There is a famous story about Nobel Prize-winning economist Milton Friedman walking down the street with a friend. The friend stopped and said, “Hey, there is a $20 bill on the sidewalk.” The economist turned to him and replied, “There can’t be. If there were a $20 bill on the sidewalk, somebody would have picked it up.”
Friedman often taught that if something were in people’s best interest, they would discover and put it to use without having to be told or forced to do so. A Forbes economic writer named Tilak Doshi, a long-time energy economics analyst, wrote a great piece called “The Energy Efficiency Paradox,” in which he highlights the folly of governments around the world forcing consumers to make energy choices designed to save them money. He describes the government theory as “bureaucrats working in the [International Energy Agency], World Bank, EPA and others on tax-funded salaries… telling us, hey, there are these massive energy efficiency opportunities to help our economy with ‘win-win’ outcomes; there are cheap solutions for producers which remain unexploited despite their obvious benefits.”
But if the benefits of such “energy efficiency” measures are so obvious, why do producers and consumers need mandates and regulations?
A few years ago, “American Amnesia” author Helen Krieble broadcasted a series of “freedom minutes” on several hundred radio stations. In one, she mentioned the requirement for building permits to replace windows in her home. “Some advocates may want to protect me from an installation that may not save as much energy as I wanted.” But, she asked, “isn’t that really my responsibility?” In explaining a founding principle that is unfortunately controversial nowadays, she said simply, “Americans believe in limited government because we believe in self-government. We need the government to protect us from foreign invaders, not from drafty windows.”
The same is true of home appliances, which the federal government now regulates for “energy efficiency.” Yet, the new appliances cost more and do not deliver the promised savings, because of something the government never reports – the “rebound effect” of subsidized energy on energy demand. A Cato Institute study cited an example from several years ago, in which the Mexican government provided subsidies to replace old refrigerators and air conditioners with more efficient ones. The government predicted it would save 30 percent more energy, but the actual savings turned out to be only 7 percent.
What really happened was that consumers took advantage of the money to buy bigger and better refrigerators, and bigger and better air conditioners, which “actually consumed more electricity because they cut the cost of attaining previously unaffordable comfort levels.”
Years later, governments around the world continue to apply “energy efficiency” measures, including mandates, regulations, and subsidies to force producers and consumers to make choices they are not otherwise making. Why not? Because such choices are not actually more “efficient” from the economic perspective – they cost more, not less.
Government reports often mask the mandates in terms that emphasize “enhancing energy security and affordability.” The word “affordability” is almost always included, but does anyone believe the new dishwashers are cheaper than the old ones, electric cars are cheaper than gasoline cars, or forcing people to buy new stoves will save them money?
Doshi asks, “Don’t policy makers know that if I run my own business or my own household, I will reduce costs as far as possible, to maximize my own profits or my own household income? Do I really need a bureaucrat to tell me how to save money?” Clearly, if the newly mandated appliances, cars, and home-building materials were more efficient and saved money, consumers would flock to them without mandates.
The Mercatus Center studied the economic justification for recent energy efficiency regulations, including vehicles, appliances, and light bulbs. “The standards have a negligible effect on greenhouse gases and the preponderance of the estimated benefits stems from private benefits to consumers, based on the regulators’ presumption of consumer irrationality.”
To assume free people voluntarily ignore things that save them money and enhance their quality-of-life is to assume ordinary people are too dumb to know what’s good for them. Too dumb to govern themselves.
That was Plato’s view 2,400 years ago, suggesting rule by a “philosopher king,” who was both wiser and better educated than ordinary people. Alexander the Great was called a philosopher king because he was both well-educated and a highly skilled military general. Frederick the Great was similarly dubbed, being both the absolute ruler of Prussia and a published author.
Jefferson and other American founders were philosophers and scholars, too, but they did not want to be king. They believed ordinary people could govern themselves, something current government regulators apparently no longer believe.
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