Shove Meeting 31 January 2006

As a liberal, I am deeply sceptical about the benefits which regulations are alleged to bring. Yes, it is true that regulation does now and then bring some good. However, no benefit can ever be brought into being without a cost: a fact which advocates of regulation very often and very conveniently omit to consider, let alone mention. To me, regulations are like drugs. Almost invariably, they carry side-effects whose consequences are such that the regulatory _cure_ is worse than the disease - if, indeed, upon proper analysis, a disease can ever be found to have existed in the first place.

The topic, of course, is a vast one, and tonight I only have twenty minutes. I therefore propose to confine my discussion to an issue which recently received some coverage in the news. This was a proposal put forward by the Green mayor of Waverley Council, Moira Main, to ban the installation of new air-conditioners within that municipality. Analysing that issue provides with a microcosm in which the question of markets versus regulation can be brought into sharp relief.

There is an old story about a horse which agreed to carry a scorpion across the river, but only on condition that the scorpion refrained from stinging the horse. Halfway across the river the scorpion reneged on that agreement. When asked why, it replied that it was a scorpion and stinging things is what scorpions do. If this is indeed true of scorpions, then it seems that demonising technologies is what left-wingers do. They have done it to DDT, to nuclear power and to genetically modified plants and animals. Let those who pursue domestic luxury beware: it seems that they now have their sights set on air conditioners.

The rationale for this hostility seems to be based upon the greenhouse effect, by means of which global warming is supposed to be caused by the accumulation of carbon dioxide within the atmosphere. Simply put, the thesis is that air-conditioners use electricity; electricity is produced by burning coal, burning coal raises the level of carbon dioxide within the atmosphere and if we do not presently control that level run-away global warming will be our reward. In other words, stop people from using air-conditioners and you will save the planet.

The argument does squarely raise what economists call an _externality_. This can be thought of as a cost, created by some kind of productive activity, but which is not borne by those who ultimately consume or benefit from that activity.

An example may be help to illustrate the concept. Let us suppose that I buy a cotton shirt. One of the costs, which my consumption of that shirt involves, is the fact that land had to be set aside from other, potentially productive, uses in order to grow the cotton from which that shirt is made. However, the farmer who owns that land and who grew the cotton sold his produce to the manufacturer of the shirt. Factored into the price of that cotton was the cost of the land upon which it was grown. Therefore, the cost of the land, and its diversion from those other uses, is not an externality.

However, in order to grow the cotton pesticides were used. These flowed into a nearby river and polluted it. This created a cost, because people could now no longer fish or swim in the river. However, this cost does not factor into the price of the cotton because no one has been paid for it. The pollution of the river is therefore an externality.

In this sense, burning coal to generate electricity may be said to create an externality. Let us accept, for the sake of argument, that the so-called anthropogenic greenhouse effect is real, and that by increasing quantities of carbon dioxide in the atmosphere burning fossil fuels disturbs the planet's climate. However, those who do so in order to generate and sell electricity are under no obligation to pay any owner of the atmosphere for the privilege of altering it in this fashion. Therefore this cost is not factored into the cost of the electricity and thus becomes an externality.

Accepting all of this one might nevertheless ask: _why pick on air conditioners_ ? After all, they are not the only devices which consume electricity. Why not ban refrigerators, washing machines, tumble dryers, television sets and electric blankets ? Why selectively ban one particular means of consuming electricity within the domestic household ? The exercise of answering that question provokes some very interesting insights into the Green mentality. However, I shall turn to these insights later.

The answer conventionally given by Ms Main and her allies is that Waverley is a coastal community and, subject to the influence of prevailing sea-breezes, does not experience extremes of temperature. Therefore, air conditioners are unnecessary.

At this point one is almost bound to wonder why, if this is the case, a ban will serve any useful purpose. If indeed air-conditioners are unnecessary, why would any sensible person wish to install one, let alone turn it on? Why would one waste money and power in this way? Obviously, there must be a question of conflicting judgments here. The user of air conditioners must take the view that Waverley isn't always such a place of balmy, equable temperatures. Now and then extremes of heat and cold do occur and when this happens air conditioning is, if not actually unavoidable, at least highly desirable.

This illustrates one of the central issues raised by regulation: the question of my opinion versus yours. Inherent in the whole proposal is the idea that Mora Main's opinion on the issue must be the decisive one. She is just right and those who want to use air conditioners are wrong. She is wiser, better informed and thinks more clearly than those who disagree with her. Therefore her opinion must prevail. Those who think differently must be forced to change their ways.

