By Simon Grey, on May 6th, 2011
That is a big part of the problem. It is not politically possible for either the Federal Reserve or the Obama administration to leave the economy alone and let it recover on its own.
Both are under pressure to “do something.” If one thing doesn’t work, then they have to try something else. And if that doesn’t work, they have to come up with yet another gimmick.
All this constant experimentation by the government makes it more risky for investors to invest or employers to employ, when neither of them knows when the government’s rules of the game are going to change again. Whatever the merits or demerits of particular government policies, the uncertainty that such ever-changing policies generate can paralyze an economy today, just as it did back in the days of FDR.
There are two ways in which government tinkering promotes systemic uncertainty: by discouraging investment or by encouraging malinvestment.
The government discourages investment when it increases taxes and/or the cost of regulatory compliance. The state also discourages investment when it constantly reverses its own policies or is erratic in the enforcement of already existing policies. A continual state of flux discourages long-term investment because no one is able to feel certain about forecasting. One of the main reasons why ObamaCare and its counterpart RyanCare is so damaging is imply due to the fact that businesses aren’t able to feel certain about the future. The vociferousness with which RyanCare was debated helped to fuel systemic uncertainty, to a limited extent, because economic actors weren’t able to tell if any (or all) of the proposal would become law, and were thus unable to also determine what sort of long- and short-term plans would be viable.
But beyond that, the constant flux of change that is government tinkering also has a tendency to encourage malinvestment and market timing. Virtually every subsidy speaks as evidence for the former; Cash for Clunkers speaks as evidence for the latter.
Subsidies encourage malinvestment because they eliminate what economists refer to as moral hazard. Moral hazard is simply a fancy way of saying that people are more careful when investing their own money. When the government, for example, subsidizes corn-based ethanol, farmers have an incentive to grow more corn and venture capitalists have an incentive to invest in companies that will turn corn into ethanol-based fuel. This is generally unsustainable by market means because corn-based ethanol is energy negative, which simply means that producing ethanol burns more energy than it creates. Malinvestment can also be encouraged by indirect subsidies, like tax breaks or regulatory exemptions. This lowers the cost of doing business and increases profits, encouraging companies to pursue certain ventures.
When people think that the government may subsidize them, directly or by tax breaks, they have a tendency to wait until they qualify for the terms of the subsidy. This is true especially of temporary programs, like Cash for Clunkers, as mentioned before, or special tax breaks, like the first-time homeowners tax credit. These programs were ultimately failures because all the accomplished was pulling demand forward by a couple of months. They did not jump start the economy or increase long-term demand. Temporary subsidies, then, contribute to systemic uncertainty because economic actors try to time the market in order to get the most favorable deal. Businesses hold inventories to take advantage of greater demand later on. Consumers delay spending money in order to purchase things later on. Instead of allowing the market to function as it ought and smooth demand over time, government interference causes people to time the market and upset long-term plans.
Incidentally, the reason why temporary government programs generally become permanent is because there are some people who find temporary programs to be personally beneficial. When you have programs that offer lower prices to consumers and larger profit margins to businesses, most of the parties involved want to continue taking advantage of that system. Because of this, politicians vote to make temporary programs permanent because it is politically popular with their constituents, and because the political costs are widely dispersed and indirect.
Of course, the possibility of a temporary program becoming permanent also encourages systemic uncertainty because economic actors are unsure which specific programs will become permanent and if the terms of those programs will be altered in the process of attaining permanence.
In sum, it is simply best to let the market correct itself. Tinkering is futile at best and counterproductive at worst. Therefore, simply letting the market be is the best strategy, even if it is somewhat painful from time to time.
By Doug Gentry, on April 29th, 2011
Freidrich Hayek and the Austrian school of economic policy argue for a laissez faire approach to the economy – emphasizing individual actions and criticizing government intervention. John Maynard Keynes acknowledged that economies could, over time, correct themselves, but argued that government had a responsibility to intervene and stimulate demand when the economy is in a slump. This video is a sequel to Fear the Boom and Bust, also produced by Econstories.tv
For my students, see how many of today’s economic issues you can find in this video and compare them to our look at the Great Depression.
