Nanny state's bright idea: ban the light bulb - Business - Business - smh.com.au

Nanny state's bright idea: ban the light bulb -


IT'S surprising how little criticism there's been of Malcolm Turnbull's plan to phase out incandescent light bulbs. It's no surprise there's been no complaint from the punters, of course, but what about the economic rationalists and the libertarians?
Talk about high-handed intervention in a free market by the nanny state. Where are the warriors of the Centre for Independent Studies and the Institute of Public Affairs when we need them to defend our liberties?
Why the direct resort to command-and-control? If switching to compact fluorescent lights is such a good idea, why not start with less coercive measures? A voluntary industry code of practice, for instance. Whatever happened to freedom of choice?
Or make it a conscience issue, with people who don't give up their light bulbs made to feel guilty. We could have a big government advertising campaign to that effect.
And if that's not good enough, why not apply the polluter-pays principle? Why not impose a higher tax on conventional light bulbs, which would internalise the external, social cost imposed on the community by those who choose to continue using energy-inefficient and emission-inducing light bulbs?
The proceeds from the tax could be used to subsidise the change-over costs of widows and orphans.
Yes, I am kidding. It's a small matter in the global (warming) scheme of things, but simply compelling people to make the change is the obvious way to go.
My point is that sometimes practicalities trump fancy theory or ideology. Economists may prefer to ration by price rather than queue, and to solve environmental problems by means of economic instruments (such as pollution taxes or tradeable permit schemes) rather than government fiat, but there are times when direct intervention is the simple, sensible option.
Consider, in contrast to all the trouble we're having agreeing to economic instruments to limit greenhouse gas emissions under the Kyoto Protocol, the ease and speed with which the world agreed to reduce depletion of the ozone layer by simply phasing out the use of chlorofluorocarbons under the Montreal Protocol of 1989. It was the right approach to that (much more straightforward) problem.
When you think about it you realise the world abounds with examples of negative externalities (unfavourable spill-over effects) that we deal with by means of command and control, without any suggestion these are inefficient interventions and without any chafing over the small losses of freedom involved.

Take road safety. We've managed to get the road toll down by means of an ever-growing list of impositions: graded licensing of drivers, vehicle safety standards, speed limits, traffic lights and stop signs, compulsory seat belts, drink-driving laws and random breath testing. And not forgetting the most basic nanny-state rule of them all: keep left.
Consider our success in reducing city air pollution by bans on the use of leaded petrol and requirements for catalytic converters on all cars.
Then there are myriad health and safety restrictions on us: controls on the production, prescription and dispensing of dangerous drugs, controls on the sale of alcohol, controls on the advertising, sale and places of consumption of tobacco.
Who among us objects to these impositions or, at this late stage, is more than barely conscious of their existence? And what economist would dare suggest these problems would be better dealt with by market mechanisms?
Now consider the widespread use of multi-level water restrictions. Dr Mike Keating, chairman of the NSW Independent Pricing and Regulatory Tribunal and leading economic rationalist (admittedly on the left wing of the movement), has argued that it makes more sense to ration water by restrictions than by price.
Since the demand for water is inelastic (relatively insensitive to price changes), prices would have to rise a long way to achieve the desired reduction in demand, which would cause hardship to the poor.
And once the drought had passed, you'd have to put prices back down. This argument assumes, however, our water problem is temporary, rather than a trend decline in rainfall caused by global warming. It's probably both.
But the point remains: sometimes it's simpler and fairer to ration by quantity rather than price.
I began by noting that the public seems perfectly comfortable with a new government edict on what kind of lighting we may or may not buy. That's because punters have a better understanding of human nature than economic rationalists do.
After the sustained onslaught from behavioural economics, most economists are now more ready to admit their conventional assumption that people behave rationally is seriously wrong.
What they've yet to understand is the extent to which their belief in individualism rests on the assumption of rationality. If you assume people are rational - they always do what's best for themselves and never make any choice they subsequently regret - it follows that government can never know better than the individual what's in the individual's best interests.

And if that's true, it follows that government should constrain the individual's freedom of action as little as possible. It should tax as little as possible so as to leave individuals free to determine the allocation of as much of their income as possible.
But this libertarian ideology - which heavily underlies conventional, neo-classical economics - was established long before psychology and neuroscience had taught us what we now know about limitations of humans' decision-making ability.
As Dr Ken Henry, Secretary to the Treasury, acknowledged in a recent remarkable speech to a project managers symposium, "people form judgements intuitively, not rationally". "Thus, judgements tend to be made quickly, effortlessly, automatically and emotionally," he said.
People can react differently to essentially the same set of facts depending on how those facts are presented to them (or "framed" as the psychologists say). People often have difficulty coping with all but the most straightforward choices and frequently react to puzzling choices by seizing on irrelevant factors or by putting off a decision.
Because the more primitive, emotional part of the brain often overrides the newer, more rational part, people tend to favour immediate benefits over more distant, less certain costs.
This means humans often make choices they come to regret. They have a problem with self-control, which ranges from spoiling your appetite by eating too many nuts before dinner to watching too much television, doing too little exercise, overeating, being addicted to gambling, being unable to save, drinking too much and having difficulty quitting smoking.
Because they recognise their self-control problem, people commonly resort to what behavioural economists call "commitment devices" intended to constrain their future behaviour in desirable ways.
Conventional economists would regard most of these devices as irrational - for instance, failing to claim certain tax concessions through the year so they are returned as a higher annual tax refund, which is more likely to be saved.
Given people's desire to overcome their own frailties, however, to label these efforts irrational merely demonstrates the labeller's incomprehension.
Once you understand how far we mere mortals depart from the assumption of rationality, it's easier to see the justification for government interventions intended to counter this whole new form of "market failure" and save us from ourselves.
Most of the many examples of direct controls I quoted earlier can be seen as measures intended to help us with the self-control problems that lead us to kill ourselves and others on the road, ruin our health by smoking, drinking and drug-taking, and so forth.
Politicians coerce us and limit our freedom in these ways because their intuitive understanding of human nature is superior to that of economic rationalists and libertarians with their unscientific assumption of rationality.
What's more, the pollies impose these strictures secure in the knowledge that there'll be little objection from the electorate.
Indeed, many of us will be quietly pleased to have the government help us with our self-control problem by removing temptation from our path.
The decision to ban light bulbs is merely the application of this longstanding modus operandi to the new market-failure problem - global warming.
Ross Gittins is the Herald's Economics Editor.