If you’re looking to make a point about inflationary pressures, you might cite big spikes in the prices paid gauges on various PMIs.
Or you could point to breakevens, which recently hit the widest levels since 2014, before retreating a bit last week, even as nominal yields rose.
You might shout about January’s blockbuster retail sales print, and what it purportedly presages for the economy once additional stimulus makes it through Congress.
And if you think all of that isn’t convincing enough for skeptics, you could also pull up some charts showing accelerating commodity prices or, perhaps more poignant, the UN’s gauge of global food costs, which is up eight months in a row.
Yes, I’ve adjusted the y-axis to make that look as dramatic as possible, but the bottom line is that the index, compiled by The Food and Agriculture Organization, has accelerated to the highest since 2014. That isn’t the best news for the world’s beleaguered masses, many of whom are still beset by the economic effects of the pandemic.
Let us not forget that there are, as decidedly depressing as this is, nations where COVID is a secondary concern for locals, whose first priority is simply to make it through the day without being killed or succumbing to various sorts of acute deprivation. For them, soaring food prices are just another death knell, assuming it makes sense to use “death knell” in the plural (you can only die once, or at least as far as we know).
Anyway, all of the above is feeding concerns about inflation, even as official gauges in developed markets are below central banks’ arbitrarily defined targets. The kinds of debates policymakers in wealthy nations have about comparatively minuscule oscillations on arguably meaningless gauges of consumer prices would probably seem pretty damn quaint (forgive me) in frontier economies.
But what we learned last week is that Mother Nature can turn the most advanced economy into a frontier market pretty much overnight if authorities and officials are ill-prepared. A week of freezing temperatures was all it took to cripple Texas’s power grid and plunge the state into a crisis that left millions without heat and potable water.
Now, many Texans who spent last week freezing and fretting over a shortage of safe drinking water (despite having an abundance of ice) are staring at enough inflation to “make up” for all the Fed’s “shortfalls.” As widely documented, wholesale power prices in Texas hit the $9,000 per megawatt-hour cap on multiple occasions during the freeze (figure below).
Fast forward a few days and “Griddy” customers are feeling the heat (no pun intended). This is one of those stories which is highly amenable to blanket coverage by national news outlets, which means it’s difficult for me to add much, my formidable pen notwithstanding. Clearly, that didn’t stop me from trying, though.
As Bloomberg (and plenty of other national outlets) explained, Griddy’s customers were exposed to “a unique business model [which] charges electricity based on real-time prices in wholesale power markets.” So, you can immediately see where the problem might have come in. It’s unlikely that Griddy’s customers understood the implications of this model in a crisis.
More broadly, though, the entire debacle was the product of a ludicrous system that’s almost too stupid to believe. Critics of the Texas design (which, stripped to the basics, relies on the assumption that unfettered economics will deliver the “best” outcomes) call it “idiotic.” Now we know why. It seems doubtful that the people in Texas who died during the freeze would describe their untimely demise as a “good” outcome, let alone the “best” one. Although, to be fair, we can’t know for sure since they’re not around to speak to the issue.
To its credit, Griddy tried to get ahead of the situation by telling its customers to abandon ship, but it was too late for many to switch. Willow Park residents Royce Pierce and wife Danielle spoke to NBC about their plight. The couple “have been watching their electricity bill tick up by nearly $10,000 in the last few days for their three-bedroom home,” NBC said, documenting what can only be described as a wildly ridiculous situation. “While the family [said] they consider themselves lucky because they’ve had power, the financial burden has come with additional challenges,” the same article said. Apparently, the Pierces had to cut off the debit card linked to their electric bill because Griddy “wiped it out.”
Pierce seemed to suggest the country needn’t worry about his family, which he said will “skate by.” But he implored Americans to consider that many Texans aren’t similarly positioned financially, and won’t be so lucky.
That’s why Houston Mayor Sylvester Turner wants Texas to pay people’s electricity bills. After all, it’s ultimately the state’s fault.
“For people getting these exorbitant electricity bills… they should not have to bear the responsibility,” Turner told CBS’s “Face the Nation. “Those exorbitant costs should be borne by the state of Texas and not the individual customers who didn’t cause this catastrophe,” he added, noting that “the reality is climate change is real.”