By Winton Bates, on June 25th, 2010
 Richard Posner’s recent book, ‘The Crisis of Capitalist Democracy’, is mainly about the global financial crisis, how it came about in the US, the lessons that the author thinks we should have learned from it and what governments should do to prevent similar crises in future. According to this distinguished author the crisis came about because of lax regulation; we have learned from it that the financial system is inherently fragile and that Keynes is still relevant; and the way to avoid similar crises in future is to introduce regulatory reform in the financial sector.
To be fair, Posner condemns some of the knee jerk responses of governments introducing tighter financial regulation and acknowledges that he is not entirely happy with his own suggestions for regulatory reform. He views the only ambitious proposal that he discussed sympathetically – the separation of commercial banking from other forms of financial intermediation – as ‘fraught with problems’ (p.362).
It is arguable that the global financial crisis was a crisis of capitalism. A milder financial crisis might still have occurred if central banks had not previously acted in ways that led major financial institutions to expect that they would be bailed out if their excessive risk-taking resulted in major losses. It is even possible to entertain the idea (as I did here) that the financial crisis has highlighted a fundamental problem in that laws governing the financial system currently permit financial intermediaries to make promises that they can’t always keep. But why view this economic crisis as a crisis of democracy?
The title of the book arises from Posner’s view that while the American political system can react promptly and effectively to an emergency, it ‘tends to be ineffectual’ in dealing with longer term challenges:
‘The financial collapse and the ensuing depression (as I insist we must call it) have both underscored and amplified grave problems of American public finance that will not yield to the populist solutions that command political and public support. The problems include the enormous public debt created by the decline of tax revenues in the depression, the enormous expenses incurred by government in fighting the depression, and the boost the depression has given to expanding the government’s role in the economy. These developments, interacting with a seeming inability of government to cut existing spending programs (however foolish), to insist that costly new programs be funded, to limit the growth of entitlement programs, or to raise taxes, constitute the crisis of American-style capitalist democracy’ (p.387-8).
Unfortunately, the quoted passage appears in the final paragraph in the book rather than the introduction. There is not much discussion in this book about this supposed weakness of the US democratic system. The author implies that it is largely a problem of political culture. Republicans favour low taxes but they have been reluctant to reduce government spending. Democrats favour high levels of government spending but they have been reluctant to raise taxes. As a result:
‘From the standpoint of economic policy we have only one party, and it is the party of profligacy’ (p.384).
As a person living in a democratic country in which a large part of the electorate has come to equate responsible economic management with budget surpluses and minimal public debt (to the dismay of some left wing economists who would like to see more public sector investment) I find it difficult to take seriously the idea that the current political culture in the United States involves a crisis of capitalist democracy. I am confident that before too long Americans will insist that their governments balance their books in order to avoid the problems currently being experienced in Greece and other European countries.
However, the picture might look a lot different from within the US. Before a change in political culture can occur in the US it will be necessary for a lot more Americans to become concerned about the future implications of current fiscal policies. Richard Posner claims that he has no idea how to solve the problem of America’s political culture (p.385) but I think he is contributing to the solution by merely raising awareness of the problem.
By Thersites, on January 7th, 2010
In tomorrow’s episode of John Stossel’s new show on Fox Business, he will address the question, “Who is Wesley Mouch?” in speaking to the parallels between Atlas Shrugged and contemporary America. As one might expect, in my view it seems as if almost all businessmen (given their predilection towards using government to destroy markets to their own advantage) in one way or another embody the qualities of Wesley Mouch.
