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Delusions of Power

By PAUL KRUGMAN - March 28, 2003 - original

They considered themselves tough-minded realists, and regarded doubters as fuzzy-minded whiners. They silenced those who questioned their premises, even though the skeptics included many of the government's own analysts. They were supremely confident — and yet with shocking speed everything they had said was proved awesomely wrong.

No, I'm not talking about the war; I'm talking about the energy task force that Dick Cheney led back in 2001. Yet there are some disturbing parallels. Right now, pundits are wondering how Mr. Cheney — who confidently predicted that our soldiers would be "greeted as liberators" — could have been so mistaken. But a devastating new report on the California energy crisis reminds us that Mr. Cheney has been equally confident, and equally wrong, about other issues.

In spring 2001 the lights were going out all over California. There were blackouts and brownouts, and the price of electricity was soaring. The Cheney task force was convened in the midst of that crisis. It concluded, in brief, that the energy crisis was a long-term problem caused by meddling bureaucrats and pesky environmentalists, who weren't letting big companies do what needed to be done. The solution? Scrap environmental rules, and give the energy industry multibillion-dollar subsidies.

Along the way, Mr. Cheney sneeringly dismissed energy conservation as a mere "sign of personal virtue" and scorned California officials who called for price controls and said the crisis was being exacerbated by market manipulation. To be fair, Mr. Cheney's mocking attitude on that last point was shared by almost everyone in politics and the media — and yes, I am patting myself on the back for getting it right.

For we now know that everything Mr. Cheney said was wrong.

In fact, the California energy crisis had nothing to do with environmental restrictions, and a lot to do with market manipulation. In 2001 the evidence for manipulation was basically circumstantial. But now we have a new report from the Federal Energy Regulatory Commission, which until now has discounted claims of market manipulation. No more: the new report concludes that market manipulation was pervasive, and offers a mountain of direct evidence, including phone conversations, e-mail and memos. There's no longer any doubt: California's power shortages were largely artificial, created by energy companies to drive up prices and profits.

Oh, and what ended the crisis? Key factors included energy conservation and price controls. Meanwhile, what happened to that long-term shortage of capacity, which required scrapping environmental rules and providing lots of corporate welfare? Within months after the Cheney report's release, stock analysts were downgrading energy companies because of a looming long-term-capacity glut.

In short, Mr. Cheney and his tough-minded realists were blowing smoke: their report described a fantasy world that bore no relation to reality. How did they get it so wrong?
One answer is that Mr. Cheney made sure that his task force included only like-minded men: as far as we can tell, he didn't consult with anyone except energy executives. So the task force was subject to what military types call "incestuous amplification," defined by Jane's Defense Weekly as "a condition in warfare where one only listens to those who are already in lock-step agreement, reinforcing set beliefs and creating a situation ripe for miscalculation."

Another answer is that Mr. Cheney basically drew his advice about how to end the energy crisis from the very companies creating the crisis, for fun and profit. But was he in on the joke?

We may never know what really went on in the energy task force since the Bush administration has gone to extraordinary lengths to keep us from finding out. At first the nonpartisan General Accounting Office, which is supposed to act as an internal watchdog, seemed determined to pursue the matter. But after the midterm election, according to the newsletter The Hill, Congressional Republicans approached the agency's head and threatened to slash his budget unless he backed off.

And therein lies the broader moral. In the last two years Mr. Cheney and other top officials have gotten it wrong again and again — on energy, on the economy, on the budget. But political muscle has insulated them from any adverse consequences. So they, and the country, don't learn from their mistakes — and the mistakes keep getting bigger.