Yes, this does in some ways limit personal freedom, but so be it. People like Ms Main doubtless salve their consciences, or at least endeavour to explain themselves, by responding that petty personal liberties must give way when nothing less than the future of the planet is at stake. No doubtless members of the Holy Inquisition relieved themselves of their cognitive dissonance in much the same sort of way. Yes, torturing people was horrible, but any sort of squeamishness must be firmly discountenanced when the existence of heresy threatens not only the immortal soul of the heretic, but also the very survival of Christendom itself.

It is here and thus that a person of liberal political inclinations begins to see the whole project as distinctly suspect. What business has someone like Ms Main got deciding for others whether in fact they need to use an air conditioner? What if she is wrong and they are right? What of people, such as the elderly and infirm, whose health requires them to maintain a relatively constant temperature in their homes? Surely this is an issue upon which minds may be left free to differ.

Another argument, which is apparently advanced by people like Ms Main, is that air conditioners use copious amounts of electricity and therefore add unduly to the green house effect. Like many aspects of Green thinking, this particular assertion is based upon some distinctly questionable science.

When it comes to cooling, there is no technology with which a reverse cycle air conditioner (RCAC) may be compared, because it is the only means by which this objective can be attained. However, when it comes to heating, many comparisons are available. In every one, a RCAC comes out best for economical use of energy.

This because a RCAC does not generate heat, so much as pump it around. It lifts the temperature of your house by taking the outside heat and shifting it inside. It makes your house warm by making the outside world just that tiny bit cooler. Working in this fashion, an RCAC almost appears to defy the law of conservation of energy. If you pump a kilowatt of electricity into an electric radiator, the most you will get out of it is a kilowatt of heat. If, however, you pump a kilowatt of electricity into an RCAC you will get 3 and perhaps as much as 4 kilowatts of heat.

This astonishing efficiency means that for combustion of fossil fuels, an RCAC on its heating cycle turns out to be more economical than virtually any other alternative, including gas fireplaces.

A critic may well say that if RCACs were used solely for heating there would not be much of a problem. However, the technology can also be used for cooling as well. Once installed the owner will be tempted to cool his house in summer, thereby increasing electricity usage. The extra electricity usage brought about by summer cooling will outweigh any saving brought about in winter heating.

Stated thus, however, the proposition invites scepticism. Surely any conclusion to this effect must require careful, quantitative analysis, which so far seems to be conspicuously absent from the arguments of people like Ms Main. Heating a house in winter may be an entirely more extensive proposition than cooling it in summer. The desirable temperature is on the order of about 22 degrees. If the outside temperature in winter is 10 degrees, then the air conditioner has to pump about 12 degrees of heat into the house. If the outside temperature in summer is 30 degrees, then the air conditioner only has to pump about 8 degrees of heat outside the house. The electricity savings made in winter may more than outweigh the additional electricity consumed in summer.

I have to say that this has been my experience. Some four and a half years ago I installed a RCAC in my apartment. Using it in summer raised my quarterly power bill by about 40 to 50 dollars. However, using it in winter lowered the applicable bill by about 100 dollars. Even allowing for cooling in summer, there was a net saving of electricity.

Let us give Ms Main the benefit of the doubt, however, and accept that RCACs do consume more electricity than they save. Will banning them serve to reduce the consumption of fossil fuels?

A minor, but nevertheless important, initial observation is that air conditioners consume electricity which can come from a variety of sources other than fossil fuels. Surely consumption of electricity in itself is not an evil. The real problem lies in the source from which the electricity is obtained. There is no need to reduce consumption of electricity obtained from sources other than fossil fuels.

However, Ms Main and her allies would probably counter that in Sydney, at least, most electricity is obtained from coal-fired power plants. Her logic would doubtless be that if we discourage the use of electricity-consuming devices then we discourage the use of coal.

The more central problem with her whole case is that, as previously observed, air conditioners are merely one of a myriad ways in which electricity can be consumed. Banning these devices deprives households of only one such means. Suppose Ms Main succeeds in ridding her hapless locality entirely of the scourge presented by air conditioners. Will this of itself reduce electricity usage?

Imagine you are a householder who has an air conditioner which is used regularly throughout the summer months. As a result your annual power bill comes to some $1,000, of which, let us say, some $250 is attributable to use of the air conditioner. Ms Main and her council, sending around their friendly persuaders, make you an offer which you cannot refuse, and convince you of the need to rid yourself of this environmentally unfriendly device. Does this mean that your power bill then falls to only $750? This is improbable.