One exception who will be on Stossel’s program is John Allison, an executive at BB&T Bank, who staunchly opposed TARP, has repeatedly refused to use the law to plunder the property of others and as one might guess is an ardent Austrian-school libertarian. In a scene reminiscent of the smoke-filled rooms of Atlas Shrugged, Allison divulged at an NYU lecture this past fall that the Feds threatened to go in and audit any bank that wouldn’t take government funds, forcing healthy banks to comply so as to cover for the fact that the government was only propping up a select few sick ones (at the expense of the solvent I might add).
In response to Stossel’s call in the aforehyperlinked column for suggestions for a follow-up show on “crony capitalism,” I posted:
John,
If you want to talk about crony capitalism, it may pay to have Burton Fulsom who wrote “The Myth of the Robber Barons” on the program. I think the key is to delineate between political entrepreneurs and market entrepreneurs, something which he does astutely in that book.
Political entrepreneurs seek to use government decrees to profit, largely by cartelization, monopoly advantages and other barriers to entry, while market entrepreneurs generally seek to win profits in the market by merit – by producing the best product at the cheapest price.
More generally, the Mouch problem lies in the fact that while initially businessmen extol the virtues of little regulation, low barriers to entry and minimal governmental interference generally, once they become successful, out of self-interest they support any and all legislation that will cement their position in the market. They support all of those things anathema to the free market that they had used to their advantage in the first place.
This is akin to the economic plight of America as a whole. While up until the early 20th century (though some libertarians will argue that it was really only up until the time of Lincoln), America functioned under a largely laissez-faire economy, with the wealth and progress generated by this economy, we forgot about the virtues that led to our success and rewarded those tending towards failure. We created a welfare state from the riches of a relatively free state, throwing under the bus the very principles that elevated to us to our position as a great nation.
By Eldon Mast, on November 2nd, 2009
An open letter from Colorado Governor Bill Ritter:
Here in Colorado, we’re seeing encouraging signs of success and reason for optimism.
Last week we learned Colorado’s unemployment rate has dipped to 7%, now nearly 3 full points below the national average of 9.8% — and lower than all but a dozen states’ unemployment rates.
We’re still not out of the woods. Too many Coloradans are still struggling to find work, as businesses and families tighten their belts and adjust to the new economic reality. We continue to face a very difficult budget situation in the capitol. We’re making tough choices from limited options, requiring everyone from state employees to those who rely on public services to make even more sacrifices in the months ahead.
While challenging, this new economic reality presents us with a fresh opportunity to think ahead, adapt and create new pathways to grow and prosper in the 21st Century.
That’s why we’re building New Colorado Partnerships that better connect government with businesses, schools, and our research facilities to invest in our people and attract the industries of tomorrow to Colorado. We’re transforming government to keep pace with the rapid changes each Colorado business and family must face today, while making it tighter, more entrepreneurial, and more nimble to meet the challenges of these new economic times. We’re offering tax incentives to businesses that create jobs in Colorado, providing access to capital, making revolutionary changes to improve our education system, and strengthening our public universities.
That’s why Forbes.com and CNBC both rank Colorado among the top five states in which to do business. It’s why Colorado schools are well-positioned to receive millions of dollars in federal “Race to the Top” funding. And it’s why many experts believe our diverse economy will help Colorado emerge from the national recession sooner and stronger than other states.
Our bold strategy is already paying dividends, as last week’s unemployment report confirms. We are setting an example for the rest of the nation to follow. The challenges ahead are great, but they are not impossible, and Coloradans have a reason for optimism.
Please join me to share this simple message of hope:
While unemployment continues to creep upwards of 10% or even 15% in other states, Colorado is open for business and attracting new jobs every day. This month alone, two major New Energy Economy companies — SunRun and SMA Solar Technology — have announced plans to open their doors and hire more than 700 new workers here in Colorado.
They join dozens of other new energy, aerospace, bioscience, and technology companies adding thousands of new jobs and forever re-orienting Colorado’s economy to be more innovative, more prosperous, and more sustainable.
