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.”