Many people are just as likely to take the view that once they no longer have one drain on their power bill they can now afford to indulge a few others. Why not, for example, acquire and use a rotary dryer and save yourself the need to put washing out on the line? Why not plaster your house with those very fashionable, but not very economical, low-wattage downlights? Why not decorate it with some very pretty and suburb-enhancing Christmas displays? Why not be lazy and leave all your electrical appliances on standby mode? Those 3, 6 or 9 watts apiece may not be much looked at in isolation, or only over a few hours or days, but taken together and over a whole year they can certainly mount up something quite significant.

Economists have considered this kind of phenomenon. They note that while there has been a proliferation of low fat and low sugar foods on the market people seem to be just as fat as ever. Why is it, then, that these foods, which people obviously seem to be purchasing, are being consumed to no good effect? The answer is, simply, that people like to eat. What constrains their appetites is ultimately the feeling of satiation, the fear of getting fat, and a desire to avoid the health consequences which may possibly be attendant upon that state. Give them a low fat or low sugar substitute and people are likely to reason that if it contains half the kilojoules they might as well eat twice as much. In end the net effect on their calorie consumption is zero.

The kind of regulation being proposed by Ms Main is what economists and liberals describe as _command and control_. In order to get people to reduce their consumption of electricity, or water, you tell them the kind of devices which they may or may not use. The trouble is that even if this is done it poses no limit on the extent to which people can use the remaining devices which you will permit them to have. Unless the council places one of its staff in every household and has that officer minutely micro-regulate the way in which people use electricity this sort of approach is ultimately doomed to failure.

Is there an alternative? Happily, there is, but in order to employ it one needs to understand and work with the nature of markets.

Contrary to what someone like David Suzuki may teach, pollution is not some intolerable evil which must be eliminated altogether. It is merely an adverse consequence of a production process. As indicated previously, externalities arise when the cost of those consequences is not factored into the price of the good being produced. Let me give another example. Say I pay someone to iron my shirt. The good being produced is a freshly pressed piece of clothing. The adverse consequence of producing that good is that someone has to do a hot, physically demanding and exhausting job from which they derive little, if any, personal satisfaction or pleasure. This is the _pollution_ which ironing shirts causes. Does it mean, if we adopt the logic of David Suzuki, that we forbid people to perform this task? No, it means that if we want someone to iron our shirts, we must pay them for the pains they incur in so doing. The rate at which they are paid is secured by negotiation between the buyer and seller of this service.

Again, to make the analogy a little clearer and a little closer to home, let us go back to the business of winning coal from an open cut mine. In order to get the coal we have to take a piece of land and basically wreck it for much, if any, other kind of use by turning it into a huge hole in the ground. This despoliation is one kind of the pollution which this type of mining produces. Does it mean that open cut coal mining does not occur? No, it means that if the coal miner wishes to use land in this way he must compensate the land owner for the damage to which that use gives rise. Again, the rate of compensation is determined by agreement between the land owner and the coal miner. If the land owner does not consider that he will be sufficiently compensated the mining will not occur.

The problem is of course that when we generate electricity by burning fossil fuels we pump greenhouse gases into the atmosphere. This is one kind of the pollution which that activity causes. The trouble is, unlike the ironing lady and the landholder in the previous examples, the atmosphere does not have an owner. There is no one to say _well, if you want to put carbon dioxide into my atmosphere you must pay me for the privilege of doing it_.

This suggests how we go about addressing the problem. In effect we have to ask what would the market transaction be like if producers of electricity did have to negotiate compensation in this fashion. Inevitably, we are driven to consider some kind of carbon combustion tax, where, in a sense, the government becomes the owner of the atmosphere, and charges power producers for the privilege of polluting it.

Obviously, this will raise the price of electricity, and standard economic theory tells us that if we do so, people will consume less of it. However, it will be the individual, and not the Moira Mains of this world, who will decide how these economies are to be effected. Like her, some people may decide that air conditioners are a needless luxury and dispense with them. Others may decide that air conditioners are a necessity without which they cannot do, and economise on electricity by other means. Still others may decide that they will not reduce their electricity consumption at all and achieve savings in other areas of their lives. This is what liberals call _freedom_, a distinctly unfashionable concept which is conspicuously absent from the vocabularies of people like Moira Main.

There is, of course, one additional benefit. By raising the cost of coal consumption in comparative terms, a carbon tax provides power producers with incentives to generate electricity by other means. Alternatives which were hitherto uncompetitive might now be looked at afresh. Banning specific uses of electricity, such as air conditioners, offers no such inducement.

Objectors may say that by raising the price of electricity in this fashion a carbon tax will cause hardship. What about its effect on the low income earner, that sacred concept in whose hallowed name all manner of economic folly may be safely advocated. By way of response, it should be noted that a carbon tax would raise revenue, which could be used to enhance welfare for these individuals. However this course is not ideal, since it makes little sense to take money out of people's pockets only to put it back in them again. The process of taxation and welfare dispensation is by no means cost-free. The better course is not to raise the money in the first place. That is to say, the revenue should be used to reduce or eliminate altogether other regressive taxes which adversely impact upon the welfare of low income earners.

