricity market. Maybe something like huge fines for having your capacity go off-line, which require insurance, and the insurers thus require winterization or they charge way higher rates which make your plant uneconomical. Or a regulation that says all plants must be winterized to a certain degree thus the cost of electricity will just be higher for everyone to pay for mitigation of long tail risk. The fines approach is more indirect but - assuming it works - it leaves room for edge cases and innovation that the “orderly but dumb” regulation does not.
Re: Texas power crisis revealed flaw in market’s design
#5I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?
If something is required to survive, it is by definition not a free market. Texas either needs to go all the way and let people freeze to death without getting bailed out or they need to re-regulate. This middle ground where the market is free until there's a market failure is simply moral hazard.
Re: Texas power crisis revealed flaw in market’s design
#6Asking for resilience without at least simulating failures periodically is a fool’s errand.
Imagine if you asked for bids for a backup solution but only ever tested your backup when you really needed it. Likely after a few years of never actually needing to access the backups, the backup companies would start taking shortcuts either to undercut competitor’s pricing or to increase profits.
Likely, something similar happened here as well.
Re: Texas power crisis revealed flaw in market’s design
#7I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?
If something is required to survive, it is by definition not a free market. Texas either needs to go all the way and let people freeze to death without getting bailed out or they need to re-regulate. This middle ground where the market is free until there's a market failure is simply moral hazard.
How are you so sure that regulators would have required protection against a once in a hundred year storm? What doesnt the Democratic republic of the Congo regulate the poverty out of existence? Hindsight is 20/20
Re: Texas power crisis revealed flaw in market’s design
#8I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?
Wasn't this the promise of 'prediction markets'? https://www.predictit.org (you can read promise as 'value prop' too, I don't know much about these, just that they exist and are a recent creation)
There are better prediction markets out there now with more markets on more things.
See, for example:
https://kalshi.com/ (if you're in the US)
https://polymarket.com/ (if you're elsewhere)
Also, if you just want to get your feet wet, this one utilizes a system of reputation rather than money:
Re: Texas power crisis revealed flaw in market’s design
#9A variety of corporations that donate heavily to the party that has been running Texas state government for 20+ year made a tremendous amount of profit when the PUC/ERCOT drove power costs to the max which has resulted in those corp donating heavily to the politicians who allowed it to happen so corruption can't be ruled out.
Re: Texas power crisis revealed flaw in market’s design
#10I suppose we've come full circle and stopped trusting in free markets to fully solve all problems. Does anyone know of hybrid central planning / market approaches? Maybe a central planner with a market trying to predict whether the planner is making good decisions?
It has been suggested that a capacity market would have solved the Texas problem.