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Topic: Is Economics a Science?

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  1. #1

    Is Economics a Science?

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    What Is A Science?
    Should we accept claims of economists who say they are scientists? To decide, we must first know what science is.

    Philosopher Karl Popper\'s widely accepted definition of science says that a statement is scientific only if it is open to the logical possibility of being found false. This definition means that we evaluate scientific statements by testing them, by comparing them to the world about us. A statement is nonscientific if it takes no risk of being found false; that is, if there can be no way to test the statement against observable facts or events. Popper called this distinction the \"line of demarcation.\"

    An implication of Popper\'s definition is that one can never be completely sure that any scientific theory is true. Accepted scientific theory is only theory that has not yet been contradicted by evidence, though the future may bring a contradiction. For example, we cannot be absolutely sure that the statement, \"The sun will rise in the east tomorrow\" is true because it is a scientific statement. We can easily think of a logical possibility that would refute it--a sunrise in the west. We have great confidence that such an event will not happen because the sun has always risen in the east. However, the fact that all previous experience has been consistent with the statement does not prove that the statement will never be refuted.

    Popper saw the growth of scientific knowledge as a process of conjecture and refutation. Someone originally comes up with a way of explaining a set of facts; a conjecture or guess or theory about how the facts are related. If further observation is inconsistent with the theory, the theory is considered refuted and a new theory or conjecture must be found. In contrast, if the original explanation is nonscientific, it will never be refuted and there will never be any need to change beliefs.

    Most economists see their discipline as scientific in Popper\'s sense of the word. Economic theory makes statements about how facts fit together, and there are constantly new sets of facts arising that allow one to test the theory to see whether the facts are as theory predicts. However, this process is more difficult for economists than it is for physical scientists.

    Unlike physical scientists, economists can almost never use controlled experiments to gather facts with which to test theories. Rather they must use whatever facts the world gives them and rely on statistical procedures to draw conclusions. Though statistical procedures let economists hold some variables constant to see the effect of other variables, just as a controlled experiment does, they are subject to serious limitations. If there are variables that the theory says are important, but they cannot be measured or they can be measured only imperfectly, statistical procedures may give misleading results. Or the procedures may fail if the theory is uncertain exactly which of the many possible variables that may be involved must be controlled. One strength of a properly done controlled experiment is that there is no need to list all the factors that are controlled. The procedure is such that only one factor, or a small and known group of factors, is different between the control and experimental groups. Given these difficulties, it is not surprising that controversy about whether a theory is supported or rejected by the facts can last for many years in economics.1

    There is a minority of economists, however, who do not see economics as scientific in Popper\'s sense. A group of economists called the Austrian school, for example, has argued that economics starts with assumptions and that economic theory is the logically deduced results of those assumptions. If the theory does not fit the facts, one cannot conclude that the theory is wrong, but only that it is inappropriate to apply the theory in that particular situation because the initial conditions do not agree with the assumptions of the theory.

    Besides distinguishing between scientific and nonscientific statements, one can make a positive/normative distinction.


    hi Brady

    i asked you in one of the posts if economics was a science, but i couldnt remember which post, so i posted it here, this article suggests that there are problems in considering Economics a science, does not this open up grave errors if we are to deduce a Social phenomen from economic theories

  2. #2

    Re: Is Economics a Science?

    Mechanics was a science before Galileo, but a very limited one. Galileo was better than his contemporaries at setting up experiments and seeing patterns. Newton was so good at those things that mechanics has been on solid ground ever since. Relativity and quantum mechanics were eventually needed, but with a few exceptions they deal with phenomena unknown to Newton.

    Economics has never had a Newton. I suspect this is due to the complexity of economic systems, but it may also be that Newtons are in short supply. The most closely related \"hard\" science that comes to mind is meteorology. The equations governing fluid flow and heat transfer are well known, but often impossible to solve. Instead, empirical relations, based on accumulated measurements, are substituted. As time passes, weather forecasting gets better, but still nowhere near as accurate as the predictions of mechanics, such as where Mercury is going to be 100 years from tomorrow at 12:39 GMT.

