The Texas Outage and the Many Ways to Tax Wealth

Taxing wealth isn’t like motherhood.

It isn’t admired as good and necessary.

Our wealth can also be taxed in ways that few recognize. That reality will emerge as we measure how much The Great Texas Power Failure cost us.

I think of it as The Black Swan Wealth Tax. It fell on all of us.

Hard.

But before I get into how slavish, simplistic adoration of the free market allowed electric power investors to put everything and everyone in Texas at risk, a few words about what readers suggested in response to my Jan. 23 column asking for thoughts on wealth taxation.

What readers say about taxing wealth

For many readers, the idea of taxing wealth brought a response that was purely emotional. Either way.

Some thought it was bad because they had, after all, earned and accumulated their wealth without any help from government.

Others thought it was good because it was unseemly for so few people to have all the money. Besides, if they had wealth, it surely could not have been obtained without some kind of unfair advantage.

Unfortunately, opinions don’t advance any notions of how wealth taxation should, or shouldn’t, be done. Or what level of taxation would be reasonable.

An interesting argument for the necessity of taxing wealth

The most unexpected reader argument for the taxation of wealth included a link to a 2019 Scientific American article “Is Inequality Inevitable,” by mathematician Bruce A. Boghosian. In the article, Boghosian used a mathematical model to demonstrate the inevitability of great wealth concentration in a society of free agents, trading freely. Even when the game isn’t loaded in favor of the house — as in Las Vegas — the paper demonstrated that most participants lose.

And a very few would be big winners.

(Skeptics should consider games like blackjack or baccarat, where the “vig” – the house take – is very low. In spite of what’s usually the lowest house burden, most players leave as losers.)

The article also tells us a lot about what happened in our power grid failure.

Simple assumptions don’t work in complex systems

Texas was guided by the assumption that free markets, very simply defined, would bring investors opportunity and consumers low electricity prices.  But the cost of unexpected events was ignored.

That allowed state government to brag about the low cost of power in Texas. It also made consumers happy about low prices.

But the simplistic assumptions transferred massive risk to anyone, and anything, that depends on electric power.  It stripped away precautions against unlikely weather events. Like a massive polar vortex.

Arguments will be made that it was entirely reasonable to ignore the consequences of an unlikely event. Long Term Capital Management, a hedge fund, made similar arguments about unlikely events in 1998 and their massive losses nearly took down global banking.

Our unlikely event started a cascade of bad events.  It ended with people who had no power being told to boil their drinking water.  If they had any.

When PVC plumbing pipe becomes priceless

It made millions of us, including the Burns family, homeless*. It turned PVC plumbing pipe into gold. It created a gold rush in the plumbing aisle at Home Depot and every other place that sold it.

It was the perverse answer to every politician’s dream: no bill to pay for government, only bills to pay for everything else. It was a rare, but huge, loss. It was a massive loss of income, wealth and time. The loss is far, far greater than any savings in electric power cost. And some died.

All of that has a place in Boghosian’s model.

The most striking implication in his paper is that a high concentration of wealth is inevitable unless something is done to counter the natural forces of concentration.

That would be taxes.  Or some other form of redistribution.

What are those other forms of redistribution?

There are ideas all over the map, such as the Jubilee USA Network which advocates a Biblical approach in which all debts are canceled at regular intervals.

As most anthropologists will confirm, virtually all human societies are troubled with great concentrations of wealth and income. It’s not about the form of government.

Only pre-agrarian hunter-gatherer societies avoid wealth concentration.

Those societies have little in wealth because accumulation is mutually exclusive with the life of hunter-gatherers. So they are naturally egalitarian.

This explains the appeal of books like “Christopher Ryan’s “Civilized to Death: The Price of Progress” and “Sex at Dawn.” Not to mention the enduring popularity of Daniel Quinn’s novel “Ishmael” in which a wise, talking ape explains why humans are a danger to the planet.

I hope we’ve got the sense in Texas to get this right, at least where it concerns electricity.

But just in case, I’m pricing generators and buying a nice inventory of PVC pipe.

*Becoming homeless

I’ve been through tough cold spells in New Mexico. Nothing ever required seeking shelter – until now. We had a toasty Valentine’s Day evening, but noticed that the heater for our remodeled single-wide wasn’t enough to keep the floor warm or to avoid feeling waves of cold at the windows.

When the lights go out

We lost power Monday morning. But it went back on after a few hours. Thinking we were heading for rolling power outages, we started collecting pails of water, so we could use the toilets even if our well, reservoir tank and pipes couldn’t operate. But the power went off, and stayed off, shortly after noon on Monday. I went out to shut off the water supply for two neighbors who couldn’t get to their houses.

We hunkered down for the night in multiple layers of clothing and heaps of blankets.

Tuesday morning: No power. And it was too late to drain the system. Damage was inevitable. We had to leave.

Loading the go bags

But we had no vehicle that would operate in the snow and ice. Our son-in-law and daughter rescued us. They live on an adjacent property, also without power. In their house the water in pots had already frozen. Yes, inside.

Fortunately, they have an F250 diesel with four-wheel drive.

We all packed go-bags and left to stay with friends in Dripping Springs. Our friends lived in an area with no power outages. Sweet!

The power came back sometime Thursday, but with cracked PVC pipes at the well house and reservoir shed as well as a cracked water pump, there was no way to go back until power was reliable and basic fixes could be done.

Mud replaces snow

Snow and ice began a rapid melt by Friday afternoon. It left deep mud in our driveway but there was time to gather more PVC parts. We built a kludge of pipe connections with the help of an employee at the Triple S Feed and General Store in Dripping Springs.

I think of Saturday, 2/20 as “Thaw Day.” Snow and ice disappeared almost entirely. Long lines of people surrounded HEB. Long lines of cars at the take-out windows of all the major franchise food groups: What-a-Burger, McDonald’s, Sonic. Lines at the gas stations, but not as long as the previous day.

Margaritas restored at the El Rey

And a boisterous crowd of the usual suspects gathered at the reopened El Rey Mexican Food and Oyster Bar. The Dollar General next door still had no dairy products.

By nightfall as much as could be done was done, mostly thanks to my son-in-law, who is my new hero, even though he’s a lawyer.

We had light, heat and water. We could cook. The single-wide that I use as an office had heat and power but is still without water.

Sunday, 2/21 was a day for more damage checking. Waiting for replacements of cracked water pumps to arrive.

Related columns:

Scott Burns, “Another way to look at wealth taxation,” 1/23/2021  https://scottburns.com/what-if-a-wealth-tax-paid-for-national-defense/

Columns on Las Vegas and gambling:

Scott Burns, “Vanity Capital,” 04/24/2011  https://scottburns.com/vanity-capital/

Scott Burns, “What Las Vegas can teach us about mutual fund investing,” 6/10/2012  https://scottburns.com/what-las-vegas-can-teach-us-about-mutual-fund-investing/

Scott Burns, “There is nothing quite like the assurance of failure,” 5/20/2012  https://scottburns.com/there-is-nothing-quite-like-the-assurance-of-failure/

Sources and References:

Bruce M. Boghosian, “Is Inequality Inevitable,” 11/01/2019 Scientific American: https://www.scientificamerican.com/article/is-inequality-inevitable/

Jubileeusa.org website on debt cancellation:  https://www.jubileeusa.org/faith/faith-and-worship-resources/debt-cancellation-a-biblical-norm.html

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo by Nico Brüggeboes from Pexels

(c) Scott Burns, 2021