Government can’t do everything, and our New Colorado Partnerships aren’t the only reason companies and entrepreneurs are choosing to open their doors in Colorado. But government can do a lot to build a brighter future for families and businesses and help all of us achieve the Colorado Promise, and so long as I’m governor, it will.
Sincerely,
Bill Ritter, Jr.
Governor of Colorado
By Thersites, on October 28th, 2009
The policy of credit card companies charging an annual fee for those cardholders with solid credit is a good proxy for the state of the nation, and also a microcosm of both the progressive (read socialist) movement in this country and the unintended consequences of an economic policy destined to fail — or succeed if you measure success by increased impoverishment.
Those two solvent, reputable, dare I say creditworthy institutions Bank of America and Citi are reportedly
starting to charge fees to reliable customers in response to a slew of new credit card industry regulations that will limit when banks can hike interest rates. Cardholders who get a new annual fee notice in the mail will be in a no-win situation.
“They can either pay that fee or they can close the account, and if they have had the account for a while and they close it, they are potentially going to hurt their credit card score,” said Woolsey (Director of Consumer Research at CreditCards.com).
This response to government intervention provides great insight into the problems with regulations the government claims will help the consumer. By preventing banks from increasing their rates in response to a lack of creditworthy borrowers in the markets, those who have proved creditworthy customers over time will be forced to subsidize those less reliable to make up the difference, proving yet again that there is no such thing as a free lunch. We could examine the further consequences for the macroeconomy of these creditworthy people being incentivized to become less creditworthy or if nothing else losing purchasing power as a result of this policy, but the above synopsis should do.
This policy reflects what happens every time the government tries to set prices – in this case the price of credit. Some people are aided, while others lose as a consequence. Further, as with the way in which government seems to favor the debtor over the creditor today, here the less responsible is favored over the more responsible. Adding insult to injury, the more responsible cardholder must subsidize the less responsible one. In essence, this is the basis of the welfare state. Those who generate more wealth must have a significant percentage of it expropriated to help out those who do not create as much wealth. We can argue over whether wealth generators are more responsible than the indigent, but I think you understand my point.
As I have mentioned before though, this liberal system in the end devours itself. First, it is economically unsustainable. At some point, those continually forced to subsidize the reckless and feckless will either go broke or go Galt. As a consequence, so too will the whole system (go broke that is). Second, from a moral perspective, the values engendered in rewarding people for being unproductive and penalizing those who create will pervert society, leading to its malaise.
As I have harped on continually here, the problem with the development of a capitalist system is that if not constantly fought for on both economic and perhaps more importantly moral grounds, it ends up sowing the seeds of its own destruction. Wealth begets wealth until it begets redistribution of wealth. Redistribution of wealth destroys the mechanisms that create it in the first place and weakens the moral fiber of a society. Much like organisms in nature that grow beautiful and strong only to decay in old age, capitalism seems to grow great only to end in grief.
Tax the rich
Feed the poor
Til’ there are no, rich no more
By Eldon Mast, on October 26th, 2009
Senate Majority Leader Harry Reid has proposed a new version of a popular home-buyer tax-credit extension. Folks close to the matter claim a vote on the proposal is coming shortly.
Another recent Senate alternative would continue the $8,000 credit for four months and then gradually phase it out after that. Current law has the credit expiring at the end of November.
The value of the credit would drop by $2,000 every quarter until it halted completely by the end of 2010.
The National Association of Realtors supports the extension of the credit though at least the first two quarters of 2010 to assure that recent new home sales is firmly on a recovery track. They claim that home-buying activity in that six-month period could be crucial for new stability in the housing market again.
On the contrary, the Reid proposal wouldn’t be nearly as effective at stimulating home sales, Mr. Salvant said, because it would start winding down during the second quarter.
The debate comes as a Treasury auditor revealed this week that the Internal Revenue Service improperly issued millions of refunds related to the credit.
At a House panel hearing this week, an IRS official said it is reviewing 100,000 returns to determine if credits were paid appropriately. Given the popularity of the credit, however, experts say the allegations are unlikely to derail the push to extend it in some form.
Spurred on by the credit home sales have been recovering nicely in the past six months. On Friday home sales were report to jump significantly in September. Existing home sales rose 9.4 percent. The West was the strongest region, up 13.0 percent. In an extremely encouraging sign, supply on the market fell back sharply — down 7.5 percent in the month. Supply is now at its lowest level in 2-1/2 years.
Q3 earnings continue to impress, major firms are surprising to the upside, and markets are continuing their break-neck bounce. With second half growth coming on strong, an extension of the tax credit can mean nothing but good news for the 2010 housing market.
By Winton Bates, on September 15th, 2009
In his comments in “The Australian” (8 Sept. ’09) on Paul Kelly’s new book, “The March of Patriots”, Kevin Rudd attempts to make a distinction between the economic reforms of the Hawke-Keating Labor governments and those of the Howard conservative government. Rudd describes the Hawke-Keating reforms as “modernising our economy to make it more competitive in a rapidly globalizing world”. He describes the Howard reforms as “neo-liberalism” or “a form of free market fundamentalism that has little in common with the philosophy and policy of the reforming centre of Australian politics to which we belong”.
This attempt to associate the Howard government with free market fundamentalism is typical Rudd-speak. This time, however, Rudd seems to have spun himself into a corner by also claiming that the Howard government was lazy. Rudd states: “we would describe our opponents as indolent: perhaps not always opposing the great transformational reforms engineered by Labor during its 13 years in office but hardly adding to that reform agenda during their 12 years in office”. Can an indolent conservative government be guilty of excessive zeal in promoting market-oriented reforms?
Peter van Onselen noted this apparent contradiction (in an article in “The Australian” on 9 Sept. ’09). He also updated a table in a book by Andrew Charlton (senior economic advisor to the PM) to enable the economic reform records of the Hawke-Keating, Howard and Rudd governments to be compared. The table suggests that the Howard government made some substantial reforms and that the Rudd government has tended to roll back previous economic reforms. (Unfortunately the table does not seem to be available on line.)
The table prepared by van Onselen is informative, but it would be nice to be able to compare the economic reform efforts of the three governments quantitatively. This is attempted in the chart below using economic freedom indexes constructed by the Fraser Institute and Heritage Foundation.
The chart confirms that the Hawke-Keating governments had strong neo-liberal credentials, but the two indexes provide a somewhat contradictory picture of the Howard government. The Heritage Foundation index even suggests that the Rudd government has made positive contributions to economic freedom. It might be interesting if someone could investigate why this is so and why two indexes seem to tell different stories about the Howard government.
However, while the history is interesting, the future position of the Rudd government on economic reform will be far more important to the future well-being of Australians. The one hopeful sign in Kevin Rudd’s latest graceless contribution is his praise for the reforms of the Hawke-Keating era. When he was elected to government Rudd seemed to want to be indistinguishable from John Howard in all important respects. Then he wrote an essay in which he seemed to have adopted the attitudes and language of Hugo Chavez. Perhaps he has now recognized that it is not necessary to choose between John Howard and Hugo Chavez (to paraphrase some infamous Rudd-speak).
Would it be too optimistic to interpret Rudd’s latest spin as a signal that he has now adopted Paul Keating as his role model?
By J.D. Seagraves, on July 26th, 2008
Fannie Mae and Freddie Mac have been in the news a lot recently. But just what are these entities? Are they government agencies or private corporations? It seems that few media pundits or even politicians really know. But what everyone does seem to know—or at least, opine—is that we can’t let these institutions fail.
Why not?
To answer that question, we have to first establish just what Fannie and Freddie are, and what kind of impact they’ve had, on the economy in general and the housing sector in specific, since their inception.
Appropriately, the recent mortgage meltdown, which many experts see as a leading indicator of an emerging depression, has its roots in the Great Depression and its cousin, the New Deal. In an effort to increase home ownership, the FDR administration created the Federal Housing Administration (FHA) in 1934. The FHA set mortgage guidelines and offered federal insurance on mortgages that adhered to its criteria. The purpose of this was to “standardize” the terms of mortgage contracts so they could be easily “bundled” into securities.
Here’s what that means: if I, as a private investor, had today’s equivalent of $300,000 to invest in 1920, I’d have a few options. I could go into the stock market. I could buy commodities. I could invest in bonds. Or I could—theoretically, at least—purchase a mortgage from a bank. If I bought the mortgage, then I, and not the bank, would receive the monthly mortgage payments from the mortgagor; and I, not the bank, would have a claim on the property if the mortgagor failed to pay.
This could be an attractive investment to some people who wanted a good yield and a gradual return on their principal rather than semiannual interest payments with the principal repaid in one lump sum at the end of the loan, as most bonds work. However, the risk that an individual mortgagor would not repay the loan was great, and thus, prospective homeowners would be expected to pay a substantial premium, in terms of a higher interest rate, to compensate their lenders for the potential of total loss. Even if 99% of people repaid their mortgages dutifully, to the one investor in 100 who put up $300,000 and had his mortgagor skip town, the loss could be devastating.
Where It All Began
Enter the FHA. By offering an incentive to standardize the terms of a mortgage contract, large financial firms could “bundle” several similar mortgages together, and then sell debt instruments backed by those mortgages. Instead of investing in 100% of one mortgage, an investor could invest in a piece of ten or 100 mortgages. Not only would the default risk be spread out but so would the pre-payment risk—the risk that the borrower would repay the loan too quickly, thereby wasting the lender’s time. Thus, the premium lenders needed to charge on mortgage loans dropped, and homeownership became more affordable and widespread.
Sounds great, right? Well, the problem is that private companies did not step up to the plate and bundle these FHA-insured mortgages. The fact that they didn’t should have indicated the plan wasn’t so sound, but like most government programs, the FHA led to the creation of yet another government program: the Federal National Mortgage Association, FNMA, or cutely known as “Fannie Mae.” Fannie Mae was, at first, a government agency empowered to purchase FHA-insured mortgages, bundle them and sell the resulting debt instruments to the public. If these debt instruments went bad (i.e. if there was widespread default by the mortgagors), then it was always implied that the federal government would step in and cover them.
Between 1938 and 1968, Fannie Mae had a virtual monopoly on the secondary mortgage market. This should have come as no surprise as government has the monopoly on creating monopolies. But in an effort to inject competition into the market, Fannie Mae was privatized and empowered to buy any mortgages—not just FHA-conforming ones—and a second cutesy GSE (government-sponsored enterprise), “Freddie Mac” (the Federal Home Loan Mortgage Corporation or FHLMC), was created to compete with Fannie.
Where We Are Now
Fast forward another forty years and the chickens are finally coming home to roost. Both Fannie and Freddie are essentially bankrupt and their stock prices were headed to zero, kept afloat only by the implied government bail-out that was all but guaranteed to come. In one day, as Fannie and Freddie hit their all-time lows, a few words by Fed Chairman Ben Bernanke sent the stocks soaring, and $6 billion in market cap was added to the ailing GSEs. Republicans and Democrats, with very few exceptions, all agree that these firms must be “saved” and “not allowed to fail.” But the Austrian take on the matter is that these institutions have been positively disastrous to the freedom and prosperity of Americans.
There can be no doubt that the existence of the FHA, Fannie Mae and Freddie Mac has made homeownership more widespread. Most people take it as a given that this is a positive thing. But is it really? There are plenty of costs that come with homeownership versus renting—homeownership is not an unequivocal good.
Economic conditions in the U.S. and around the world have been destabilizing communities. Mobility is king now. People do not work at the same job for fifty years and then retire with a gold watch, proverbial or otherwise. By making homeownership artificially cheap, millions of Americans have been lured into buying when they should have been renting. This is one of the causes of the mortgage meltdown, as people who’ve lost their jobs and need to move can’t get out from under their upside-down mortgages.