    An economist has a more difficult job than the weather forecaster. The weather doesn\'t mind being measured or try to hide the truth. Weather patterns change slowly, whereas an economy can change overnight.

    Another large problem is cultural. In mechanics or meteorology, the theory that has the best fit to observed reality wins. This is to be expected, since there is hardly any market for incorrect predictions. The same is not always true in economics. Arthur Laffer sketched a curve of tax rates versus revenues on a cocktail napkin that was based more on what he wished were true than any data. Others with similar wishes seized upon it as a rational justification, and our tax policy still reflects those wishes. Serious economists didn\'t buy it, but serious economists don\'t get invited to the same parties as fun ones. Bias is rarely so obvious, but is almost always present.

    I\'m saying that there\'s a continuum between Science and Not Science. From what little reading I\'ve done in the field, I\'d say that some economists are no better than oracles, while the best have real insights into pieces of the puzzle.

  3. #3

    Re: Is Economics a Science?

    [ QUOTE ]
    Economics has never had a Newton. I suspect this is due to the complexity of economic systems, but it may also be that Newtons are in short supply

    [/ QUOTE ]

    or maybe because Economics is more intricately dependant on the other Social Sciences, Psychology , Sociology etc where as the hard sciences are also dependant on some aspects of the Social Sciences because being human we must deal with percetpions, but not to the same degree, for example phsyical phenomena is more conducive to human experimentation than abstract notions of a psychological nature.

  4. #4

    Re: Is Economics a Science?

    Aristotle considered the sciences to consist of three sorts: the theoretical, the practical, and the productive.

    Theoretical sciences (on his view) include biology, astronomy, physics, and metaphysics. The theoretical sciences are concerned with knowledge. Aristotle thought the principles of the theoretical sciences existed in the things themselves and were unchanging.

    The practical sciences consisted of politics, ethics, and economics. The practical sciences are concerned with doing.The principle of the practical sciences exists in the doers (or choosers).

    The productive sciences were the arts in general--anything having to do with making as a deliberative goal directed process. This would include baking, making poems, dances, and making music. The principle of the productive sciences exist in the makers.

    \"Some actions are themselves the end and some actions have ends beyond themselves\"

    This is not an exact quote, but you can find this claim in Aristotle\'s Nicomachean Ethics.

    Aristotle says that the productive sciences, art for example, is an activity for some further end: (to make a product). The artist does not engage in his activity for its own sake; he engages in that activity to bring about some further end. Poetry, medicine, carpentry, fine arts, crafts. But the practical science of ethics, for example, engages in an activity for its own sake. Ethics aims at living a certain sort of life, a life of good choosing, and that activity of a life of good choosing is itself the end. You do not live a life of good choosing for any other purpose than to live a life of good choosing. It is an end in itself. Call this happiness.


    By the way, is Popper identifying science with what can be empirically verified?

    Marko

  5. #5

    Re: Is Economics a Science?

    The study of economics is very broad and has many depths. There are very “surface” and elementary subjects about which the science of economics can be extremely certain, such as the laws of supply and demand. There are also many deeper depths that become more complex the further down you go. For instance, trying to predict the effects of changing a particular variable in the economy will likely be almost impossible to predict.

    When reading an analysis of economics as a science, one must bear in mind that they are usually speaking of the full breadth of the field of economics. People like Alan Greenspan, for instance, try to predict the macro effect that will be had from a micro factor. Like predicting if the weather conditions affecting orange growth in Florida will send ripples throughout the whole economy and what those effects will be.

    Certainly such predictions are extremely difficult if not virtually impossible to make. But more basic economic laws are essentially ironclad. For instance, if minimum wages are increased during a period of low employment, employment will further decrease due to the increased cost of employment. Or if supply is lower than demand, prices will rise, and if prices are artificially fixed low, shortages will result.

