Energy firms that go bust prove the market is working. There is always moaning about the functioning of a market economy. The latest fuss comes from Which?, concerning the operation of the energy market. The complaint is that companies arrive, charge unsustainably low prices, go bust and customers – 283,000 households this year – get transferred to companies that charge more. That last being what keeps the lights on, as they don’t go bust. This isn’t a problem, nor something to be regulated away. Which? seems not to realise that suppliers going bankrupt isn’t an error of the system, it’s the designed function of a market economy. Our problem of economic advance is that the universe of things we can do expands as technology marches on. Fashion also changes, desires more generally change over time. Our task is to find which among the things that can newly be done is something sufficient numbers wish to be done. Asking around doesn’t work that well; it’s expressed preferences, people actually putting their money down, which tells us what people truly want. This sorting is best achieved by trial and error. Allow anyone with an idea to set up, produce and try it out. If they attract enough custom to cover their costs then they’ll continue. If not, they will run out of money and that very failure wipes them and their experiment from our economic slate.
Times 2nd July 2019 read more »