Sabotaging Manufacturing

By Judge Glock

Wednesday, December 27, 2023

 

The Biden administration is engaged in an unprecedented effort to boost American manufacturing. With scores of subsidies and tax credits, it hopes to revive a sector that has shed millions of jobs since a peak over 40 years ago.

 

It is odd, then, that another part of the government is doing its best to hamstring industry. Biden’s environmental regulators are layering more and more requirements on factories and utilities.

 

The latest example came to light on December 15, a Friday, when the government tends to release bad news. The Department of Energy (DOE) proposed a new regulation on certain small electric motors. The purported goal is to increase the efficiency of these motors and thereby save energy.

 

Although small electric motors may seem, by definition, insignificant, the government estimates that the regulation would have massive costs, in this case of around $5 to $10 billion. It also estimates that the new rules would shrink the value of the industry that produces the motors by up to 13 percent.

 

To justify imposing billions of dollars in new costs, the government claims that there will be tens of billions in benefits. The vast bulk of these benefits will come from energy-efficiency savings. They are not benefits for the country as a whole but rather “private benefits” of those buying the regulated products.

 

Like other energy-efficiency mandates, this one faces the obvious question: If the energy savings are so great, why don’t consumers and manufacturers adopt them on their own? The government simply claims it’s smarter than most families and businesspeople whose job it is to make and save money. For some reason, business executives in particular fail to understand their self-interest and the government therefore does it for them.

 

The government is overestimating its omniscience. As one study of energy-efficiency regulations stated, the government does “not document these purported failures in consumer choices or firms’ energy utilization decisions with any empirical evidence.” In reality, plenty of studies show that consumers take account of energy savings when buying products. Companies and manufacturers are even more aware of the costs and benefits.

 

There are plenty of reasons to believe that the government is overestimating the private benefits these purchasers would receive. One article showed that DOE energy=efficiency calculations ignored the volatile nature of energy prices. Another showed that the DOE tended to systematically ignore how people discount the value of money in the future versus money today. Energy savings years in the future do little if a family or company is bankrupt tomorrow.

 

One irony of energy-efficiency mandates is that the government ignores how they can increase energy consumption. For instance, if cars or light bulbs use less energy, people can use them more at lower cost, sometimes leading to even more energy use overall. In the energy literature, this is known as the “rebound effect.” Studies have shown that the rebound effect can erode most of the energy savings from increased efficiency.

 

Some of the benefits that the government purports will accrue from the electric-motors rule are even more speculative. The government argues that there are billions of dollars in benefits from reduced greenhouse-gas emissions. But that includes benefits for everyone on Earth and is not focused on the U.S. consumers and companies that bear the costs. The government claims that “if the United States does not consider impacts on other countries, it is difficult to convince other countries to consider the impacts of their emissions on the United States.” No evidence is provided that China, where most of the growth in global emissions comes from, albeit from a lower per capita rate, cares about the impact of their emissions on American citizens.

 

One regulation on a certain kind of electric motor will, despite the large costs, not stymie manufacturing. But it adds to the ever-increasing erosion of America’s manufacturing base. Just a few months back, another government regulation on a different type of electric motor imposed another billion dollars in new costs.

 

Manufacturers estimate that they pay twice in much in regulatory costs, about $20,000 per employee, as other businesses. Even if one disputes the precise number, no one doubts that those making things today face more government rules and mandates than do those typing comfortably on laptops.

 

Yet the laptop class keeps finding new ways to impose costs on those trying to make things. And then they are mystified when people refuse to build in America.