    These are basic laws of economy that are as certain as the Sun rising in the East. That is why when legislators impose price fixes on something in short supply (such as, ahem, electricity), massive shortages result because consumption isn’t being naturally controlled by the market-determined price. To think this will not happen is to assert that the Sun will rise in the West.

    These basic rules are simply the results of the process of logic and do not require complex models or statistical samples. And they are scientific just as surely as Newton’s Laws of motion.

  6. #6

    Re: Is Economics a Science?

    Ahh, the art of oversimplification.

    Take a look at minimum wages. Yes, in a theoretically pure world raising the minimum wage in a low-employment scenario will increase unemployment. But individual decisions are not so simple, and such a situation only looks at the first level of the loop.

    Consider an individual business that is growing and profitable. They will continue to hire - even at the higher wage - in order to fill orders. A business that is labor intensive, but viable, may purchase an automation system. And, yes, a business that is already on the ropes may be pushed over the edge - but likely not without a fight.

    Also, remember, the scenario does not raise all wages, just the wages of the least expensive workers.

    Another thing happens. There is now more money to be spent by the poor. That may mean more demand for food and clothing. Profits may be temporarily lower, so there may be less demand for yachts. Now there are more job opportunities in the food and cloting sectors, and fewer in the shipyards.

    And what of the marginal businesses that folded? More demand for the businesses that make it.

    And what of taxes? If the working poor are better able to succeed, there will be less demand for state supplied services. Now there is less pressure to raise taxes - or a possiblity to lower them, which may restore some lost profits. Time to buy a yacht!

    Now look at the other possibility - do away with minimum wages. The poor make less money and spend less in the economy. Profits go up. Yacht sales increase. Employment at the shipyards improves, but employment in the food and clothing sectors falls. The skilled shipbuilder\'s salaries goes up due to increased demand. The pay at the bottom stays low. Property crime increases. The demand for state services increases. Taxes increase. The yacht market flattens out.

    The difference between the two scenarios is that in the first case everybody participates in the economy, hence it grows. In the second case the lower segment of the economy does not fully participate. The economy will not be as large, and those not included will drag it down further.

    This is not to say that the ideal minimum wage is infinite. Nor is it zero.

    I am also guilty of over-simplifying the economic relationships, but not to the degree that Brady did above. His \"law\" only applies to economies in the vacuum of space.

    Now let\'s look at electricity. The fake California energy crisis occurred in the winter, which is the low-demand time of year. Oil and gas prices were low. There was no market reason for the prices to spike. It was pure manipulation. Had there been caps and limits, the damage would have been limited. The only limit that Enron put on itself is that it decided not to charge over $9,999.99 per mega unit of electricity, because it was afraid that the state\'s computers might not handle the extra digit. (The computers would have allowed it. There were no limits.)

    Before \"deregulation\" I can\'t recall ever having a non-weather-related blackout in California. Service was excellent. Pricing was excellent. Because the prices and costs were regularly reviewed, the investors were guaranteed a reasonable return on their money. They could build powerplants with five or ten year investment periods with low risk. Nothing was broken.

    After \"deregulation\" money was simply vacuumed out of the state - and not because of better service, a better product or a natural disaster.

    Those who believe that the market heals all will say, \"but it wasn\'t *full* deregulation\". But that\'s how the lobbyists sold it. The energy lobby said that this would make things better. They wrote the rules and conviced the legislature to \"de-regulate\". If the lobbyists didn\'t believe that it would help, and didn\'t believe that it was de-regulation, then why did they sell it that way?

    Now consider full de-regulation in electricity. We get a simple supply/demand equation. Now tell me, what is the dampling factor? What is the max variance? Will the loop be stable or unstable? Can\'t answer these questions? Of course not. The supply/demand rule does not fully determine the feedback loop. If traded on the spot market, prices could go from boom to bust in a day. And why not? Supply/demand does not specify anything related to time or slope.

