The Problem With Efficiency Standards

As economists, one of our chief focuses is on effeciency.  Economics is, after all, the study of allocation of scarce resources.  Why, then, do so many free market economists like myself oppose effeciency standards like C.A.F.E?  It’s not out of some dogmatic mantra that government can only harm but rather out of objection to a poor definition of effeciency.

The political definition of effeciency is “to use fewer resources.”  This is partly correct, but there is another part. The economic definition is “to maintain or improve output using fewer resources.”  Therein lies the rub.  To use fewer resources is easy. A firm could use less labor if it fires half its workforce. A dishwasher could use less resources by spraying plates with a trickle of water. I car could use fewer resources by cutting back on features.  But all of these methods represent a decrease in standards of living. 

True effeciency gains lie when output is increased or maintained. Cars today can run a/c, radio, and GPS while releasing less carbon emissions. LED lights cast more light while using less electricity. Computers have greatly increased labor capabilities.

The problem with government mandated effeciency standards is that they do not take into account increased standard of living. Low flow toilets, for example, use less water but are more prone to back ups or require multiple flushes. Diswasher energy standards and soap regulations have reduced the ability of washers to clean.  These represent a decrease in living standards.  By focusing on only half the issue, government standards will continue to only half achieve its goals.

5 thoughts on “The Problem With Efficiency Standards

  1. Us free market fanbois also oppose efficiency standards such as CAFE because they reduce consumer choice.

    And of course there IS the “government can only harm” thing, as you explain in your last paragraph.

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    • Ron,

      Jon’s last paragraph made a specific point about government mandated efficiency standards. It was not a general condemnation of all government action. Try rereading the last sentence in the first paragraph of his post.

      There is another problem with C.A.F.E. standards I’m surprised he didn’t mention. They don’t do a very good job of succeeding in their stated goal of causing people to use less fuel. Studies have shown that a great many people will simply react to better gas milage by driving more or driving bigger vehicles.

      If the goal is to cause less fuel to be used, a simple gasoline tax will achieve that goal far more efficiently than C.A.F.E. standards.

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      • As a dictator of efficiency standards – government can only harm.

        Better?

        Ignoring the question of whose interests are served when government attempts to limit gasoline usage, there’s the fact that a higher gasoline tax hurts the poor disproportionately,

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    • In general, I’m hesitant to say “government can only harm,” because I think government can help in certain areas: national defense, protection of rights, contract enforcement, and basic infrastructure

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  2. Jon, there are some services provided by government that are not only valuable, but vital. It’s just not clear that the best possible way to provide them is through monopoly government.

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