Spend any time with the Left at heart and you are bound to hear some version of the following rant: Advertising is ruining this country. It’s convincing people to buy things they don’t need! The big corporations have convinced us that happiness equals material possessions. Consumerism is the new opiate of the masses! I’ve got to go write all this down in my MacBook! — etc.
The thinking implicit in rants like these is that the government ought to order consumer preferences based on what smart academics, altruistic activists, and serious environmentalists thinkpeople need. Consumers, of all people, can’t be trusted to decide for themselves. Ironically, this is the philosophy that brought us the Cash for Clunkers program, which induced consumers to buy something they reallydidn’t need: new cars, when their old ones were running just fine.
A new program, informally known as Cash for Appliances, applies this model to refrigerators, dishwashers, and washing machines. As with Cash for Clunkers, the program will have both economic and environmental components: Cash rebates of $50 to $200 will stimulate the market for home appliances, currently off 20 percent from its peak during the housing boom. Meanwhile, the rebates will be tied to the purchase of Energy Star appliances, which are certified by the government to meet a certain level of energy efficiency. The program was one of many slipped into the stimulus bill, and the Department of Energy has announced that it will take effect this fall. Save an industry, save the environment: What’s not to like?
Start with the flawed economics. Take a guy who has a refrigerator that works fine. Let’s say that a $200 rebate from the Cash for Appliances program convinces him to upgrade to a nice, new, bottom-freezer, French-doored Energy Star model that costs $1,200. He spends $1,000 of his own money plus $200 of the treasury’s money. The guy gets a new refrigerator. The manufacturer and the retailer get paid. The government declares the program a success.
But nobody asks what would have happened to that $1,200 if the government hadn’t subsidized the purchase of a new fridge. Would the guy have buried his $1,000 in the back yard? Of course not. He would have spent it on other consumer goods or saved it — most likely in a bank, which would have invested it. Furthermore, whoever loaned the government that $200 would have invested it elsewhere if the government hadn’t borrowed it. The Cash for Appliances program, then, will not have “stimulated the economy” — it will have shifted resources toward one economic activity at the expense of another, possibly more productive, one.
Nor is the program likely to achieve significant environmental benefits, primarily because there is an environmental cost associated with the production of a new appliance that often will exceed the benefits of greater energy efficiency. Bob Markovich, an editor with Consumer Reports, says, “If you’re simply replacing a perfectly good appliance to save energy, if you look at entire life-cycle of the appliance, it may not make sense.” Markovich — who, it should be noted, likes the idea of offering rebates for efficient appliances — says, “If you have an appliance that’s already on the way out, it makes sense to look at an Energy Star model.” However, the Cash for Appliances program isn’t targeted to consumers who have repair-prone or broken models. Unlike Cash for Clunkers, you don’t have to return an old appliance in order to qualify for a rebate on a new one.
The problem with Cash for Appliances is that the people who are most likely to take advantage of the program are the people who are least likely to need it. Most consumers grasp on some level that energy-efficient appliances will save them money on their utility bills over time. That’s why middle- and high-income families already have an incentive to invest in money-saving models. But energy-savers cost more than many low-income consumers are willing or able to pay.
From an environmental standpoint, a subsidy for energy-efficient appliances would only make sense if it were targeted to low-income families and available for a period of years, not months. A “grab the cash” rebate program like Cash for Clunkers would only encourage people with plenty of disposable income to replace perfectly good appliances with new ones.
Like Cash for Clunkers, the Cash for Appliances program would subsidize waste and needless consumption. Neither the economic nor the environmental benefits justify the program’s $300 million cost to taxpayers. Next time you hear someone laughing at the gullibility of the American consumer, laugh back at the idiocy of Congress. The preferences of one have given us a neverending stream of innovations. The directives of the other have given us Fannie Mae, corn ethanol, and now Cash for Fill-in-the-Blank.