    Look at the stock market. There are safeties in place in case it goes unstable. There are many rules to ensure that the system doesn\'t implode. The electricity market in California failed due to the lack of such safeties and rules.

    Let\'s not forget that California used to have a well-regulated supply/demand system. The feedback loop was not a spot market, but used an integration factor of one year. New powerplants could be planned. Prices were stable for consumers and businesses. Profits were made year after year. Everybody won.

    Brady, I do not see you as a simple-minded person. But I feel that your arguments are constructed to appeal to the simple-minded reader. Just because economics is a science does not mean that your theories will benefit us all. Then again, maybe they aren\'t intended to.

  7. #7

    Re: Is Economics a Science?

    JonFairhurst:
    [ QUOTE ]
    Ahh, the art of oversimplification.

    [/ QUOTE ]

    Was this a description of the methodology you were to follow when writing your post? It would appear so.

    [ QUOTE ]
    Consider an individual business that is growing and profitable.

    [/ QUOTE ]

    The general rule I cited applies to an economy – that is, an entire collection of industries – it is not meant to be applied only to a single business. Yes, even in the worst economic climate, there will still be successful businesses here and there that will be able to move the opposite direction as the general pervading trend.

    [ QUOTE ]
    Also, remember, the scenario does not raise all wages, just the wages of the least expensive workers.

    Another thing happens. There is now more money to be spent by the poor. That may mean more demand for food and clothing.

    [/ QUOTE ]

    Right here you’ve contradicted yourself. If you’re only looking at a handful of businesses which are able to expand their employee base despite higher employment costs, then we’re not talking about a sufficiently wide-spread phenomenon to positively effect the food and clothing industries. You cannot use only examples of exceptions to the rule and at the same time attempt to make generalizations about the over all trend based on these exceptions. The over all trend will be a result of the rule, not the few exceptions.

    If most businesses have to lay off employees due to higher costs, it won’t matter much that those who remain are being paid more since now you have an increased population of people who are no longer financially self-sufficient.

    [ QUOTE ]
    And what of taxes? If the working poor are better able to succeed, there will be less demand for state supplied services.

    [/ QUOTE ]

    You’re forgetting the people who got laid off. Since we’ve effectively enlarged the pool of financially dependent, we’re going to have to have higher taxes to pay for the increased demand for state-supplied services. Those who’ve remained employed aren’t the only ones to consider.

    If minimum wage increases are the answer to the problem, why not just make the minimum wage $50 an hour? Once you realize why this won’t work, you’ll see why $7 won’t work either – it’s the same dynamic force at work in both cases. Here’s an excellent article detailing these facts complete with stats to back it up:
    http://www.house.gov/jec/cost-gov/regs/minimum/against/against.htm

    As for your electricity “deregulation”, it wasn’t that is wasn’t “full deregulation”, it’s that it wasn’t really deregulation at all. It was actually further regulation. For instance:
    [ QUOTE ]

    Excerpt:
    … In 1996 California legislators unanimously passed a 67-page electricity restructuring law. They called it \"deregulation\" by which, in typical political duplicity, they meant re-regulation. It contained something for all the different players. The number of regulators was increased with the addition of two new quasi-governmental organizations — the Power Exchange (PX), which controls all transactions between utilities and electricity generators, and the Independent System Operator (Cal-ISO), which operates the electricity grid, purchases the needed power, and charges the utilities. Consumer groups got an immediate 10 percent rate cut and price caps at roughly the 1995 level. Powerful environmental groups were reassured of stringent environmental rules and zoning restrictions. The utilities, finally, were given strong financial incentives to sell their fossil fuel-fired power plants. They subsequently reduced their self-generated power from 72 percent to just 20 percent, purchasing the balance on the market.

