Fallacies of targeted economic policies and green technology

I am generally against targeted economic policies, taxes and tax breaks. Though I am not ashamed to admit I itemize deductions on my tax return, I think that targeted policies usually try to micromanage economic behavior to a degree that is counterproductive and often has unintended consequences.

Consider cars and gas mileage. By fiat, the US government decrees an automaker’s allowable Corporate Average Fuel Economy (CAFE) that its entire fleet of cars and light trucks sold must achieve. The goal is to reduce energy consumption and dependence on foreign oil. But wait. Very heavy cars or SUVs aren’t part of the CAFE standard. So there is a perverse incentive to produce vehicles that are so heavy they don’t count which yields worse efficiency!

Sometimes, the intended consequence may only be a temporary phenomenon. Witness the recent Cash for Clunkers program. Intended to both stimulate car sales in the Great Recession and take older, less efficient vehicles off the road, it did temporarily raise car sales. But as the graph shows, sales fell right after the program ended, negating the uptick during the program. Consumers who timed their purchases right got lots of cash from everyone else, but the economy as a whole did not benefit. And the prices of used cars have soared, so those down on their luck can’t get cheap wheels. Hat tips HotAir and Coyote Blog.

Green technologies have a similar problem. You would think that making a product more energy efficient would lead to less energy consumption and less CO2 production. For example, lighting technology is going through a revolution. The incandescent bulb invented by Edison is gradually becoming extinct due to government fiat and competition from new technologies offering longer lifetimes and greater energy efficiency. Compact fluorescent bulbs (CFL) were the first wave and light-emitting diodes (LED) are the second.

But don’t count on the demand for electricity dropping anytime soon. You see, once government enacts a new regulation or a new technology becomes available, people and corporations react to it and change their behavior in ways that benefit them but don’t always produce the intended or naively predicted effect. The experts (in this case LED researchers from Sandia National Laboratories) are saying that people will change their behavior if more efficient lighting becomes available in ways that counter the purported savings.

Over the past three centuries, according to well-accepted studies from a range of sources, the world has spent about 0.72 percent of the world’s per capita gross domestic product on artificial lighting.

The article predicts that number will not change with LED technology. People will increase “the amount of lit work space and bright time,” thereby “increasing their creativity and the productivity of their society.”

Remember the CAFE standards ? When gas mileage went up with higher MPG cars, some people used the savings to buy more gas and travel more ! Keep that in mind if the administration comes out with new economic proposals between now and November.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: