Friday, November 27, 2009

Dollars for Dishwashers

On the heels of its ballyhooed "Cash for Clunkers" program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza, known as "Cash for Appliances."

Supported by $300 million from the economic stimulus, the program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace their older models.
This program is just as misguided as the original Cash for Clunkers.  The only half-way respectable argument in its favor is the one offered by the Council on Economic Advisers:

Clunkers "is one of several stimulus programs whose purpose is to shift expenditures by households, businesses, and governments from the future to the present," the council wrote in a September report. "Such time-shifting is valuable in a recession, when the economy has an abundance of unemployed resources that can be put to work at low net economic cost."
This view could be right in principle, but it is unlikely to be right in practice.  Just as governments are error-prone and easily swayed by special interests when it comes to picking industries to support (industrial policy), they are likely to miscalculate often in picking when and where to stimulate.

Plus, this particular stimulus requires destruction of consumer durables that still work, an unambiguous waste.

Given its $300 million size, the program cannot have much influence.  But a better approach with that $300 million is to reduce tax rates and let consumers choose how to spend their money.

16 comments:

Eric Olson said...

Mr. Miron,

Shouldn't we wait to see the details? Kitchen and laundry appliances are responsible for over 40% of household energy use, at least here in New England,

http://www.eia.doe.gov/emeu/reps/enduse/er01_new-eng.html#Electricity

and there have been strong gains in efficiency of many of these devices in recent years. According the the McKinsey report "Unlocking Energy Efficiency in the US Economy", residential energy use accounts for 35% of energy efficiency potential (exclusive of the transportation sector) in the US: the report identifies numerous barriers that prevent net-present-value-positive actions from being taken by households and urges that incentives be better aligned, in part through government programs.

In a recent post on the NY Times you urge a carbon tax be imposed on fossil fuel energy, isn't it appropriate that we also seek ways to encourage consumers to swap out their energy hog devices for more efficient versions? One of the criticisms of the cash for clunkers program was that the newer cars eligible for the program were not significantly more efficient than the older cars swapped in, but history is not destiny. The devil is in the details.

Sincerely,

Eric Olson
Brandeis Univ.

Eric Olson said...

Correction - "Kitchen and laundry appliances are responsible for over 40% of household energy use" should have read

"Kitchen and laundry appliances are responsible for over 40% of household ELECTRICITY use." The proportion of these devices in total energy use is much less than 40% if we include wintertime heating by fuel oil or natural gas, but they are still a substantial proportion and much greater than lighting (~ 13% of household electricity).

- Eric Olson

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