    Fearing corporate collusion, the law prohibited long-term power contracts and made the spot market — the most volatile of all — the only market. While consumer rates were set by the government, wholesale prices were to be negotiated from minute to minute at the PX. With retail prices fixed at roughly 12.5 cents per kilowatt-hour and wholesale prices soon soaring to 40 cents or higher, the utilities’ losses mounted, approaching $15 billion, forcing Pacific Gas & Electric (PG&E) to file for Chapter 11 protection on April 6th. …
    Source:
    http://www.thenewamerican.com/tna/2001/07-30-2001/vo17no16_energy.htm

    [/ QUOTE ]

    This was an impossibly contrived mutant mix of markets and Statism. It is no wonder disaster resulted.

    [ QUOTE ]
    Brady, I do not see you as a simple-minded person. But I feel that your arguments are constructed to appeal to the simple-minded reader.

    [/ QUOTE ]

    First I’m criticized because my posts are too thorough, now I’m being criticized because they’re not thorough enough. Of course I can’t detail every possible interaction that takes place, but my generalized conclusions were accurate nevertheless. Any educated economist will tell you the same.

  8. #8

    Re: Is Economics a Science?

    Brady wrote:
    [ QUOTE ]
    If most businesses have to lay off employees due to higher costs, it won’t matter much that those who remain are being paid more since now you have an increased population of people who are no longer financially self-sufficient.

    [/ QUOTE ]

    Ahh. Here is the assumption. But the reality is that employers don\'t hire people for fun, regardless of whether they pay them one or ten dollars an hour. They hire enough people to serve their customer\'s needs.

    But the reality is that people need enough money to pay rent, to eat, to get transportation to the job and to clothe themselves. The feedback loop currently is political. It\'s democracy in action. Having no limits and letting the lowest wages free-fall in a low-employment area will not create jobs. It will only further depress the area.

    From the electricy article you posted, I see that you feel that the problem is that personal rates were still regulated, bankrupting PGE. This further exposes the lie. The only result would have been that home and business rates would have increased. And for what? To pay off Enron\'s market fixers? What could the consumers have done? Turned off their homes and businesses (remember this was not a demand problem - it was winter.)

    The problem was that the electric suppliers could reduce supply artificially and were able to gouge the customer. Passing the buck one level deeper would not have changed the behavior of the suppliers, not would it have added stability to the system.

    Building powerplants on ten-year timetables, and charging for electricity on the spot market will never work. We either need to have a way to instantly build powerplants, or we need to slow down the price variations. Once two loops have an integration factor with more than an order of magnitude of difference, they uncouple, as happened in California. Re-pricing on one year intervals was already at the limit, given ten-year powerplant projects.

    [ QUOTE ]
    First I’m criticized because my posts are too thorough, now I’m being criticized because they’re not thorough enough. Of course I can’t detail every possible interaction that takes place, but my generalized conclusions were accurate nevertheless. Any educated economist will tell you the same.

    [/ QUOTE ]

    I never criticized you for thogoughness. I criticize the simple-mindedness of the following two statements:

    > \"if minimum wages are increased during a period of low employment, employment will further decrease due to the increased cost of employment. \"

    This is only true if the employers can still meet thier demand at the lower employment level, and if their profits cannot cover the additional employment cost.

    Let me ask this: when the price of steel rises does GM buy less steel? No. It buys enough steel to build the cars that they forcast that they will sell. And it may raise car prices - but only if the competitive market allows it.

    The second statement was...
    > \"That is why when legislators impose price fixes on something in short supply (such as, ahem, electricity), massive shortages result because consumption isn’t being naturally controlled by the market-determined price.

    As I\'ve argued, California\'s electricity was not in short supply. It was manipulated. The price on the spot market was not regulated, and it went unstable. The lack of price limits did not cause the price gouging. The predatory practices would not have stopped with less regulation.

    Your theories are too simple for the problems that you attempt to assign them to. It doesn\'t matter how many times you invoke the name of science. It does not mean that simple theories will work in complex human systems.