Obviously, the state will have to work this out and it might require federal assistance. It isn’t realistic to expect multitudes of retail power customers to come up with between $2,000 and $10,000 for a single electric bill. Most Americans famously don’t have $400 in cash to cover an emergency expense. The idea that the same people are going to conjure $5,000 for an electric bill is totally unrealistic.
In a press release over the weekend, Greg Abbott said the state has “a responsibility to protect Texans from spikes in their energy bills.” “We are moving quickly to alleviate this problem and will continue to work collaboratively throughout this week on solutions to help Texas families and ensure they do not get stuck with skyrocketing energy bills,” he promised.
Abbott said Sunday that a moratorium on disconnects for nonpayment is coming. That’s nice of him, but it won’t be enough.
To reiterate: Many of these bills won’t be paid, because the money simply isn’t there. Although it’s apples to oranges in almost every other respect, that aspect of the Texas crisis reminds me of the student loan debate. Payment, in full anyway, isn’t forthcoming. Period. Your opinion on it is just as irrelevant as mine or anyone else’s. Government, at some level, will need to confront that reality and figure out a solution.
Take 63-year-old Scott Willoughby, an Army veteran who spoke to The New York Times, for example. He lives on Social Security payments in Dallas. His electric bill was $16,752. “My savings is gone,” Willoughby told the Times. “There’s nothing I can do about it, but it’s broken me.”
Is this really what we want in America? Is there no threshold beyond which things become so absurd that we’re compelled to say “enough is enough” with the kinds of attitudes, belligerence, reality denial, and policy decisions that open the door to this kind of insanity?
I don’t know why I ask those questions. If we learned anything over the past four years, it’s that the answers are “apparently” and “no.”
All those Texans who voted against socialism now want it.
Just call it something other than socialism, and yes it will be sopped up like gravy on a biscuit.
The guilty party here is the state of Texas. They have known all along that this was a house of cards and when push came to shove the wealthy would be foreclosing en Masse on thousands of homes. As Rick Perry said, Texans prefer it as opposed to having the federal government do what they do to protect the other citizens in our country. I think it would be rewarding the irresponsible for the federal government to foot some of this power bill to the people who were making so much money in such a short time. The federal government should demand claw backs and reductions before they pay a single utility bill.
+1 . They got what they deserved. Now, if they want to mend their ways, that’s a different discussion. But prisoner’s dilemma in multiple rounds explains pretty well why you retaliate for at least one extra turn to a defecting counterpart.
All those right wing Texans that voted for socialism hating and climate denying Cruz and Abbott are now begging for Washington help. Same for those who thought Texas should secede from the Union. Having a big mouth doesn’t make things better. You’ve got to think, be rational and do your homework. Unfortunately hard knocks from reality don’t ever seem to get through to some people. I don’t know how we’ve managed it, but this country has more than its fair share of those type. If you’re in a lifeboat adrift at sea or on a planet hurtling through space where 30% are irrational, you are in big trouble.
Oh, the irony. Texas senators criticize the upcoming stimulus package as a bail out of poorly run states. Texans are asking for a bailout in a poorly run state.
The most impactful outcome of this debacle is that Californian workers and companies now will think twice before moving there. The risk of living in a state run by fact denying politicians has become very tangible.
CA experienced the same kind of issues with their grid a couple decades ago when they decided to buy power wholesale from others and “reap the profits of the free market. They suddenly found the free market could send them $9000 and hour electricity, too. Their big experiment didn’t last long. BTW, I don’t live in TX but if they want to secede and I get a vote, I vote sure, why not?
“Having a big mouth doesn’t make things better.” – so true. We have another true saying in Wyoming; “Give a Texan an enema and you can bury him in a matchbox.” Secession from the Union can get messy, I say we sell Texas back to Mexico and deport all the Texans, after a complementary enema of course.
Bailouts area the tools of enablement. We should only bailout with concessions.
Here’s the thing-every hurricane and fire and flood results in federal bailouts. I live in Michigan, we don’t have those. But winter destroys our roads, cars, tourism, etc. Insurance and heat cost more. We spend billions that other states don’t have to. We never get a penny. Because winter isn’t a natural disaster. But somehow when it floods in a flood plain it is? If TX gets a bailout for a winter storm, Michigan should sue for emergency funds.
