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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