  9. #9

    Re: Is Economics a Science?

    JonFairhurst:
    [ QUOTE ]
    Ahh. Here is the assumption. But the reality is that employers don\'t hire people for fun, regardless of whether they pay them one or ten dollars an hour. They hire enough people to serve their customer\'s needs.

    [/ QUOTE ]

    Now this is a huge oversimplification. In fact, it’s just flat out false. Businesses very often scale back their services, etc, due to increased costs of doing business. It happens every day (and more and more lately). Why do you believe layoffs happen? Businesses do not have infinite resources; they have finite resources and need to turn a profit. If costs increase, something eventually has to give.

    [ QUOTE ]
    But the reality is that people need enough money to pay rent, to eat, to get transportation to the job and to clothe themselves.

    [/ QUOTE ]

    You’re obviously operating on some wrong assumptions. Your statements imply that you believe the vast majority of people making minimum wage to be the sorts who depend entirely upon that source of income to house, feed, etc themselves. Also, you seem to be assuming that this minimum wage will need to be sufficient for the worker in the long-term. But the vast majority of minimum wage earners are young people and teenagers (who often live with their parents or share housing costs with others) in entry-level positions from which they will soon move upward. Therefore increasing the minimum wage only raises further barriers to entry into the workplace and keeps them from entering into the job market and acquiring experience and job skills they’ll need to have upward mobility.

    [ QUOTE ]
    The problem was that the electric suppliers could reduce supply artificially and were able to gouge the customer. Passing the buck one level deeper would not have changed the behavior of the suppliers, not would it have added stability to the system.

    [/ QUOTE ]

    I’ll respond with another informative excerpt:
    [ QUOTE ]
    The principal reason why wholesale electricity prices have skyrocketed is because governmental policies have effectively restricted the supply of electricity. There have been no major new power plants built in California for more than a decade. In the meantime, the state’s consumption of electricity has surged. As Michael Zenker and Daniel Yergin of Cambridge Energy Research Associates note in their op-ed piece in the January 23rd Los Angeles Times, \"California began the 1990s with a surplus of generating capacity. But supplies have not kept up with demand. California’s economy grew by a phenomenal 32% in the past five years, fueling a 24% increase in the consumption of electricity in that same period.... Growth in consumption has nearly exhausted supplies, pushing the oldest, least efficient, most expensive plants into nearly continuous operation.\" The state has also had to import a growing percentage of the electricity it consumes — 25 percent according to the January 29th issue of Time magazine. A small amount, in fact, is now being imported from Mexico.

    There are several key factors as to why California’s ability to produce its own electricity has not kept pace with its growing economy. One is that, as Zenker and Yergin point out, \"prices remained below what it cost new plants to produce electricity.\" Why construct new power plants if the plants are not allowed to make a profit?
    Source: http://www.thenewamerican.com/tna/2001/02-26-2001/vo17no05_power.htm

    [/ QUOTE ]

    Here’s another very good article on the subject that is very fair-handed:
    http://www.cato.org/dailys/taylor-022101.html

    [ QUOTE ]
    Building powerplants on ten-year timetables, and charging for electricity on the spot market will never work.

    [/ QUOTE ]

    One of the problems as I see it is that the regulation passed did not create a truly free market but merely restricted trade to the spot market. So complaining about the spot market is not arguing against a free market as you suppose. That scenario was a contrivance of the legislator – not the free market, so blame them.

    [ QUOTE ]
    This is only true if the employers can still meet thier demand at the lower employment level, and if their profits cannot cover the additional employment cost.

    [/ QUOTE ]

    This is not entirely accurate. It’s not sufficient simply for their profits to “cover” the additional costs, they have to cover the additional costs and still maintain a decent profit. And a business’s goal is not to simply meet demand – whatever the cost. It is to be profitable. If a business is not profitable, it will close or undergo upheavals (ex: layoffs). Your mistake is in assuming that meeting demand is an end in itself when in reality it is a means to an end.

