Day 10: Do Lightbulbs Illuminate a Bigger Debate on Regulation?

By Philip Rossetti

It’s finally happened: Traditional incandescent lightbulbs?can no longer be sold?in the United States. Few things affect Americans so universally as lightbulbs, so it should be no surprise that the conventionally mind-numbing topic of lumens-per-watt has taken center stage. But the more important (and interesting) aspect of the?newly implemented regulations?is that they reveal a fundamental division between central planners and free marketeers in their understanding of economic growth.

The Biden administration’s policies have effectively banned low-cost incandescent bulbs ($2-$3 per bulb) in favor of higher-cost but more efficient?LED bulbs?($5-$7 per bulb). While the U.S. Department of Energy estimates these regulations will cost between $5 billion and $8 billion cumulatively (see regulatory impact estimates here), they expect them to yield long-term benefits of $82-$135 billion, with $48-$85 billion in consumer electric bill savings. Though this sounds like a great deal, whether these benefits are captured is entirely underpinned by the idea that regulators are better at identifying consumer benefits than consumers themselves—a suspect notion.

Regulators must estimate the costs and benefits of their rules and, ideally, they will identify capturable public health benefits that can be remedied by regulations. The?Acid Rain Program?is a great example. But, as covered in a?past Low-Energy Fridays post, regulators run into problems when they start to rely on “private benefits,” assuming that consumers cannot identify value correctly. One could argue that this is true for small purchases like lightbulbs; however, this logic also underpins the cost-benefit analyses for regulation governing?major purchases like vehicles, where we clearly expect consumers to investigate all economic options.?

If regulators were correct, one could theoretically grow the economy simply by addressing all of the bad decisions people make. This is the rationale we see behind many new regulations coming from the Biden administration. But if regulators (who are politically appointed and not nonpartisan) are incorrect in their cost and benefit estimates, then their regulations could weaken the economy and cause more harm than good.

Unfortunately, there is no easy way to know which view is correct because there is no consensus on how to correctly calculate regulatory benefits (see R Street’s view on it?here). What we can do is look retrospectively at a time when there were many regulations, like under President Obama, and compare that to a time when regulations were curtailed, like under President Trump. If regulations do, in fact, grow the economy while simultaneously delivering environmental benefits, we would expect much better carbon intensity improvement during the Obama years than the Trump years; however, the data shows?no discernible difference.

The Obama-Trump comparison suggests that regulators are either overestimating benefits or underestimating costs—perhaps both. This does not mean that regulations are never worthwhile, as many have been fruitful for the nation (especially in achieving public health benefits). But it does mean that we are probably not holding regulators to a high enough standard. More regulation is not always better.?

Ultimately, the issue at hand is whether regulators are correct in identifying capturable benefits. There are good reasons to think they are not. Whether regulations can grow the economy gets back to?the knowledge problem?in economics and the limitations of bureaucrats in managing the economy relative to the market. It is also why we know market-based policies are?more efficient?than command-and-control ones. Even though many will disagree on the fundamental worthiness of lightbulb regulation, we should at least agree that regulators ought to strive for higher-quality rulemaking that yields better certainty in achieving more benefits than costs.