Free Markets, Free People

Government mandates and the law of unintended consequences

Your “Econ 101” lesson for the day is a lesson politicians never seem to grasp, although they do love to harp on is “greedy corporations” outsourcing “American jobs”.  In effect, they play off of free market decisions necessary to maintain competitiveness in order to characterize corporations as the bad guys (and, naturally, they and government as the white knights).

Of course the market decision I’m speaking of concerns doing what is necessary to remain competitive in highly competitive markets. And, one of the highest costs of production is headcount or the workers.  So in a free market, competitive industries are going to seek the lowest cost possible for labor to remain competitive. 

That may mean moving to a new country for labor intensive industries where labor costs are lower.

But sometimes it isn’t “greedy corporations” that drive American jobs offshore.  Sometimes it is the US Government.  Take light bulbs for instance:

The last major GE factory making ordinary incandescent light bulbs in the United States is closing this month, marking a small, sad exit for a product and company that can trace their roots to Thomas Alva Edison’s innovations in the 1870s.

Wait, you say, there’s still a demand for light bulbs!  Of course there is – but thanks to government intrusion, that demand, by law, is only for a particular kind – not the incandescent types that we actually manufactured here.  Instead of letting the market decide which type of light bulb it wanted, the government decided to mandate it. And what you are now allowed to “demand” is a compact fluorescent, or CFL.

What made the plant here vulnerable is, in part, a 2007 energy conservation measure passed by Congress that set standards essentially banning ordinary incandescents by 2014. The law will force millions of American households to switch to more efficient bulbs.

The resulting savings in energy and greenhouse-gas emissions are expected to be immense. But the move also had unintended consequences.

Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.

Consisting of glass tubes twisted into a spiral, they require more hand labor, which is cheaper there. So though they were first developed by American engineers in the 1970s, none of the major brands make CFLs in the United States.

CFLs, as noted, are more labor intensive to manufacture than are incandescent bulbs.

China’s labor costs are far less than the US’s.  Therefore, the US government’s mandate ending the use of incandesents by 2014 and mandating CFLs be purchased in their place drove the domestic lighting industry – and the jobs it produced – off shore.  And all based on dubious science and the apparent belief that energy production is finite and waning.

Oh, and “how about those green jobs?”  Another promise shipped off to China.

When you screw that CFL in some family in China will thank you.  And when you pay your taxes some of which go toward unemployment benefits for former light bulb manufacturers here – make sure you thank the politicians for the job well done.  I’m sure those former GE workers will.




Tweet about this on TwitterShare on FacebookShare on Google+Share on TumblrShare on StumbleUponShare on RedditPin on PinterestEmail this to someone

21 Responses to Government mandates and the law of unintended consequences

  • Correct me if I’m wrong, but aren’t these bulbs (the CFLs) also the ones that have fairly high levels of mercury, which is an environmental and health hazard? So, they force us to buy these bulbs in order to save energy, yet expose us to higher levels of mercury. Yeah, that makes sense….

  • This is one of those idiot, overweening laws that Congress should never have passed.  It it predicated on voodoo.
    Hard to find a law passed in the last few years, in fact (and there are LOTS of contestants) that more perfectly typifies the madness of our Federal government and its reach into the lives of all Americans.

  • I once read a story about a woman who had inadvertently broken one of those CFL bulbs.  She called up to get instruction on how to clean it up.  The response sounded like the cleanup of the Exxon Valdez.

  • I blame George W. Bush. He signed the damn law. This is exactly the type of wrong headed federal meddling that Republicans allegedly oppose. This is the same mind set that has given us low flow toilets and low flow shower heads. Not to mention the absurdity that is EPA mileage ratings. Numbers that bear only a theoretical relation to how folks actually use their cars.
    I’m all for efficiency. But the list of devices that are being proscribed “for our own good” or “the good of the planet” grows longer each year. How exactly does that comport with a government of limited and defined powers? Are those ideas consonant with the ethos of free choice in a free market? I have no quarrel if people want to buy CFL bulbs. Maybe the economics makes sense. But, how many people know that these things contain mercury? How many people know that under EPA guidelines a broken CFL bulb creates “hazardous waste” and should be cleaned up using special procedures?
    Why are incandescent bulbs so inexpensive? Because they have been manufactured for over 100 years. Imagine the benefits we’ve gotten from the cost curve reduction. So now we have to throw away 100 years of experience in quality and efficient production. The substitute costs 20 times more. I’d be willing to bet that the labor content (in hours) is about 10 times greater for a CFL bulb than for an incandescent. If you want to make and sell those at a profit, you’re going to have to go where labor is cheap.
    This is a clear case of jobs Americans can’t do, because their own government won’t let them.

    • Hey, I don’t care who you blame, it’s a classic case of unwarranted government intrusion in a market costing jobs here. No one said Republicans were blameless – it was aimed at all politicians. While GOP types may not get on the “greedy corporation” bandwagon, they are just as responsible as the Dems for this sort of legislative stupidity.

