Robbing Peter to Buy Paul an Energy-Efficient Washing Machine
On Friday, the Kansas City Star printed a editorial that praises Missouri’s appliance rebate program (link via Combest). It communicates a short-sighted view, failing to consider all of the consequences of the policy. As I have previously discussed in an editorial and blog posts, the appliance program is undesirable policy for many reasons.
The author of the editorial states:
[W]hen [Department of Natural Resources officials] noticed that the recycling requirement seemed to be slowing the program, they bumped up the amount of the rebates. The one for dishwashers, for instance, rose from $75 to $125.
Just like “Cash for Clunkers” did, the rebate program distorts the market to nudge individuals to buy appliances that are government-approved, not those appliances that they would have otherwise purchased. The fact that people were slow to buy these appliances despite these increased marginal incentives demonstrates that there is little market demand for them.
By providing a subsidy to individuals to incite them to buy something they otherwise consider to be too costly, rebate programs create dead-weight loss and therefore destroy wealth in the economy. (Targeted tax credit programs do this, too.)
From the article:
The program lasted longer than expected, partly because the state didn’t go overboard — as a few other states did — in offering generous rebates for energy-efficient appliances.
Exactly how much rebate should the state give in order to “go overboard?” What is the socially optimal level of energy-efficient appliances in the economy? I don’t know what this level is, and our friends in Jeff City don’t know, either. The problem is that no one has access to perfect information. It would be beneficial if the state government stayed out of the market and instead let Missouri residents determine this level for themselves through spontaneous order.
To date, Missouri has made good use of federal stimulus dollars to help families use energy more efficiently and produce a cleaner environment.
Is this quantifiably true? Statements like these are impossible to refute because they include no facts. It is quite possible that the intended environmental impact is negated through the construction of the program. I wish that supporters of programs like these would provide specific facts about their environmental outcomes, so I could perhaps dispute them by offering a more complete set of facts.
Furthermore, even if this rebate program did provide environmental benefits, the state should weigh those benefits against the marginal cost of the program.
The boost in business for appliance dealers is an extra benefit.
This boost is both artificial and temporary, and it will end when the rebate program ends. When the government stops funneling other people’s money to the appliance dealers, this “boost” will disappear. In fact, appliance dealers will likely see fewer sales in the immediate future because the transactions that would have otherwise occurred were pushed into the present.
Furthermore, although this policy may help a small group (appliance dealers) in the short term, it will hurt a much larger group: taxpayers. The $4 million that is transferred via rebates isn’t found money; every cent of it comes from the pockets of taxpayers. When this money is devoted to rebates, taxpayers can’t spend it in the private sector on goods and services that they desire more and would have otherwise bought had they been allowed to keep it.
