Texas State Rep. Rafael Anchia is doing a larger version of the same thing my own Dallas city council member did for people on my street two years ago – using political pressure to push a natural gas utility to clean up its act. Sometimes we have to use politics to give capitalism a good kick.
But there’s a bigger picture and a better answer – one that preserves the best of capitalism by forcing it to follow its own credos and pay its own way. It’s called “externalities.” More on that in a moment, but maybe first the immediate situations will help set up the explanation.
In our case, three pre-Thanksgivings ago everybody on our block began to experience random shut-offs, fades and failures in our gas-powered household appliances. For a few weeks, a succession of employees of Atmos Energy, our gas distribution utility, told us the problem was our own responsibility, caused by water in our own gas pipes between the meters and our houses.
A really smart plumber explained to us that the Atmos story did not add up. My wife called Connie Sanchez, council liaison to Dallas District 14 City Council member Philip Kingston. The next thing we knew, Atmos had dropped the story about it being our fault.
For a month our alley was a traffic jam of big digging machinery and high-tech plastic pipe-fusing equipment. Eventually all the old steel pipes were gone, replaced by something called polyamide, and our appliances have worked like champs ever since.
During that month of reconstruction in our alley, I often wandered out there with my dogs on leashes and stood by silently admiring. It seemed to me I was looking at what must have been a million dollars or something like a million poured into the soil beneath our alley to get us to stop calling Connie Sanchez.
Ah, democracy! The little man’s trust fund.
But a little over a year later, I had to bite back my own smug smile when a 12-year-old child was killed in a natural gas explosion in northwest Dallas. Some terrific reporting by Cary Aspinwall and Holly K. Hacker at The Dallas Morning News exposed that a frightening amount of the Atmos distribution system in Dallas urgently needs replacing.
The stories in the Morning News also exposed a pattern of cynical collusion on the part of the Texas Railroad Commission, the state governmental entity that is supposed to regulate gas utilities. For decades whenever the question of obsolete infrastructure and danger to the public has come before the Railroad Commission, the revolving-door good old boys who sit on that board have given the gas companies a kiss on the forehead and a bon voyage.
That’s part of what Rep. Anchia hopes to improve with a package of legislation he will introduce in the next legislative session. Anchia, whose district includes the part of northwest Dallas where 12-year-old Linda Rogers perished last February, seeks to force utility companies to speed up their programs of pipe replacement. He also wants to use legislation to turn the head of the Railroad Commission, getting its snout out of the pockets of the big utility companies and forcing it instead to focus on the public good.
The responses of the industry and the Railroad Commission are predictable. The response will be that not everybody can have millions of dollars poured into his or her alleyway right away under the existing rate structure without putting the gas companies out of business.
The key phrase there is “existing rate structure.” And, in fact, rate structures are where the ultimate answers lie, which brings us back to that business above called externalities. It’s all about the externalities.
The study of externalities is either the hottest area or one of the hottest areas in the entire field of environmental study and social research. Basically, externalities are the full range of costs incurred in the mining, manufacture, distribution and consumption of a resource.
Automobiles and trucks, for example, impose enormous costs on society in a range of ways from worn-out highways to car wrecks, air pollution, asthma and cancer. Who knows what the price of a car would be if all of those costs were tacked onto the window sticker.
We don’t tack the costs onto the car, because we know we need to get around somehow, and we suspect the full roster of externalities would put the cost of a car beyond the reach of most consumers. We make a political choice as a society to eat the lion’s share of the cost of worn-out roads and air pollution, for example, accepting that cost as a public burden. It becomes a subsidy that we pay with our taxes and our health.
But right there is where we get to the real tear in the fabric of capitalism. In this huge economic sector, transportation, capitalism is not paying its own way. This kind of capitalism only works on the back of an enormous public subsidy, and no one ever adds up the dollar amount of the subsidy.
Instead, our approach reminds me of a movie I saw years ago in which a family living on an island kept huge amounts of cash stuffed into kitchen cabinets. Whenever a family-member needed to take the ferry to the mainland, the father went to the cabinets and grabbed out handfuls of money. Nobody counted. The cabinets were full.
But now our cabinets are no longer stuffed with cash. The social costs of environmental degradation are beginning to press on all sides. What would the real price of a house in Houston come to, for example, if the home buyer had to pay in advance for all of the rescue and reclamation costs reasonably adduced from history and good scientific weather prediction?
And if the home buyer doesn’t have to pay, who does? Sounds like us. Even if we think that’s fair and we want to help anyway, how much money do we have left in our cabinets and what else do we need it for?
More important, what other choices do we have? What if those houses in Houston get built somewhere else? What if they don’t get built at all but people live in flood- and wind-safe high-rises instead?
This is not about telling people they can’t live where and how they want to. But it might be about telling them how much it will cost.
If a house built in a flood-susceptible area sells for $350,000 now but carries an externalities cost of $500,000, should the price be set much higher? If not, who will eat that extra cost when it shows up?
If it’s the public, should the public be asked about it first? Maybe there could be a referendum. John Doe the developer wants to sell 300 houses in northwest Harris County at an eventual externalities cost to the public of $150 million.
These same houses built 10 miles away on another guy’s land would have an externalities cost of only $50 million. Who’s in favor of picking up the extra hundred mil’ so Mr. Doe can get the sales?
For years in the back-and-forth between the environmental community and the business community in America, the principal tension has been characterized by the business side as a battle between capitalism and socialism. The capitalists believe they are all for rugged individualism and people paying their own way. They would characterize the environmentalists as seeking a nanny state in which the government picks up after us and wipes our noses.
But maybe that’s all just bad accounting. If we once add up the true cost of rusted steel gas pipes beneath our homes, including an honest price for the loss of a 12-year-old’s life, then maybe the people selling us our natural gas are not paying their own way at all. Maybe we are paying their way for them.
OK, what if the only safe, effective way to provide natural gas to people is to pour those millions into everybody’s alley and make sure all human beings enjoy the same level of technological safety? And what if the gas company says doing that will require tripling the rates for natural gas?
Maybe when we can see that number staring us in the face, the tripled rate for gas will begin to make solar power look like a much better bargain. At least when we know the true costs, we can shop and make choices
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The thrust of the externalities research going on now is not aimed at a certain political outcome, like tacking all the eventual costs onto a consumer item. It’s more about deciding what things can be counted as legitimate external costs and then setting about adding them up.
If this helps, one paper I looked at defined externalities this way: “Externalities arise whenever the actions of one economic agent make another economic agent worse or better off, yet the first agent neither bears the costs nor receives the benefits of doing so. Example: a steel plant that pollutes a river used for recreation.”
Interestingly, the same paper defines an externality as a “market failure” or inefficiency in the market. An efficient market doesn’t just grab cash out of the kitchen cabinet without counting it every time somebody needs to buy a ticket for the ferry. The efficient market knows how much good the ferry trip will do for the family, how much money is in the cabinet for more trips and whether the trip needs to be put off until there’s more to accomplish by going to the mainland.
In that sense, the real capitalism is the system that measures both immediate and future costs fully and accurately. The nanny state is the one that doesn’t add it all up, shrugs and assumes the public will absorb it all later anyway. Maybe environmental awareness and social responsibility will save capitalism by making it smarter, more transparent and more efficient.