Generally speaking I’m in favor of exposing people to the risks the natural world inevitably presents to them, or at least not protecting them too much from experiencing those risks personally. That way, risk mitigation remains decentralized so that effective mitigation strategies emerge organically, producing anti-fragile outcomes.
Dynamic electricity pricing could serve that purpose by giving unpredictable weather the power to break household budgets. Consumers’ lives would be closer to the ideal of living in caves, left to their own devices to make themselves as comfortable as they could, first armed with some degree of foreknowledge then accumulating experience to guide them in the future.
But the ideal can’t happen in isolation. Dynamic electricity pricing would be a lot like paying for healthcare without insurance. It might be the right way to go, but there would be loud complaints. Some would say it is unfair that the poor are hardest hit when bad weather drives electricity prices vastly higher. Others would say that a disproportionate number of those hardest hit are of a particular race; therefore dynamic electricity pricing is racist. Still others would argue that harming large numbers of persons via sky-high electricity bills violates the social contract in which the general welfare supposedly derives from the contrived welfare of every individual.
The complaints would motivate politicians to _do something_, and they would, just as they approved Blue Cross/Blue Shield as a way to pay for hospitals (essentially quarantine facilities at the time) that the patient population alone wouldn’t buy or couldn’t afford. The key effect of that one intervention has been, arguably, to drive decades worth of incremental price increases in healthcare. The same would be the result of any intervention that tried to protect electricity consumers from wild swings in dynamic pricing.
Tyler Cowen believes that dynamic pricing for electricity would curb demand during peak usage periods. This in turn would make technical management of the electrical grid easier, improving reliability. But note that having consumers reduce demand is the same in technical terms as having grid managers cancel supply using blackouts. The only material difference lies in who makes the decision to use less electricity. But placing that choice in consumer hands makes the best technical solution somewhat less certain, since consumers might choose to continue using electricity under circumstances where grid managers would not.
All these considerations reflect classic conundrums in economic analysis. Most economists believe (strongly!) that free markets produce optimal solutions. In reality people sometimes suffer under free-market conditions. It is probably the case that economists can’t solve the problem of human suffering, but there are always utopians who believe the problem of human suffering _can_ be solved. Given the choice, it is the utopians who should be disbelieved.