Economics 101 & Public Square

How Cronyism Impacts the Way You Light Your House

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Which is more important to you, the environment or your family’s health? Is it more vital for a company to strive to lower costs for consumers or increase efficiency of their product? Are aesthetics or price more crucial to you when purchasing a product?

Many of you will probably answer these questions in unique ways, preferring some options over the others or feeling ambivalent toward the choices. It is very rare that everyone would answer in the same way, and unlikely that one person could make the right decisions to these questions for all people.

What’s the Story?

What are these questions referring to? The light bulb. This essential innovation dating back to the nineteenth century has not changed much until recently. In an attempt to increase their profits as well as help the environment, manufacturers set out to improve the basic, incandescent light bulb.

In particular, Royal Philips Electronics created the compact fluorescent lamp (CFL). However, consumers were not too receptive of the new product since it tended to be quite pricey and let off a harsh white light that was unpleasing to the eye.

So, how does the free market handle this predicament? In theory, manufacturers either further improve the light bulb to make it attractive to consumers, or they go back to selling the product that works – regular light bulbs. What happened in this situation?

The New York Times reports,

Philips formed a coalition with environmental groups including the Natural Resources Defense Council to push for higher standards. ‘We felt that we needed to make a call, and show that the best-known lighting technology, the incandescent light bulb, is at the end of its lifetime,’ says Harry Verhaar, the company’s head of strategic sustainability initiatives. Philips told its environmental allies it was well positioned to capitalize on the transition to new technologies and wanted to get ahead of an efficiency movement that was gaining momentum abroad and in states like California.

Thus, in 2007, the Energy Independence and Security Act was passed, slowly phasing out the incandescent light bulb and forcing consumers into buying the CFLs or the light emitting diodes (LEDs), which also were very costly, yet more energy-efficient bulbs.

The final efficiency requirements went into effect just weeks ago, effectively banning the last of the incandescent light bulbs. Once the current stock of light bulbs is sold, consumers will only be able to choose between CFLs and LEDs.

Winners & Losers

As we have explained in previous posts, cronyism always causes the government to choose the winners and losers in a given market.

In this case, the light bulb manufacturers have been deemed the winners by the government. Rather than increasing their innovation to develop an improved product that consumers could choose to buy, CFLs and LEDs are now simply the only options consumers can choose between. With little cost to these manufacturers, they now have the entire market share. Consumers are left to cough up extra cash for the newer light bulb designs.

Environmentalists seemed to also have gained a win in this situation, given that incandescent light bulbs are widely known to be inefficient, letting off ninety percent of their energy in heat rather than light. But it is unclear whether or not the new bulbs are actually more environmentally-friendly.

One report states,

CFL bulbs contain mercury gas. The problem with this is the large environmental hazard they pose when being disposed of. Compact fluorescent bulbs also use up a large amount of energy when first starting up, which, when being used for short periods of light, makes them not environmentally friendly at all.

Thus, it may be that environmentalists backed industry experts purporting to provide policy that would help the environment. But as Tim Carney states in regard to the light bulb debate,

People often assume green regulations like this represent the triumph of environmental activists trying to save the planet. That’s rarely the case, and it wasn’t here.

Consumers have also lost due to this policy, for several reasons:

  • CFLs are more expensive. For some lower-income families, this could force them to choose between energy costs or putting food on the table.
  • Many people are complaining about the harsh, cold light of the new bulbs.
  • CFLs contain mercury and can be dangerous to health. The Natural Resources Defense Council even states, “Don’t use CFLs in rooms frequented by pregnant women or children.”
  • Shoppers no longer have the freedom to choose among alternatives.

The Bottom Line

The questions at the beginning of this post are good questions for light bulb manufacturers to ask about their target market (they’re even good questions for you and I to ask). The light bulb debate centers on environmentalism, health, aesthetics, price, cost, and efficiency.

The only way for manufacturers to truly find the answers to these questions is allow consumers to demonstrate their preferences through what they buy. Thus, in order to find efficiency in the market, consumers need a choice.

While we may all disagree on our answers to the questions posed at the beginning of this post, in the end, I think we can all agree on the answer to one question: would you rather not have a choice at all?

Should consumers be able to choose the light bulbs they use?

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  • Spence Spencer

    Thanks for the post, Kathryn. One of my bigger beefs with the whole light bulb debacle is the assumption that the heat produced by the incandescent bulbs is actually unwanted. It is below freezing outside this morning. I live in the house and my heat pump is using auxiliary heat strips to try to keep up. I could use those little glowing space heaters in my lamps to keep the area that I am reading warm and reduce my electric bill and overall energy consumption. Thus, the inefficiency is only in certain circumstances. That option has been taken away, though. I will choose the option with the most value long-term. I wish I had this choice.

    • purenrg

      Spence, lightbulbs are used for lighting, and heat bulbs should be used for heating (like frenchfry lamps or the bulbs that Tony P. uses to keep his chickadees warm). The heat bulbs are many times more efficient than incandescent at producing heat. Efficiency equals less waste… in this case, LEDs burn far less coal (80%+) than incandescents. Certainly, God would want us to be good stewards of His creation by burning only what we need, keeping the air clean, and having better health at the same time…. right? Do you think God values the “choice of which bulb to buy, no matter how wasteful” over these other far more important matters?

  • Tony Papadakis

    What’s worse with this “one size fits all” approach is that the loss of heat from incandescent bulbs could be put to good use. When we we hatch chickens and ducks for our micro-farm, we put them near an incandescent bulb in order to keep them warm. Chicks need the temperature around 90 degrees. A heat lamp is too strong and too wasteful of electricity, whereas the supposedly inefficient incadescent bulb is the right call at the right price. For people looking to start seedlings, the heat from an incadescent bulb is equally useful. Perhaps these are isolated example that don’t apply to most people, but the point is that the cronyists have shut down a market that had real value beyond aesthetics.

  • purenrg

    This article claims that cronyism is the cause of new, more efficient lighting technologies and implies that we should protest the new bulbs due to notion that Philips (and others) stood to profit from the ban of incandescent bulbs. However, there are serious flaws in this perspective, notably regarding the idea that Philips was to gain a huge market share. Philips already sold incandescent bulbs, as did the other manufacturers… a transition to another type of bulb does not give any one of them an advantage. If Congress were to ban the internal combustion engine, car manufacturers would just innovate and design a new type of engine… again, this does not affect market share.

    The author also believes we should have a “choice” to at least buy bulbs that use the extremely inefficient and 100+ yr-old incandescent technology. Why? Few people know that less than 1% of the primary energy source (mostly coal, natural gas, and uranium) is converted into the effective energy that the user only cares about: light! 99% of the coal is burned and wasted as heat and such, and much of it because of the bulb’s filament. There are many instances like this in which it would be extremely detrimental to our society if those “choices” remained on the market. Unfortunately, consumers really just care about the price on the sticker and are ignorant of the real and external costs paid in the form of health problems, among others. This is definitely one case in which I would not rely on the market (consumers) to make the best choice, as the author infers they would.

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