Revenge of Samuel Insull

It’s time for a ghost story, boys and girls, so gather around the campfire.

We all know how everyone in the Internet economy loves plain old unfettered free enterprise.

But unfettered free enterprise is hell on long-term planning. Most Internet companies think of long-term plans in terms of months, not decades.

More than a century ago, a onetime assistant to Thomas Edison named Samuel Insull recognized this. So before he was destroyed in the Great Depression, he helped create the regulated utility industry.

Instead of having dozens of electric power suppliers, each with their own grid of wires and their own sources of supply, Insull built a single system whose rates and business methods were regulated by government. Regulated utilities could engage in the 10- to 20-year planning necessary for maintaining adequate supplies of juice in the future because they were confident of being there.

Over the last few years, we’ve dismantled that regime. Electricity prices in many places are deregulated. That’s great when there’s abundant supply, but when there’s a shortage, prices skyrocket, and it can be hard to adjust because no supplier can do the long-term planning needed for efficiency.

All this hits the Internet economy because despite the low-power requirements of laptop computers and cellular phones, our networks and servers still run on electric power. They need a lot of it.

Most of us didn’t notice any of this until last month, when the shortages hit home. While the lights dimmed in California, we were suddenly told it was going to get worse, there were bigger shortages looming, the Northeast was not immune, and that it is, in fact, bad all over.

Canada (unlike us) is addressing its problem, and the solution is instructive. First, it’s going to cost money. Second, the quickest solution looks like natural gas, which itself is coming into short supply thanks to low, deregulated prices.

As H. Ross Perot might say, it’s just this simple. That giant sucking sound you hear is capital going into the oil patch and electric power generation. The sound you don’t hear (but you will) is the sound of political power going toward the idea of long-term planning. Oil-drilling stocks are still down because investors can’t see oil prices staying over $18 per barrel (it’s presently over $30 per barrel), and their owners will have the ear of the next president, whoever he is. They (and their bankers) will demand they get their price before they spend, just as the electric utilities will demand it.

Had we been planning for today’s shortages, of course, they never would have happened. So says the ghost of Insull. Had we been raising prices steadily over the last dozen years we wouldn’t have these sudden price spikes sinking their teeth into the Internet economy, says the ghost of Insull.

The ghost of Insull gets his revenge when the power in your server farm goes off, and when you find yourself competing for capital with the people you didn’t know you depended on. Listen carefully hear him laughing?

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