On Wednesday afternoon around 3:45 the power went out in areas of Manhattan and the Bronx in New York City. Although the outage lasted less than one hour, it was sufficient to cause traffic congestion and inconvenience to almost 400,000 customers on a hot, humid summer afternoon.
Or so the official story goes. There was a one hour problem. The problem was gone in an hour. There was some inconvenience. And, as Dorothy Parker famously concluded “…And I am Marie of Roumania
In the 70’s, the American economy suffered through structural problems caused by more than a decade of high inflation. The effects of this inflation were a number on the nightly news. If it were a slow news week, a grocery manager and a housewife would be interviewed, with some statement that consumers were switching from steaks to ground beef. Well, I grew up as one of 11 children – we always ate a lot of ground beef.
The official line was there is a small problem. We can simply quantify it. There are some small concessions that must be made at the grocery store. All fine until the house of cards fell, and all the economic decisions based upon continued inflation compounded, and all the financial games to beat the system by sneaking around the facts came together in a no-job economy with 20% mortgages…
An essay read as I completed High School, one that I cannot find now, struck me. It was so clear, and predicted so much, that I will try to recreate its theme:
“Living with inflation is living in a country where everyone lies about all the most important facts. Every time money is borrowed, both parties are lying about what it will cost to pay it back. Every time someone sells an asset, every home, every factory, every business, they lie to themselves about whether they made money Every investment is made not to increase productivity, not to find value, but to game the lies that everyone tells”
Welcome to WIN buttons and cardigans, and to gas lines and the misery index.
Today we lie about power. We lie about its quality and availability. We lie about the cost of outages. Reliability cannot be purchased on normal markets at any price, because it’s not for sale. We lie about the long term costs of power incidents, and the long term destruction of assets and their resulting accelerated depreciation.
Friday I was checking up on the dorm opening date to drop my daughter off at NYU. The University had an alert on the front page:
Thursday, June 28, 2007, 5:30 pm
Power has been restored to the Fairchild Building. Based on our conversations with Con Edison, we expect normal power operations at the building tomorrow. All employees should report as usual, and operations and activities should go forward as scheduled.
Hmmm – so a one hour outage took the building off line for the entire next day. Another lie about the costs of the outage.
Such outages also cause long-term damage to capital assets. Across Manhattan, Compressors on air conditioners and refrigerators will fail early because of the outage, causing unmeasured expense and loss of service to office, restaurants, real estate owners, and residents. Water systems in high rises already suffered one pumping failure, and will again when the motor fails early, causing turbidity, and cases of minor illness. These illnesses, like the failures, will occur months from now and never be associated with this outage.
We have the most fabulous information system ever devised; the flows of money in an open economy. When piles of cash start getting clogged up in portions of the economy, innovators compete to get it flowing freely again. When we tolerate a closed economy, we create poor information and poor allocation of resources. We externalize costs in ways that we do not recognize. We make bad decisions.
We have a closed regulated energy market wherein the true costs of poor quality power, and even how poor that quality is, is hidden behind opaque markets run by utilities commissions. We do not know the true costs of the energy supply, in particular, how it varies with scarcity across the day. And because the energy market sits just outside our vision, invisible and uncontrollable, we let ourselves believe that it is of good quality.
If we knew the costs of power throughout the day, we would demand knowledge of its quality as well. If the quality were to become visible, we would begin to recognize the correlations, not only of big events but also of small events to PC failures, and to window AC unit failures a month after a poor quality power incident.
If we knew the costs, we would wonder why it isn’t cheaper to fix it. If we knew the true size of the costs, the fixes would not seem so expensive. If we were willing to buy, the innovations that will make real differences in power consumption, in power reliability, in cost of living, and even in carbon use would come to market.
But we have chosen closed markets in power. We have chosen markets wherein the important information is hidden from the consumer. We have chosen markets without instant access to true pricing and true quality. We have chosen markets based on half truths. And half truths are lies.
And because we lie, we make poor investment decisions, and it appears to cost too much to fix.
