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July 27, 2008

The Humble Light Bulb: A Victim of Political Stupidity and Green Zealotry
by Gerard Jackson

Every journalist in the land seems to be going ga-ga over the new "energy saver globe". This is the eco-friendly alternative to the devilish and grossly inefficient incandescent bulb. We are being incessantly told by our media mavens that the new alternative is cheaper in the long term than the old light bulb and that it will save just oodles and oodles of energy and that it would be irrational not to buy it.

The funny thing is that Joe Public has to be mandated by arrogant politicians into buying the next best thing to sliced bread. Why is this so? Because in the eyes of his intellectual and moral superiors in the media and politics he is just too dumb to know a good thing when he sees it. Therefore his betters must intervene to save him from his ignorance short-sightedness.

Irrespective of what smart-aleck journalists and pompous politicians think Joe Public is being perfectly rational in choosing the incandescent bulb over the new wonder light, despite the fact that calculations showing the technical superiority of the new product are correct. The principal problem is that politicians and journalists are economic illiterates. If it were otherwise they would never have confused technical efficiency with economic efficiency.

If technical efficiency was the sole determinant then consistency would demand that these advocates should also promote silver, gold and platinum as alternatives to copper wiring because they are superior conductors. But, as they would argue, these metals are too expensive for the job and that's why we need copper.

The same goes for solar panels. If these were 100 per cent efficient they would still be grossly inefficient economically because they involve massive diseconomies of scale where as centralised power generation gives us economies of scale. When it is realised that what really matters is economic efficiency the case for mandating fluorescent lighting and other alternatives falls to the ground.

Philips' figures show that the running costs of a $6 11 watt energy globe (the equivalent of a 60 watt incandescent globe) over a three year period would be $6.60 while the $1.0 alternative would cost 36 dollars for the same period. A "slam dunk deal", as Americans say. Only it ain't. Let us return to our hapless consumer, the one who is too stupid to know how he should spend his money.

In a free market he would have the choice of both products and he would choose on the basis of which one gave him the greatest satisfaction. In this case let us make it the destructive incandescent bulb. Running this light for one year will cost him $12 while the other one will cost $2.20. What is being overlooked, however, that he is not calculating costs in this mechanical way. He is comparing $1.0 for the incandescent bulb with the $6 for the so-called eco-friendly alternative.

By spending $1 he finds himself with $5 to spend on other goods. What we have here is an example of opportunity cost. It is very clear, therefore, that he values the additional goods more than he values the 'eco-friendly' light. But what about future savings? This question brings us to time preference, the preference for present goods over future goods. In other words, we value present goods more highly than those in the future.

If one were to ask these journalists if they would prefer to have a $100 today or $100 in a year's time, they would choose to have $100 today. By making this choice they reveal that they value $100 today more highly than $100 in the future. This means that these sums of money are being correctly treated as two different goods, with time making the difference. (Incidentally, this is why we have interest). If they were being treated as identical goods it would then be a matter of complete indifference to our journalists whether they chose $100 today or vice versa. The same goes for buying lights or any other goods.

Future cost savings are just that -- in the future. If the consumer chooses the incandescent light then he is clearly stating that the cost of the alternative exceeds the value of its future benefits. In general, the lower the consumer's income the higher his time preference is likely to be. From this we conclude that mandating these lamps reduces the welfare of the less well off, as does the absurd tax on plastic bags. (Plastic bags v. greenie bigotry). However, this fact didn't faze Malcolm Turnbull, one of the economic illiterates responsible for the policy of banning incandescent light bulbs.

This leaves our activists with the externality argument. According to them the humble light bulb is a case of market failure that is 'polluting' the environment and as this cost is not built into their price they must phased out in favour of an alternative that produces very little in the way of externalities. Two free market economists nailed this argument when they pointed out:

Taxes do not result from a market process, nor do they reflect allocation decisions of resource owners . . . In other words, taxation is a method of intervening, not an alternative to intervention or nonmarket allocation. (O'Driscoll and Rizzo, cited in Efficiency and Externalities in an Open-Ended Universe, Ludwig von Mises Institute, 2007, p. 13).

(For those who might be a little confused on this point, there is no fundamental difference between mandating incandescent bulbs out of the market or putting a prohibitive tax on them. As for pollution, Co2 is a nutrient and not a pollutant. Moreover, thousands of scientists are now challenging the phony science of man-made global warming. In addition, there has been no global warming for ten years. These scientists know that the amount of carbon dioxide in our atmosphere is a mere 0.38 per cent while the Martian atmosphere is 95 per cent carbon dioxide. These are facts that you will not find in our scaremongering rags)

We must now examine the greens' hypocrisy. Back in the late '60s or early '70s green fanatics whipped up hysteria about traces of mercury being found in tuna and how it would poison us. Research later found that the amount of mercury found in tuna was perfectly normal and had nothing to do with industry. I raised this case because mercury is a necessary component of the greens' new wonder lamp. So the same fanatics who railed against traces of mercury in tuna are perfectly happy to bully us into installing mercury-laden lamps in every room in the house. (This raises the question of who should be sued if someone is harmed by mercury from one of these 'eco-saving' lamps).

If I break a an ordinary bulb I merely have to sweep up the bits and put them into a bin. Not so with 'green lights'. When they break they need to be disposed of in a responsible manner. Philips, one of the companies manufacturing these lights, states:

All mercury-containing products must be disposed of responsibly. As more of us adopt CFLs to help save energy and contribute to a better environment, it becomes more important that our community has a recycling programme for mercury and other environmentally unsafe materials. (Make the switch to energy efficient lighting).

Will the policy phasing out the incandescent raise the demand for electricity?

Minimising energy in an effort to lower production costs is self-evidently good business practice -- it also has the ironic effect of raising the demand for electricity. This is because reducing the use of electrical energy per unit of output in production processes is similar to reducing its price. What matters is not the ratio of energy to output but the ratio of the value of the output to the value of the inputs, of which the energy source is one. Therefore it does not matter for demand whether the fall in the cost of energy as an input is caused by a reduction in price or by an innovation, the result is the same. Economic history has numbers of examples of this process and only economic rationalism (market economics journalists) can explain it.

The steam engine is an excellent example of this process. Before Watt's innovations the steam engine was horrendously wasteful. The introduction of Watt's separate condenser alone improved 'energy conservation' by a factor of four. This not only increased the demand for coal but also for more steam engines which in turn led to more innovations which in turn.... This very early example of 'energy conservation' was brought about by market forces, not meddling politicians or ignorant 'journalists', and its reverberations were quickly felt throughout the economy by stimulating economic growth and raising the demand for labour.

Those who may think that the steam engine is only isolated example should look at the findings Herman Inhaber and Harry Saunders (Road to Nowhere (The Sciences, published by the New York Academy of sciences, 1994). The authors gave historical examples to support their case that the amount of energy per unit of output falls the demand for electricity rise.

Gerard Jackson
BrookesNews.Com

Gerard Jackson is Brookes economics editor.