04 June 2011

The Market and Efficiency


Remarkably, the cost of air conditioning plummeted over the decades. The cost of air conditioning units declined, and they became increasingly reliable, safe, and efficient in turning electricity into relief from heat and humidity.
That is until recently. Twenty years ago I had an air-conditioning system (i.e., heat pump, HVAC system) installed in a house that was almost 1,000 square feet for $1,600. I just got the preliminary estimate, not an actual bid, to replace a system on a similarly sized house for $11,000. Not surprisingly, this is the reason for this article.

Thornton goes on to describe how government intervention on behalf of the environment has led to higher prices by mandating more efficient end-user systems.  This mindset is all too common among the environmentalist crowd, and belies a shocking amount of shallowness and ignorance.

(As an aside, the efficiency of end-user products and systems tend to be targeted the most by environmentalists because it is part of their pathology.  Like the group Opus Dei, at least as described by Dan Brown, environmentalists believe that one can only show penance by feeling pain and undergoing sacrifice.  As such, they target popular consumer goods in order to feel better about all the evil that man has done to the environment.)

If the environmentalists were truly concerned about protecting and saving the environment, their analysis would take into consideration not only the efficiency of the end-user product, but the efficiency of the production process of said product, the efficiency of transporting the product, the efficiency of selling the product, and the efficiency of maintaining the product, among other things.  Consumption of the product is not the only process that consumes energy and incurs environmental costs.

Production can incur massive amounts of environmental costs.  There is pollution, obviously, in addition to energy consumption, raw material consumption, and the energy costs of labor.  All these things require environmental resources.  Energy comes from coal or nuclear plants, which have their own forms of pollution and their own energy costs as well. Workers have to eat, have to drive to work, and generally wish to relax when not at work.  These desires have an impact on the environment.  Meeting stricter production costs generally requires more materials, directly or indirectly, and requires more labor besides.  Furthermore, new standards may lead to a net increase in pollution because they require more energy.

Besides that, the higher standards may mean that the product wears out more easily or quickly, requiring either repair or replacement. Both of these processes require a net increase in energy consumption, which is not good for the environment.  The former might require a repairman to drive out to someone’s house to make a repair, which does cost energy and lead to an increase in pollution.  The latter requires more units to be produced, which likewise requires more energy and leads to an increase in pollution.

As such, when environmentalists focus on the efficiency of end-user products, they often ignore the unseen environmental costs that new standards incur.  If only there was a way to gauge systemic efficiency.

Believe it or not, there is, in fact, a very easy way to judge systemic efficiency and that is by a market mechanism known as the “price.”   Prices signal to consumers the relationship between supply and demand for given product.  In this case, cold air within a closed system is the product, and prices let consumers know how much air can be provided relative to demand.

Incidentally, the market system encourages systemic efficiency because producers have an incentive to provide a given product for the highest price to consumers at the lowest cost to themselves.  This incentive is known as “profit.”

If there are two competing companies that produce identical products and one can produce their product with one-third fewer works and ten percent fewer raw materials, they can sell their product for a lower price and make a higher profit than their competitors.  Employing fewer workers helps reduce the strain on the environment by lowering the consumption of energy as would have been used for commuting.  Lower demand for certain raw materials also helps the environment in that less energy is needed because there is less material to extract, and so on.

Thus, the market serves the goals of the environmental movement quite well.  Unfortunately, most environmentalists are too dense to realize this, and thus focus their attention on obvious costs while ignoring the less visible costs.  Their superficiality, then, has led to outcomes that are worse for the environment.  
Therefore, it would simply be best to refer to environmentalists as earth-hating idiots, for they are nothing more than simpletons, unable to make any observations other than the most obvious and incapable of thinking abstractly and rationally for any length of time.  Quite simply, they are enviromorons.

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