Coyote Blog

Environmentalists often claim that people systematically under-invest in energy conservation, something they call a market failure.   This is why Obama and the Left put in a much heralded provision in the stimulus package that used Federal money to subsidize home energy conservation (new windows and insulation and such).

A new study in the NBER looks at the results.  This is the abstract:

Conventional wisdom suggests that energy efficiency (EE) policies are beneficial because they induce investments that pay for themselves and lead to emissions reductions. However, this belief is primarily based on projections from engineering models. This paper reports on the results of an experimental evaluation of the nation’s largest residential EE program conducted on a sample of more than 30,000 households. The findings suggest that the upfront investment costs are about twice the actual energy savings. Further, the model-projected savings are roughly 2.5 times the actual savings. While this might be attributed to the “rebound” effect – when demand for energy end uses increases as a result of greater efficiency – the paper fails to find evidence of significantly higher indoor temperatures at weatherized homes. Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually.

The only failure here is the government diverting capital from productive uses into money-losing ventures like this one.

I posted the other day that one explanation of rising health care expenditures in the US is rising wealth.  As we are wealthier than other Western nations, doesn't it make sense we would spend more on our health than other nations.

James DeLong adds:

Robert Fogel, in his NBER paper, which has more detail than his American article (and will cost you $5), looks at changes in U.S. consumption patterns from 1875 to the present. A striking number is the reduction in the costs of the basics -- food, shelter, clothing took 74% of income in 1875; 13% in 1995. This has freed up a lot of income, and one of the great gainers has been health. In 1875, it took only 1% of consumption, largely because there was little to be bought, except for patent medicines loaded with alcohol and opiates, or a saw to lop off an injured limb. By 1995, it was 9%.Leisure was another big gainer -- 17% in 1875; 68% in 1995.

So if improvements in medical technology lead people to reallocate money toward health, fine.