Gray Davis seems bent on creating a People's Republic of California

By DAVID MOON, Moon Capital Management
May 20, 2001

California governor Gray Davis is acting like a socialist. As the summer begins to heat, so does the rhetoric surrounding the electricity crisis in California. In response to the federal government's paternal urging for the state to solve its own problem, the state's governor is making the argument that electricity is critically important to the lives, safety and comfort of his citizens. As a result, Davis says he cannot let a private business hold his people hostage to prices he considers to be unreasonable. The out-of-state power producers who sell electricity to the state's retailers must be forced to sell power on the state's terms; Gray argues that it is immoral not to do so.

What is immoral is the notion that the government presumes a right (or, according to Governor Davis, an obligation) to force a private business to charge a decreed price for its product. In fact, in the proudest tradition of a third-world dictator nationalizing private assets, last Sunday, governor Davis addressed the prospect that the state might seize certain power production plants from private businesses. If Sadaam Hussein seized assets in that manner, we would call it nationalizing private assets; I am not sure what it is called when a state takes control of the assets of a group of private citizens. That the citizens are from other states should make no difference.

What if the federal government decided that Microsoft Windows was so critical to the everyday lives and safety of US citizens that government needs to protect the program and guarantee access to Windows to every citizen? What if Merck had a drug so superior in fighting (fill in the name of your favorite deadly disease here) that the public good required the government to invalidate any legal protection Merck had in protecting their patent? If we needed the miracle Merck drug or wanted cheap copies of Windows, we might favor such government actions. In fact, commandeering a physical asset like a power plant is more difficult for me to imagine than a government taking of an intellectual property like software or a drug formulae.

It is usually pretty easy to ignore when someone else's rights and property are being co-opted. But every time we ignore the diminution of someone else's rights, we lose a bit of our own. Eventually, someone will decide that you have something that would benefit some majority group and you should share it - on their terms. Now that is going from preaching to meddling. It is one thing when a government is making a big old mean electric company sell me some cheap power. But is entirely different if they want my house or business or invention.

The longer-term costs are even more devastating. Why would anyone want to invent the "next big thing" if they had no guarantee of protecting any and everyone else from copying and benefiting from it? Some people invent for the sheer thrill of inventing, or even for the express purpose of helping mankind. But shouldn't even those people be able to decide how to allocate the value of their property? If not, then say goodbye to major innovations ands risk-taking. It should be no surprise that the Russian economy has produced no great thing of value this century. Where is the incentive for Russian entrepreneurs? Henry Ford was right when he said, "Thomas Edison has done more toward abolishing poverty than all of the reformers and statesmen combined."

From whom will government take when all of the "big boys" are gone?

The causes of the energy ills in California have been detailed in previous MarketViews. True deregulation of the electricity market is working in the mid-Atlantic states. The core problem in California is a state government that tried to artificially lower retail electricity prices. Price fixing always has the same effect: shortages. Comrade Governor Davis understands that one of the shortcomings of capitalism is that it causes people to unequally share in the riches of the economy. What he may be missing, however, is that under socialism, citizens equally share in its grief.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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