Think “otherwise” to know if a strategy worked, by Mark Chussil

Texans’ electric bills used to be among the cheapest in the USA. Now, six years after deregulation took effect with promises of lower rates, Texans pay some of the highest rates in the land.

Did deregulation fail? As you might expect, there is a lot of passionate commentary whizzing around the internet. Most of it is predictable. Some of it is intelligent.

But passion and comparisons of today’s rates to pre-deregulation rates don’t answer the question of whether deregulation worked. The answer needs to focus on one key word: otherwise. To know if something worked (or at least if it was a good decision, which is a different thing), we need to look at what would have happened otherwise.

Although we’re focusing on watts going on in Texas, the “otherwise” question is relevant whenever we want to know if something worked. Did the marketing campaign work? Did the mass-transit program work? Did the zoning laws work? Did the outsourcing work?

At one level we judge whether something worked by seeing if we achieved an objective. We wanted to double sales in two years, we ran the new marketing campaign, we doubled sales in two years. We leap to prior hoc ergo propter hoc, which is Latin for we ran the new marketing campaign, we doubled sales, therefore the new marketing campaign caused the doubled sales. “Therefore” is a heroic stretch. Maybe our new product or our new sales manager or our competitor’s stumble is responsible for our doubled sales. Maybe they did it together with the new marketing campaign. Maybe our sales doubled because we debottlenecked supply and distribution.

“Otherwise” talks about another twist, in which I get to use my remaining Latin, ceteris paribus, meaning all else being equal. Given the new product etc., maybe our sales would have stayed flat with the old marketing campaign, which would suggest that the new marketing campaign worked. Maybe our sales would have tripled if we’d had a different marketing campaign, which would suggest that the new marketing campaign failed (or at least that we failed in our selection of marketing campaigns).

Ceteris paribus isn’t easy. It’s the gold standard we use in double-blind clinical trials of drugs and medical treatments, but the business equivalent of clinical trials is difficult at best. So, we use technology to test otherwise. I’ve written elsewhere about the limitations in some kinds of analysis. In my experience, well-designed simulation is the way to go. (Incidentally, Skeptical Inquirer magazine reports in a review of Mark Buchanan‘s The Social Atom that the state of Illinois successfully used simulations to avoid the missteps in California’s deregulation of the electricity market. ) But whatever the technology, the point is that it is possible to test otherwise.

Now, back to Texas. I understand that people may like or dislike the results (so far) of the deregulation decision and implementation, and, having read a newspaper article, I now have a passionate opinion. But preferences and passion, even my preferences and passion, don’t answer the did-deregulation-work question. Historical comparisons – electric rates then, electric rates now — also don’t answer it.

Preferences, passion, and history don’t tell us what Texas (and the rest of us facing knotty problems) should do next. What’s indispensible, the sine qua non (I guess I had one more Latin phrase in me), is that we must think clearly about the question and not leap to a satisfying-but-shaky answer. We need otherwise.

Update: Texas has announced that over several years it will more than triple the capacity of the parts of its electric grid needed to accommodate a major increase in wind power. Otherwise changes again.

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