I’d be interested to see a red state vs blue state bailout comparison
I think the issue is a little more nuanced, but good point nonetheless.
To the Texas haters you needed less than 6% of the vote to put us into the Biden victory column. Your hatred especially right now seems a little misplaced. Almost nobody here takes secession seriously, nor wants it. Tone it down a little bit please.
True. Change is afoot, even in Texas.
But there also is a little bit of “what comes around, goes around” or whatever it is at work here. Texas is one of the most aggressive states when it comes to poaching businesses from other states based on low taxes and light touch regulation. They sell it to the guys (deliberate choice of words) in the executive suite who stand to be rewarded for reducing a company’s tax liability.
Little or no thought is given to the added burdens any relocating mid-level execs will face. Such as egregious property taxes imposed to fund the police, leaving woefully inadequate schools, healthcare and infrastructure. Public works to mitigate flooding? “Hell no! We leave that to the counties!” who have little funding. So enjoy the floods whenever we get over an inch of rain. And enjoy the private school tuitions you will be paying if you want your kids to get a decent education. Then there’s the issue of paying up for security in a gated community.
None are a problem for the top execs, but too bad for the rest of you.
It’s not just Texas. The same holds for Kansas and Oklahoma. Sometimes you get what you pay for a and you are seeing that now.
But there’s no reason to penalize the middle and lower income citizens of Texas who are just very unfortunate pawns in all of this.
Texas has always been competitive it is how America raised us up to be.
Apologies for my rant there, TB. It’s less a function of Texas than an indictment of our race to the bottom system of state relocation “inducements”.
(Though, I’ll admit that I still hold a negative bias from back in 1973 during the first OPEC oil embargo. Back then we were treated to photos of pickup trucks all over Texas sporting “Drive 90, Freeze a Yankee” bumper stickers.)
Really, it’s all a sad legacy of free trade. Moving production offshore became too enticing to ignore so American business did it. That is their job in our capitalist system. Any CEO who did not so should have been replaced ASAP.
But it brought to the forefront another, more fundamental question. How does a prosperous nation compete with countries where workers are cheaper? Outside of offsetting import tariffs?
Well, the fairy dust response is to help boost wages in those countries. But if they share our economic system, it’s a slow process at best.
The alternative is to increase productivity in the US via capex. But, we all know that anything beyond expenditures which result in a fast payback are off the table — because — that’s money that should be used for share buy-backs! Duh.
So that leaves pressuring down US wages to get closer to those in Mexico, China, the Philippines or wherever. As well as other nuisance expenses like pollution controls and local taxes.
My first clue of what was to come was when I was looking at the outsourcing of call center jobs to the Philippines and India. The jobs that were being replaced were often in rural America. Close to 20 years ago I stumbled across a quote from a call center operator crowing about how wage pressure in rural America were starting to make US call centers competitive with offshore options. What a great achievement!
Then there’s the issue of “onerous” regulation, especially pollution regs.
It was crystalized when I spotted a quote from an exec at a Chinese firm that had bought one of our largest hog producers. In passing he noted that it was now easier to set up an industrial-scale hog operation in the Carolinas than in China. Why? Because many regions in China no longer welcomed those kind of heavily polluting operations. Another great achievement!
A couple examples of the race to the bottom, especially evident in southern states anxious to trumpet their job creation credentials, but how about the FoxCON (sic) plant in Wisconsin?
Then look at the Great Experiment in Kansas pushed by the then presidential hopeful Sam Brownback. Cutting taxes by slashing education and healthcare spending failed to draw in the “expected” tidal wave of new investment. Why? It turns out that it is hard to attract the engineers, accountants and other necessary mid-level professionals when the local schools suck and the closest OB/GYN doctors are a “quick” 90 minute drive away, thanks to Medicaid cuts. (Those popular GOP cuts to “medical welfare” have been pushing many rural hospitals into insolvency.)
I’ll terminate my rant with a nod towards Chinese opinion polls five years ago. They were widely shared as evidence of why capital would continue to flee China and drive down the value of the renimbi. The reasons most cited by middle and upper class Chinese as to why they would like to leave China was air and water pollution, poor schools and inadequate healthcare.
Thank you.
No problems Derek. I am trying not to redevelop a negative bias. ; )