Economic Chickens Come Home to Roost

Some serious bumps have suddenly appeared in the road to baby boomer heaven. The generation that thought it had a lock on permanent prosperity and could anticipate highly compensated employment followed by secure, even luxurious retirement has come face to face with the dark side of unregulated capitalism. Three seemingly unrelated, yet subtly intertwined, developments have presented us with a scary glimpse of the economic future.

The first is the rising specter of electrical deregulation, the process by which (beginning with wholesale deregulation at the federal level in 1992 and continuing since with piecemeal retail deregulation by the various states) government oversight is gradually being removed from the utilities sector. This brave, new world of profitmaking unchained is nearly upon us, and it's not a pretty sight.

Notice your utility bill trending upward lately? You probably have if you're a citizen of one of the two-dozen states already engaged in decontrolling private-sector electrical suppliers. You especially have if you live in California, the state furthest along in the deregulation game. And you most assuredly have if you live in the southern reaches of the Golden State, specifically Greater San Diego, where the grand experiment began in 1998 and where the cost of flipping the switch topped out at four times previous rates prior to a partial and temporary government rollback. There, even rank-and-file Republicans are screaming for relief.

Relief from what? Well, high prices, of course, but more fundamentally, relief from the free market. Ah, the free, unfettered marketplace, the source of all things beautiful and good! So we were told by the leading authority figures of neo-liberalism's ruling order. They all said unleash corporate America, remove public restraints on private enterprise, and watch economic "competition" solve every problem known to man. Electrical deregulation, with its massive overcharges and rolling blackouts, is one of the Frankenstein monsters this mindset created.

It's not the only one, however; another is the chaotic New Economy based on the computer and the Internet.

As constituted, the New Economy is primarily the outgrowth of conscious political decisions that strictly limited regulation of "e-tailers" and the so-called information superhighway, and encouraged venture capitalists, as well as consumers, to leap headfirst into the computer age. Put aside for the moment the obvious, that the Internet has largely evolved into an amalgam of on-line shopping venues, pornographic web sites, and psychotic chat rooms; the more immediate problem is that the new technology's social and moral shortcomings are now being matched by its economic vulnerabilities. As of late last year, 76 Internet retail firms had failed, and economists were speculating that 90% of the existing dot-coms not safely connected to a large, established corporation would shortly go bankrupt.

In the meantime, the New Economy's Internet mania is exacerbating energy-supply problems produced by utility deregulation. The US demand for electricity is projected to rise by 17% over the next decade due to computer usage, pushing unregulated prices ever higher and increasing the temptation to exploit every conceivable energy resource. By then, the technology industry may, according to some authorities, be consuming close to a third of the nation's entire electrical supply.

Such needs will place unparalleled pressure on a disjointed power grid trying to adapt to a helter-skelter deregulatory environment. Yet, failure to provide sufficient wattage will further undermine the shaky dot-coms; Sun Microsystems, one victim of the current California crisis, says electrical outages cost it $1 million per minute. Thus, deregulation's vicious circle: the New Economy and the private utilities feeding off each other in a mad struggle for survival.

Moving up the economic food chain, we come next to the stock market, itself infected by the lethal laissez-faire virus. Just as the New Economy depends on the unstable, steadily deregulating utilities sector, so the stock market depends on the unpredictable, fly-by-night dot-coms. Not to worry, say the market watchers. Despite its resemblance to a giant casino, they insist, the market is fundamentally sound and "fairly valued." How do they know? Why, the economic gurus, of course, those savvy prognosticators who divine Wall Street's ups and downs.

We all know the guru-in-chief, Alan Greenspan; he's been singing the praises of the stock market and the unfettered economy for untold ages, but he speaks only to God and is occupied saving the market from its irrational exuberance. So, the true believers depend for day-to-day reassurance on the multitude of smaller, auxiliary gurus, the largely nameless gnomes who inhabit the dark recesses of Wall Street banks, brokerage houses, and investment firms, except when they scamper out to appear on the televised business talk shows.

For a time, they were scampering out with alacrity, regularly expounding on the inevitability of an ever-rising stock market. Most prominent among them was (and, for some inexplicable reason, still is) the curiously revered Abby Joseph Cohen, head of the investment policy committee at Goldman, Sachs & Co. Hailed as the financial community's number one analyst and seer, Cohen's less-than-stellar achievements include predicting that the Dow Jones industrial average would reach 12,600 by the end of December 2000 and that the Standard and Poor's index would attain 1,575, stunning overestimates in the range of 15 to 20%.

Even such oracular imprecision by the high priestess of Wall Street pales in comparison to the pie-in-the-sky prophecies of lesser members of the congregation, such as James Glassman and Charles W. Kadlec, whose respective 1999 pronouncements visualized the Dow eventually reaching 36,000 and 100,000. Something clearly didn't compute. The market gurus didn't predict the economic downturn or the bear market of 2000, with blue-chip stocks falling by 6%, and they never anticipated the total collapse of high-tech stocks, whose Nasdaq values were down 39% for the year.

Moreover, it turns out the television gurus have been bad boys and girls. It seems their inevitably optimistic buy recommendations -- they rarely suggest selling a stock -- are sprinkled heavily with equities in which their own firms have an investment interest. That knowledge after the fact has come as scant comfort to the victimized baby boomers whose 401 (k) retirement balances shrank an average of 4% in the past year.

Will the cold economic shower our largest and most influential generation has lately taken have an impact on public perceptions and political decision making? Perhaps. In the face of the presently swooning stock market, the Bush administration's proposal to privatize part of Social Security by refunding FICA taxes for individual investment has lost its earlier luster. Likewise, the passive worker acceptance of employee-financed and market-sensitive "defined contribution" retirement plans has been clearly undermined.

With respect to utilities policy, consumer confidence in electrical deregulation has also been badly shaken. Californians, who experienced it first, are recoiling in disgust, and Governor Gray Davis, backed by a chastened Democratic legislature, is moving toward a non-market energy solution featuring elements of re-regulation and public power. The baby boomers are learning the hard way about unregulated free-market capitalism, but they're learning.

Wayne O'Leary is a writer in Orono, Maine.

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