There are thousands of different motivations for regulation – a cleaner environment, an equal opportunity workplace, a more secure banking system – but each motivation has an underlying and often unspoken implication. The government, because of its army of bureaucratic experts, knows best how to make those goals happen. But time and again, regulators prove just the opposite, that they are inferior to individuals when it comes to making the most rational and the most cost-effective decisions to meet those socially beneficial goals.
Consider the humble dishwasher.
The Department of Energy has recently issued a final rule on “Energy Conservation Standards for Residential Dishwashers.” Its stated reason for imposing water and energy standards on dishwashers is two-fold. First, obviously, is to save on water and energy. But the Department of Energy also wants to save consumers money. Consumers, they argue, have “a lack of sufficient salience of the long-term or aggregate benefits.” That is Washington-speak for individuals are too stupid and short-sighted to see what is best for themselves, so the experts will force us to save money through regulation. In fact, according to the DOE’s justification for the rule, almost all (between 87.8 and 94 percent) of the benefit comes not from the relatively minor water and energy savings, but from economic savings imparted to stupid consumers.
The government’s logic is simple. Yes, consumers will spend more for dishwashers up front (almost 50 bucks more per dishwasher). But since these more expensive dishwashers use less energy, consumers will make up that savings in lower electric and water bills. Here’s the catch … it takes 11.8 years to break even. If you buy a new dishwasher tomorrow, you will move out of the red on July 7th, 2024.
It gets even worse, as Sophie Miller at George Washington University’s Regulatory Studies Center has recently documented. The average lifespan of a dishwasher is 9-12 years, so some small fraction of consumers should actually manage to reap minor savings from a new machine (or minor savings from your neighbor’s dishwasher as only about 50% of homeowner’s stay in their home for more than ten years). Unfortunately those who will never see the savings are those most affected by an increased upfront cost – the poor and the elderly. Because those groups use their dishwasher less, the time it takes to generate savings is greater (over 13 years) and almost everyone will need a new dishwasher before then. It turns out these consumers are not choosing more energy efficient dishwashers because they are simply more expensive – it is not due to a “lack of salience.”
“So what?” one might argue, $44 per dishwasher is a pittance for each individual to pay and at least we help the environment, albeit with minimal energy savings. Actually, probably not. A dishwasher, while a great convenience, is not essential; some consumers, primarily those with low-income who will never see financial benefit, will forgo a dishwasher and wash their dishes by hand. Hand-washing, however, results in higher energy costs (140 percent more electricity and 350 percent more water). And this doesn’t take into account the lost opportunity cost from the added time of hand-washing – a loss that even at minimum wage amounts to hundreds of millions.
The lesson is simple – consumers are not uneducated or irrational; they are superior decision makers compared to the federal government. And when anyone attempts to limit individual’s choices, the costs will always outweigh the benefits.
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