What the Texas Freeze Tells Us About the Deregulation Of Essential Utilities
We’re barely a week into a period of historically low temperatures in Texas, and the cons of abandoning the income tax are already starting to reveal themselves. As a result of not charging any income tax for its citizens, essential utilities like water and electricity are regulated by private companies with one goal: making a profit (Rosenberg 2021). Texas is finally starting to feel the consequences as the demand for these utilities have shot up during the recent drop in temperatures. According to NPR, Comstock Resources has been selling gas at “super-premium prices” and making a huge profit off the increased need for oil and electricity among Texas citizens. So what drove Texas’ action to abolish the income tax, and what are the liabilities of other states embracing a similar, ultra-free market economic system?
To Tax or Not to Tax?
The original idea behind Texas’s free-market strategy was that having no income tax would leave more money in the pockets of its citizens’ pockets. Therefore, people would spend more money, and businesses’ revenues would increase. If businesses make more money, more people get jobs in these businesses, which is one major goal of economic policy. However, research from the US Bureau of Labor Statistics shows that “48 of 50 states grew around the same percentage in full-time employment” (Bureau of Labor Statistics 2020). So it is not like Texas has achieved something revolutionary with this income tax removal. Instead, most other states generate their economic growth by building more infrastructure like parks and natural disaster relief instead of letting their citizens spend much of their money. This creates more jobs in the public sector and improves the condition of its citizens at the same time, another major goal of most economic policy.
Texas Policy
So it is fair to say that both ways of going about taxes are beneficial for states. However, it is important to understand that some ways of generating economic growth are more attractive than others. Understandably, “Texas suffers the second most natural disasters of any state,” (White 2019). Texas is the second-largest state in the United States as well. So spending on public infrastructure and natural disaster relief would cost Texas citizens thousands in tax dollars, or $400 million a year on average according to the American Action Forum. Instead, Texas has resorted to a free market system where they make up the money they lose from not taxing their citizens through high consumer spending. Given that Texas cannot fund its own electricity grid, which would roughly cost $200 million according to the Electrical Reliability Council of Texas, they completely deregulated its electricity system in 2002 under Governor Rick Perry. In other words, people get all their electricity from private providers rather than a public, government-owned one. The purpose of this was to create competition between private electricity providers and make electricity prices as cheap as possible. To be fair, it worked for the most part. At one point, “One provider [in Texas], called Griddy, had a special model: for $9.99 a month you could get your power at whatever the wholesale price was on any given day.” (Galbraith 2021). The same happened for other utilities like water and gas.
Why it Failed
But now, we have seen what happened when the unimaginable happened. Most of the natural gas being used for electricity in Texas froze up somewhere along the electricity grid. The supply for the utility went down. The demand immediately shot up. Electricity prices skyrocketed from $10 to $9000/megawatt-hour and some Texans even received electricity bills that were up to $17,000 after the storm (Malik, Sullivan, Eckhouse, Firozi, Kornfield 2021). The same happened for water and gas, which increased 530% and 1290%, respectively, according to Bloomberg Media, because of how much of Texas’ reserves are cut off from the federal government’s reserves that most other states use. Since Texas cannot spontaneously charge higher taxes on its citizens, it has been forced to take a share out of other states’ taxes as a form of natural disaster relief.
In Conclusion
We have seen what happens when the availability of essential utilities is at the mercy of supply and demand. While some may point out that facing extreme temperatures is not something that happens on a regular basis, we should think again. Since 2002, the number of natural disasters has increased four-fold and the difference between high and low temperatures has been steadily increasing three percent each year. Furthermore, the Texas freeze saw temperatures of 2 degrees Fahrenheit, the lowest since 1899. Scientists may be in disagreement, but this may be a sign of things to come given the rapid climate change the planet is experiencing.
While the United States has thrived from a free market economy for very long, basic utilities like water, power, and gas need to remain under government regulation, given that natural disasters are happening at a rapidly increasing rate and there needs to be a safety net for utility prices when they are affected by said natural disasters. Regardless of whether Texas gets this money from taxing its citizens more or from natural disaster relief funds like FEMA, they must start saving money for events like these. There should always be public electricity, gas, and water providers at the ready whenever the demand for these utilities gets out of control.
Works Cited:
https://www.si.com/nfl/2021/02/19/jerry-jones-gas-company-jacks-prices-during-texas-power-crisis
https://www.moving.com/tips/which-states-are-most-prone-to-natural-disasters/
https://www.bls.gov/news.release/laus.nr0.htm
https://www.ncdc.noaa.gov/extremes/scec/records
https://www.startribune.com/texas-needs-to-learn-to-help-itself/600024698/
http://www.ercot.com/content/wcm/lists/114741/Budget_2018-19_One_Pager_FINAL2.pdf
https://www.washingtonpost.com/nation/2021/02/21/texas-high-electric-bills/
https://www.tml.org/229/Water-Wastewater-Survey-Results
https://finance.yahoo.com/news/deep-freeze-sends-gas-soaring-054613946.html
