We are less than two months into the new year and the news is full of stories about a system whose rivets are about to pop en masse and send us—the United States and maybe the world as whole—into a catastrophic systemic downward spiral in critical areas.
The first thing to understand is that these disparate calamities are all intimately related in that they arise out of system that applies certain “principles” across sectors of society. Those principles have their origin in rigid economic ideology, but their effect has been to further enrich those at the top—which is why elites keep defending these discredited approaches.
Let us take Texas utility customers who shivered through rolling electricity blackouts last week designed to keep the electric grid from cratering altogether under the strain of record demand. The demand resulted from a polar-vortex-induced cold snap that brought record low temperatures to much of the southern plains states and the Midwest. The reason for the spiking demand was simple: 60 percent of homes in Texas use electricity for heating.
There were a number of factors that led to the blackouts, but chief among them was the failure of Texas utility managers and politicians to heed the warning of federal energy officials a decade ago after a similar cold snap. Those federal officials told Texas that it needed to winterize its utility infrastructure to withstand such cold temperatures.
The bitterly cold temperatures bearing down on the state last week forced a third of the state’s thermal generating plants—ones that use heat from burning coal and natural gas and splitting uranium atoms—to shut down. It also froze natural gas wells which stopped sending natural gas to utilities, gas used both for generating electricity and providing heat to utility customers.
Texas has its own electric grid managed separately from the two other large grids that cover the United States. (The Texas grid does have a few connections to these other grids, but as you might imagine, these grids, too, were dealing with soaring demand and had little to offer Texas.) A separate Texas grid is an intentional choice so that Texas does not on most issues have to answer to federal energy regulators who have jurisdiction wherever electricity crosses state lines. And so, the state has charted its own course, focusing on deregulation and cheap generation with little thought about long-term resilience.
And, that focus has now caught up with the state’s residents. By not moving forward on weatherization, Texas utilities saved money that could enrich the owners and could also presumably keep utility rates lower. But the choice has turned out not to be an economical strategy at all as the crippled state and its businesses have suffered damage in the billions from lost revenue, busted water pipes that froze without heat, and, of course, lost lives for those unable to find sufficient shelter during the blackouts. For those who died, things didn’t nearly fall apart, they fell apart completely.
Those who lived through the ordeal now know that a catastrophic collapse that could have left Texas without power for an “indeterminately long” time—with some infrastructure taking months to repair—was averted with only seconds or minutes to spare.
The ideology behind the near collapse is that markets will handle allocation of resources more efficiently than government. Let’s examine that statement. First, “efficiency” is the only stated goal. That may be okay for nonessential goods. But electricity is different. Any part of our modern society is doomed to disintegration without electricity. As we have just seen, even temporary outages can bring calamitous results.
Something else has to be built into such critical systems: resilience. Resilience requires redundancy. In this case, it would require extra electrical generation that is idle most of the time and therefore can be called upon when unusual demand arises. And that capacity would cost extra money for investors, for ratepayers and for government. The benefits would only be understood during a cold snap like the one just experienced in Texas.
The failure to understand the need for resilience and redundancy is not just a Texas problem or an electric and natural gas utility problem. We now have a system riddled with the equivalent of rotting support beams for which there are no redundant supports in place.
We now know, for instance, that the system that processes financial trades for stock and bond investors was near collapse as the now famous Gamestop short squeeze came to a climax. The chairman of one of the largest brokerages in the world recently said this on CNBC:
We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators.
Without getting into too much detail, the clearinghouses—organizations that process trades for brokers and make sure stock and bond trades are completed and assigned to the right people—came close to breaking down.
This is again a complex system, so it is hard to point to one cause. The current trading free-for-all engendered by no-commission brokers signing up millions of new inexperienced investors is one problem. The spread of social media groups focused on stock investing, some of which have millions of members, has led to herd-like behavior that overwhelms the current financial infrastructure.
And then, there is something less obvious, but nevertheless potent: The widespread adoration of excessive wealth and the increasing gulf between those who have it and those whose livelihoods are in decline has led to a focus on speculation as a possible path to financial security. This attitude results in part from a rising economic inequality which is getting worse and with no steps being taken to alleviate it. It is as much a factor in the instability of our system as a poorly insulated power plant in Texas is.
Finally, we’ve witnessed a shortage of computer chips, one so severe that automakers have had to shut down production lines for lack of chips to put into their cars. Ostensibly, the reason for this hiccup is that automakers curtailed production dramatically at the beginning of the pandemic. Chip producers then found a blistering market for their chips in computers, televisions and other devices that now homebound workers were ordering in unprecedented quantities. Auto sales have rebounded for sooner than expected, but the chip producers have pledged their production to other industries.
The problem is similar to those discussed above. We as a society have decided that we value efficiency over resilience based on redundancy. But it turns out that efficiency has huge costs when there is a disruption in our system. Redundancy in the computer chip industry would be considered wasteful and foolish for any one company. It costs money to have idle manufacturing capacity or carry large inventories. What were finding out, however, is that computer chips are as vital to the modern economy as water is to human existence.
Many governments used to have strategic stockpiles of critical raw materials. Many still stockpile crude oil in what are called “strategic reserves” in order to smooth out any disruptions in oil deliveries. How that kind of stockpiling might look for computer chips is not clear.
The three areas I’ve touched on here—utility, financial and computer chip infrastructure—are but a tiny glimpse into the precarious system we’ve built. In practically every area of modern society, we have sacrificed resilience to efficiency—and social peace (and therefore stability) to the defense of opulence as a right of those who know how to manipulate the system and profit from its dangerous “efficiencies.”
The costs are escalating and the next failure to catch us by surprise may be far worse that what we have so far experienced.
Photo: “Besides disrupting transportation, heavy ice and snow can damage utilities. Power and telephone lines sagging after heavy icestorm. This storm left severe damage.” from NOAA via Wikimedia Commons https://commons.wikimedia.org/wiki/File:IceStormPowerLines.png