At the conclusion of this analysis one is driven to inquire why people like Moira Main prefer to tackle the project in a piecemeal and ultimately ineffective way by proposing to ban air conditioners. To this question, which I raised earlier in this discussion, I shall now return.

The answer lies in a more perceptive understanding of the social and cultural essentials which underpin the Green movement. As many liberals have noted, it is not a political movement, although it certainly partakes of that character, so much as a religion. In short it supplies the kind of spiritual necessities which have remained unsatisfied since the emergence of the scientific revolution has made belief in the Christian God more and more difficult to sustain. While the Green religion lacks a deity nature itself has become the object of its worship.

One thing which one observes in all religions is that holiness is pursued by means of austerity and renunciation of pleasure. In Hinduism the holy man wanders all but naked through the countryside subsisting on what charity people are prepared to indulge him. The sight of a Buddhist monk in his saffron robe and begging bowl is common sight for those who have visited south east Asia. In Christianity, the religious devotee is expected take upon himself vows of poverty, chastity and humility. Islam has similar messages for those who seek to save their souls. The pleasurable life awaits us not in this world, but the next.

This is a common theme in religious movements. One searches in vain for religions which will tell you to have a good time. Virtually all of them, however, will preach that if you are to attain spiritual salvation you must forgo pleasures and the consumption of physical wealth. As Jesus Christ taught, it is easier for a rich man to go through the eye of a needle than it is for him to enter the Kingdom of God.

In the light of this analysis the Green disdain for air conditioners becomes easier to comprehend. They are a conspicuous consumer good. They provide is with the ultimate luxury: a comfortable home which is neither too hot, too cold nor too humid all year round. Enjoying the comfort which they provide is therefore a wicked abomination, like sloth, gluttony or lust. It is merely the empty and spiritually bankrupt pursuit of pleasure. In the eyes of the true believer, such behaviour stands only to be condemned.

The problem with this analysis, some may suggest, is that there many other luxuries which consume electricity but which, so far, mercifully, Greens have not yet seen fit to target. For the vast bulk of humanity, devices such as refrigerators, television sets, sound systems, electric irons and electric toothbrushes are also luxuries. Refrigerators, in particular, can use up power on a scale not greatly dissimilar from that of an air conditioner. Apparently, however, these do not arouse the ire of Greens to quite the same extent.

The answer lies in the shifting standard which separates a luxury from a necessity. Fifty or sixty years ago, refrigerators were a luxury which few households possessed. At a time when a good salary was 10 pounds a week, my mother and father had to save up several hundred pounds in order to secure one. However, the liberal capitalist system is extremely good at lowering the real cost of consumer items. What once took a year's income to acquire can now be purchased for the price of a few weeks' after tax earnings. Refrigerators long ago moved out of the category of luxury into that of necessity. Tell your average Australian that his refrigerator is an evil, environmentally damaging luxury and he will probably blink at you uncomprehendingly.

True, air conditioners have been around for a while. But the household versions which were on the market in the 1970s were noisy, unsatisfactory devices. If the sound of them did not drive you crazy that effect would soon be had on the neighbours and a noise complaint would presently arrive on your doorstep. However, several decades of capitalist tinkering have now produced very efficient machines which can barely be heard. In real terms, too, their price has also fallen considerably. In short, air conditioners are poised to become a common place of Australian homes. They have ceased to be a luxury which only the very rich can afford, but are yet to become the necessity without which no home can do.

This explains why Ms Main and her ilk focus their wrath upon only domestic air conditioners. If this method of internal climate control is such an unmitigated evil one wonders why they do not seek to prohibit it in commercial and industrial developments as well. However, air conditioning for shops and offices has been around for so long that people take it for granted. It simply does not register on the Greens' religious radar. One might ask, though, that if there are obvious occupational health and safety concerns for workplaces which do not enjoy air conditioning, why those concerns should not equally apply when we come to consider people's homes. If anything, we spend more time at home than we do at the office.

To put it simply, air conditioners are just plain unlucky. Had the Green movement originated fifty years ago there can be no doubt that refrigerators would have been at the top of their hit list. Twenty years from now few homes will be without air conditioning and a Green who agitates against them will receive little, if anything, in the way of public support. The general, and thankfully hostile, public reaction to Ms Main's proposal suggests that this process is almost certainly well underway: something for which the worthy inhabitants of Waverley can no doubt be grateful.

Brad Row