Did higher prices keep the power grid going during the recent heat wave?

By L.M. Sixel of The Houston Chronicle. The higher prices might have encouraged generators to increase their quantity supplied. If demand increases and prices don't rise, then we get shortages, which would be power outages in this case. Excerpts:

"ERCOT (Electric Reliability Council of Texas) said it expected extreme temperatures and took steps to ensure it had enough supply by restricting planned transmission outages during the summer months and conferred with pipeline companies to ensure that natural gas needed to generate electricity made it to power plants.

Generators also responded to the higher prices, which peaked at $2,172.70 per megawatt hour during the hottest days — compared to last year’s average of $28 per megawatt hour — cranking up power plants during the peak demand periods, said ERCOT spokeswoman Leslie Sopko. Consequently, with supplies sufficient to meet demand, ERCOT didn’t have to issue pleas to consumers and businesses to conserve power."

"Power use hit 72,192 megawatts on July 18, surpassing the previous 2016 record. The following day Texas set another all-time, system-wide peak demand record, topping out at 73,259 megawatts between 4 p.m. and 5 p.m. One megawatt can power about 200 homes during a hot summer day in Texas."

"One former power trader said it appears ERCOT encouraged generators to operate their plants at maximum capacity and sell the power on what’s known as the “day ahead market,” a financially-binding forward energy market where generators agree to sell their power at a contracted price on the following day."

"That caused day-ahead prices to rise, which in turn spurred generators to produce more electricity"

"the price per megawatt hour in the day ahead market hovered between $1,400 and $2,000 during the hottest afternoons last month, compared to typical prices of $100 to $200."

"The soaring wholesale prices in the day-ahead market will likely filter down to retail customers in the form of higher rates, as would spikes in spot market prices"

Retail electricity companies did ask customers to conserve to avoid the higher spot prices.

"Typically, retail companies buy futures contracts to secure electricity for their customers and set prices for their power plans. But when temperatures spike and demand soars, retail companies must often turn to the spot market to acquire additional supplies."

How Odysseus Started The Industrial Revolution

Factory work may have been a commitment device to get everyone to work hard. Odysseus tying himself to the mast was also a commitment device. Dean Karlan, Yale economics professor explains how commitment devices work:

"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.

Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called "Save Me From Myself."] From my WSJ op-ed:

Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door."

 See What Can We Learn From Congress and African Farmers About Losing Weight?

Something like this came up recently in the New York Times, in reference to factory work and the Industrial Revolution. See Looking at Productivity as a State of Mind. From the NY Times, 9-27. By SENDHIL MULLAINATHAN, a professor of economics at Harvard. Excerpts:

"Greg Clark, a professor of economics at the University of California, Davis, has gone so far as to argue that the Industrial Revolution was in part a self-control revolution. Many economists, beginning with Adam Smith, have argued that factories — an important innovation of the Industrial Revolution — blossomed because they allowed workers to specialize and be more productive.

Professor Clark argues that work rules truly differentiated the factory. People working at home could start and finish when they wanted, a very appealing sort of flexibility, but it had a major drawback, he said. People ended up doing less work that way.

Factories imposed discipline. They enforced strict work hours. There were rules for when you could go home and for when you had to show up at the beginning of your shift. If you arrived late you could be locked out for the day. For workers being paid piece rates, this certainly got them up and at work on time. You can even see something similar with the assembly line. Those operations dictate a certain pace of work. Like a running partner, an assembly line enforces a certain speed.

As Professor Clark provocatively puts it: “Workers effectively hired capitalists to make them work harder. They lacked the self-control to achieve higher earnings on their own.”

The data entry workers in our study, centuries later, might have agreed with that statement. In fact, 73 percent of them did agree to this statement: “It would be good if there were rules against being absent because it would help me come to work more often.”"

The workers, like Odyssues, tied themselves to the mast to resist the temptation of slacking. This made it possible for factories to generate the large output of the Industrial Revolution.

The percentage of 25-54 year-olds employed fell in August

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates college age people who might not be looking for work)

The percentage of 25-54 year olds employed was 79.3% in August. It was 79.5% in July. It is still below the 79.7% in December 2007 when the recession started (it was 80.3% in January 2007).  Click here to see the BLS data. The unemployment rate was 3.9% in August. Click here to go to that data. The % of those 16 and older employed went from 60.488% in July to 60.272% in August.

Here is a good graph from the St. Louis Fed. It shows that there are 126,423,000 people in the 25-54 year old group. So since we are 0.4 percentage points below the 79.7% of December 2007, that is still about 500,000 fewer jobs (Hat tip: Vance Ginn of the Texas Public Policy Foundation).

Here is the timeline graph of the percentage of 25-54 year olds employed since 2008.


Here it is going all the way back to 1948


The annual numbers are important, too. It rose to 78.63% for all of 2017 from 77.925% in 2016. We have had 4 or more straight years of a 0.5 or more gain. The last time that happened was 1984-89. But we are still below the 79.9% for all of 2007 (the recession started in Dec. 2007).

Again, there were about 125 million people in the 25-54 year old group in 2017. So since we were 1.26 percentage points below the 79.9% of 2007, that is still 1.58 million fewer jobs.  It has averaged 79.25% so far for all of 2018.

A number of women who put off having babies after the 2007-09 recession are forgoing them altogether; more educated women and student debt also contribute to decline in birth rates

See U.S. Births Hit Lowest Number Since 1987: Last year’s fertility-rate drop was the largest one-year decline since 2010 by Janet Adamy of The WSJ.

"American women are having children at the lowest rate on record, with the number of babies born in the U.S. last year dropping to a 30-year low, federal figures released Thursday showed.

Some 3.85 million babies were born last year, down 2% from 2016 and the lowest number since 1987, according to the Centers for Disease Control and Prevention’s National Center for Health Statistics. The general fertility rate for women age 15 to 44 was 60.2 births per 1,000 women—the lowest rate since the government began tracking it more than a century ago, said Brady Hamilton, a statistician at the center.

The figures suggest that a number of women who put off having babies after the 2007-09 recession are forgoing them altogether. Kenneth M. Johnson, senior demographer at the University of New Hampshire, estimates 4.8 million fewer babies were born after the recession than would have been born had fertility rates stayed at prerecession levels."

"The postrecession baby lull appeared to be ending when births ticked up in 2014. But they’ve now fallen for three straight years, and last year’s fertility-rate drop was the largest one-year decline since 2010."

"One bright spot in Thursday’s figures, which are preliminary, is a continued sharp decline in teen births, which fell 7% last year. Since 2007, the teen birthrate has declined by 55%, and is down 70% since its peak in 1991. Children born to adolescents are more likely to have poorer educational, behavioral and health outcomes throughout their life."

"lower teen fertility accounts for about one-third of the overall decline in births among U.S. women.

The increase in women attending college is another force behind the birth decline, researchers say. Those with more skills face a greater trade-off if they interrupt their careers to have children.

“People are coming out with a lot of debt,” said Jennie Brand, professor of sociology and statistics at UCLA who has studied the impact of education on fertility. That gives them an incentive to keep working. “It’s another thing they have to grapple with before they might think about starting a family.”"

Related posts:

The Economy Affects The Birth Rate (2010)

Did The Recession Help Lower The Birth Rate? (2011)

U.S. Fertility Rate Hits Lowest Level on Record (2012)