The problem with government intervention into the economy is that, even if it seems to work in the short-run, it never takes the long-run into consideration. It can’t. The free market is dynamic and responds to change. If politicians who say they value the free market are true to their claims, they should at least consider allowing Fannie and Freddie to fail.
For arguments in support of increased government regulation on Fannie Mae and Freddie Mac, read G.L.C.’s blog post, “Fannie Mae & Freddie Mac: When Will the Government Learn?”
By Cheryl Grey, on July 18th, 2008
A Brief History of (Fake) Time
The original idea of daylight saving time (DST) is often credited to—or blamed upon, depending on one’s perspective—Benjamin Franklin. While it’s true the creator of Poor Richard’s Almanack did write a satirical essay on how much candle wax Parisians could save by rising and retiring with the sun, his impish solution was not to shift the clocks but to enforce his penny-pinching via such means as rationing candles, taxing shutters on windows, forbidding carriage movements after dark and firing cannon and ringing church bells at sunrise.
No, it was Englishman William Willett in 1907 who first conceived the idea of shifting everyone’s clocks so they arose earlier in April than they did in September, saving the money that would otherwise be spent on artificial lighting and extending the long lazy hours of recreation into summer’s evenings. (He was an avid golfer.) So struck was he by his genius that he spent much of his own fortune in publicizing the idea and lobbying Parliament.
But it wasn’t until 1916, a year after Willett’s death, that “Summer Time” was officially enacted—and then only because the Germans had already done so to increase factory production and save coal as part of their First World War effort. Refusing to give their enemies the advantage of time, England hastily followed suit and the remainder of the combatants joined in, with the United States last to adopt the policy in 1918.
The program was considered so successful that it was reinstated and even doubled for World War II, with the English adoption of “double Summer Time” which sprang forward two hours in April and fell back only one in September. The U.S., not to be outdone, left DST in effect for over three years. It became federal law in 1966, and we’ve enjoyed it, or been stuck with it, ever since.
The Farming Fallacy
Many individuals seem to be of the opinion that DST was adopted to assist farmers, but this is a truly urban myth. Plants, cows, tractors and other farm features aren’t particularly concerned with the hour of the day unless it’s feeding time, and therefore farmers aren’t too psyched by it, either. In fact, farmers tend to oppose DST as a needless complication in their sun-dominated lives.
The original goal of DST was to reduce the need for artificial lighting and therefore the amount of energy consumed by urban workers during evening hours. Some corroboration for the theory was finally offered in 1975 by the U.S. Department of Transportation, which oversees DST as part of interstate commerce. The results of their study concluded that DST might save 1% of electricity usage in March and April, but nobody was really certain, and studies on other fuel usage were not attempted.
A more recent study was performed in Indiana, which didn’t entirely adopt DST until 2005. University of California, Santa Barbara, scientists studied power usage changes in those areas springing forward for the first time and found that, instead of conserving energy and saving money, DST actually costs area residents an additional $8.6 million each year in utility bills, as well as increasing power station and automotive emissions.
The Dirty Little Secret
The reason’s simple. Although electric lights may not be used during those long summer evenings, the air conditioner will be, and it gobbles far more electricity than a few bulbs. So do the television, the stereo, the computer, the microwave and all those other modern high-tech gadgets that weren’t in such common usage at the time of the 1975 study. In addition, having those extra hours of summer daylight tempts many people to go driving after work—to the mall, the ballpark, the golf course, the park, the beach—racking up summer gasoline usage with gallons that might otherwise have been saved.
Sporting goods manufacturers, the leisure industry, gasoline stations, retailers and convenience stores all love DST. Every time Congress extends summer another month, it’s estimated to earn an extra $200 million in sales for the golf industry and another $100 million for BBQ grills and charcoal.
But it doesn’t save energy. And for the U.S. government to make DST a mandatory part of our energy policy is ironic at best.
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