Supply et Demand

Recently, there was a mongo power outage in India. 350 million+ people were sans electricity in a country not especially well known for having an especially reliable grid even under the best conditions. While this may not be a tragedy comparable to the Haiti quake or the Japanese tsunami, wholesale power loss threatens hospital patients and can compromise secure nuclear locations if recovery is sufficiently delayed.

Analysts blame the power losses on a lackluster monsoon season: farmers were running well pumps longer and harder than usual and there was insufficient river flow to crank the hydroelectric plants. That's interesting, but the reporting on it this morning on NPR was cringeworthy. Either the host or the guest (I have a short commute, so I wasn't listening long enough to nail down reliable identification) described it as a "problem with supply and demand; demand increased and the supply wasn't there."

That's actually paraphrased, so the quotes are inappropriate. Please accept my lazy editing for the purposes of making a broader point.

And that broader point is simply this: in economics, the terms "supply" and "demand" are elements of a story about prices and quantity. The problem with Indian power distribution isn't one of a spike in demand and a lag in a supply response, it's one of interference with price signals, unimpressive property rights, and more than all else, an insatiable leviathan who feeds on the entrepreneurial spirit. Starting even an ordinary retail business is tough enough in India. Improving the power generation and distribution network is next to impossible. Describing this as some kind of technical failure or blaming it solely on the weather is intellectually dishonest.

I understand the appeal of looking just at proximate causes and assigning blame. It's easy and it's a decent way to grind an ideological axe if that's your thing. It's poor reasoning though. You probably don't have to go back to the first protozoa crawling out of the primordial soup, but you can at least point to significant contributing factors, especially when they've got far-reaching consequences. In this case, the Indian regulatory apparatus is a tight throttle on the prosperity of the Indian people. Why not report on that?