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Deregulation: Lessons Learned from Other Industries




Untitled Document


Efforts to deregulate various sectors of our economy have been undertaken since the 1970s. While some industries function well under deregulation, regulated models have dangerous records in many others, especially electricity.

Consider the 2002 congressional testimony of S. David Freeman, Chair of the California Power Authority at the end of that state’s power crisis:

“There is one fundamental lesson we must learn from this experience: electricity is really different from everything else. It cannot be stored, it cannot be seen, and we cannot do without it, which makes opportunities to take advantage of a deregulated market endless.”

We’ve already discussed other states that have tried unsuccessfully to deregulate their electric markets, but let’s take a look at the effect of deregulation on two other prominent industries serving the public.

Airlines and Deregulation: A Bumpy Ride

Deregulation of air travel remains a controversial issue with mixed results at best.

Some prices may have decreased since the Airline Deregulation Act was passed in 1978; however, there’s reason to believe prices may have decreased naturally as the industry matured. Regardless, anyone who’s found a ticket at an affordable price one day only to discover the price has increased by hundreds of dollars the next can speak to the extreme price volatility that now exists.

Perhaps the biggest consequence of deregulation on the airline industry has been reliability and fairness. Since deregulation, airlines have been able to set and raise their own prices at their whim, drop unprofitable routes as they see fit, and charge exorbitant amounts to change flight plans. In short, “today’s airline passengers have no rights and little recourse.” Moreover, the industry has seen multiple bankruptcies and takeovers, which of course means many employees were laid off.

Deregulation Rocks the Financial Sector

Many people now acknowledge that a basic lack of transparency and freewheeling traders gaming the system contributed to the economic crisis that hit in 2008. Deregulation of the financial sector led to private gains at the expense of public risk.

Individuals and families found themselves with record levels of unsecured debt because of increased predatory lending. Exotic products that few understood like credit default swaps proliferated with little transparency. Ponzi schemes flourished unchecked. The economic recovery has been slow, inflation has been inching up, and unemployment remains relatively high.

Who suffered the worst consequences? While the bankers still got their annual bonuses, taxpayers footed the bill for all of the unregulated, extremely risky behavior. Equally important was the cost to small businesses, many of whom couldn’t get loans or pay their employees and were forced to close.

Electric Deregulation Too High-Risk

No one can predict the future, but these examples demonstrate that risks are inherent with any deregulation effort. And now that Michigan’s economy is finally growing again, experimenting with deregulating Michigan’s electric markets just doesn’t make sense.

You can help stop deregulation by taking action now.