    • Maybe the economics makes sense.

      Where they do…when they do…people can buy them.  I’ve been buying them for well over a decade for SOME applications.  For others, they stink.
      I’m buying up incandescent bulbs every time I see them.  I think it was Doug Ross that was predicting a Mexican cartel in bulbs in a few years.  Only a slight departure from reality….

  • Politicians lie about green jobs. First they list all the stuff they want to ban, like oil drilling, and factories, and they say “and I will create millions of green jobs.”
    First of all, most of the investors in the technology build their factories in China or simply outsource it to previously existing Chinese factories. So, the only jobs for Americans will be driving a forklift or sweeping the warehouse floor. Oh, and US companies never get any of the domestic Chinese orders for wind power farms, etc. Those all go to Chinese owned firms.
    Secondly, most green jobs are reliant on government subsidies. So really, its completely self-defeating to replace actual jobs with these jobs. Oh, if we were in surplus, with nascent technology, maybe., maybe it could be worth some subsidy. But now we can’t afford it, especially if the manufacturing is all outsourced. There is less and less bang for the stimulus buck that way.

    • Oh, if we were in surplus, with nascent technology, maybe., maybe it could be worth some subsidy.

      Worth it for whom?

      But now we can’t afford it…

      Ambiguous Collective Fallacy.  In a free society, no one would stop people who want to “go green” from using their resources to do so, and since they weren’t spending other people’s money, they would have a real incentive to make sure they (not “we”) could afford it.

  • Government grants and the Unintended Consequences …

    MILWAUKEE — When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down. But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down. Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.

    I think I’ve seen this movie before.

  • The closing of this GE plant is just one more unnecessary tragedy caused by the unintended consequences of government intervention of the market place.

    Your argument that U.S. corporations move their factories to other countries be labor costs are so much lower in these countries i, in my opinion more myth than fact. Labor costs are indeed a factor but much more important is the lower cost of government in the production process. I’m no economist but what I’m saying is this: Company A manufactures widgets for export. Company A pays corporate taxes which are reflected in the price of the widgets. To produce these widgets Company A buys consumables and materials from Companies B,C,and D; all of which pay corporate taxes which are reflected the price they charge Company A. Companies  B,C, and D of course buy their consumables and materials from another group of companies that have paid taxes and passed the cost along. So the price of the widget that company A wants to export reflects a long chain of taxes and this is the biggest factor as to why American manufacturers are not competitive. On top of all the taxes are the costs of complying with a myriad of government regulations. I strongly believe that American businesses could be competitive in spite of higher wages if the cost of government weren’t so damn high.

    • More American businesses would be more competitive in a land with lower taxes and regulations. The question of where to manufacture a product is also arguably more complex than just wages. Most domestically produced products carry a labor burden of 40 to  50% (wages, taxes, insurance etc), that’s a high hurdle to jump over. That’s why the US still manufactures products with high value added. Same with the Germans. If you manufacture cotton shirts or shoes, there’s no way you are going to be able to do that domestically without a near totally automated plant. New Balance is the only shoe manufacturer with domestic production. But then they don’t compete in the $25 tennis shoe market. There is an interesting dichotomy. Toyota, Honda, Nissan et al produce cars in the US because our labor costs are lower than Japan and the plants are closer to the customers. We don’t disagree though. Government should be in the business of minimizing costs for domestic producers.

      • Labor costs are a false indicator.  Cost of production is all that matters, and where (as in the U.S.) you have highly productive people (due to capital investments), high wages are of little consequence.

    • It depends on the product. Labor costs do matter for labor-intensive products. Regulations and taxes matter as well. Labor productivity is important as well. It really all depends on many factors.
      China also has some strange things going on, like connected people can borrow super cheap, run a factory and see what happens. I don’t think that happens so much here.

    • I specifically said that industries that are labor intensive look to lower that cost of production by moving to where labor is cheaper. I don’t necessarily agree that American labor is willing to be as competitive as it must to get those jobs back – but that may change in the future driven by necessity, who knows? That said, I agree with your other point and see it as a contributing factor to the move as well.

  • Those chinese factories that produce the CFLs are alot more dirty (polution output) compared to american factories and they probably are supplied with energy from very dirty coal plants with no environmental control equipment. Therefore the net effect on the environment is zero. The environmentalist never get around to finishing the entire energy conservation equation.

  • Stop worrying!  The laid-off lighbulb workers can undergo hazmat training!  Then,when the CFL bulbs break (which they do with amazing rapidity in recessed fixtures, in damp areas, or track lighting) and spew mercury all over the place, the workers can run over to the offending area, quarantine it, and safely dispose of said bulbs in a Superfund facility.
    And in a few years, the children of those workers can go to law school, and sue the bejesus out of whatever dumb schmuck happens to own the company which bought the company making CFL bulbs.  Just like asbestos – plenty of work for everyone!