    [ QUOTE ]
    Let me ask this: when the price of steel rises does GM buy less steel? No. It buys enough steel to build the cars that they forcast that they will sell. And it may raise car prices - but only if the competitive market allows it.

    [/ QUOTE ]

    It’s interesting that you should use GM as an example since they’ve had massive layoffs in the past for much the same reasons. Again, you’re the one oversimplifying. GM won’t only consider raising car prices, but they’ll also consider “optimizing” their operations or “downsizing” as they’ve done in the past to reduce costs.

    [ QUOTE ]
    As I\'ve argued, California\'s electricity was not in short supply. It was manipulated.

    [/ QUOTE ]

    Untrue. It was indeed in short supply, and the generation costs increased significantly due to rising natural gas prices (which has been widely anticipated by many including, of all people, environmentalists) which in itself is yet another demonstration of the supply and demand principle. And since retail prices were fixed, the utilities couldn’t continue to purchase power at wholesale prices from generators. Here’s the Encarta Encyclopedia’s partial summary of the situation:
    [ QUOTE ]
    Under that deregulation plan, California’s utility companies had to sell their power-generating plants to private companies and then buy power on the wholesale market. In the summer of 2000, the price for power on the wholesale market rose dramatically as hot weather increased demand. However, the conditions of deregulation prohibited the utilities from passing higher prices on to consumers until the year 2002. As a result, the utilities began to run out of money to buy power. Banks became increasingly reluctant to lend them money. Power-generating plants resisted selling the utilities power because they could not pay for it.

    [/ QUOTE ]

    But what I find most interesting is that you ridicule my statement of the economic law of supply and demand and yet you entirely fail to address the statement itself. Instead of countering my statement with regard to price controls on commodities in short supply, you simply assert that in the case of California’s energy crisis there was no shortage. So does that mean my statement still stands since you did not actually contest my statement with regard to shortages? If so, then you need to retract your statement that my “theories” are too simplistic.

  10. #10

    Re: Is Economics a Science?

    Actually, simple theories do pretty well in explaining the electric joyride. The legislature set up new rules of the game. Those rules had loopholes giving a few entities, including Enron, an incentive to restrict supply. Being Enron, they took full advantage of their position. When it was clear that the state was losing the game, it took forever to change the rules. Ignorant buyers have paid a premium price as long as there has been trade.

    Markets function best when there are enough buyers and sellers to have competition at each end. Prices tend to be stable if supply and/or demand are elastic, where a price increase causes a drop in demand and/or increase in production. Residential electric markets never look like that. In the first phase of the electric crisis, utilities bought power at high prices and sold power to consumers at regulated rates. Since demand was determined by those with no financial stake, the utilities were drained. Eventually, rates went up. For the next 6-9 months, consumer response was limited to whining about how unfair it was. Finally, conservation started to reduce demand, and eventually the legislature changed the game.

    Really, \"crisis\" is a bit strong. California had an OK system before, and different systems work fine elsewhere, so there was no great difficulty in fixing things. Right now, electric production is quite elastic. Oil production is not: the latest numbers I\'ve seen put consumption at around 97% of production capacity. In the 70s, producers colluded to restrict the supply. Carter-era conservation measures ( I have a cold. I just coughed a bit of sputum onto the monitor, whose magnifying properties let me see 8 or so individual pixels at once from two feet away. Pretty cool, huh? ) were a large factor leading to cheap oil later. Now that the East is developing a powerful thirst for oil, and ours is back to 1973 levels ( I think), we are nearing the point where prices can rise even when production is maxed out. That will spur more drilling, but most petroleum geologists seem to think production will peak in the next 5-25 years no matter how many wells are sunk. That will be a crisis, unless consumers take the long view and reduce their demand so much that the transition is graceful; in other words, there will be a crisis.

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