Most of us are aware of the image of how the laws of supply and demand work. We often attribute the phrase “invisible hand” to Adam Smith and use it as an illustration of how efficient markets work. Very few would argue that efficient markets are better in the long run than regulated markets, but almost everyone is aware of the dangers of free markets: price spikes when demand exceeds supply in the short run. We are all seeing this in hand sanitizer, face masks, and even toilet paper. Few, however, study the damage done when supply greatly exceeds demand, and prices plummet or can even go negative. That is happening in our wholesale electricity markets at times when solar plus must run generation resources exceed the demand. It happens for hundreds of hours a year in many places in the US.
As with any market mechanism, some people will seek evil wrongdoing, and others will simply take advantage of price movements to arbitrage this or that. But, now we have a huge external governmental wrecking ball to our economy which is very likely to put many free-market businesses out of business. We are living through an experiment rightfully conducted to protect human lives, but also likely to destroy a huge swath of the world economy. Most know that economic growth is driven by small business but these are also going to be the casualties of the government shut down of businesses.
What is the cost? Far be it from me, a mere mortal to know these things, but we do have a small experiment being conducted by Sweden breaking from the world’s pattern of a shutdown. If you compare Sweden with Norway, you can see the casualty of this … many more deaths in Sweden even now with many more in the future until either a vaccine or a medical cure is discovered.
We are about to see some stark differences and could learn quite a bit for the next time if we studied them. I do hope we take a close look at the not so invisible hand and decide what it is telling us.
As one of our key employees used to say: the handwriting is on the wall and widely spaced for easy reading.