At the Adam Smith Institute blog, Tim Worstall talks about the way regulatory agencies approach problems:
It’s claimed as one of the great victories for enlightened (sorry) regulation, the way that the EU and US have both banned the incandescent light bulb through bureaucratic action. The ban came about by raising the efficiency standards required: this meant that the traditional bulb could no longer be sold.
The argument in favour of doing things this way was, in public at least, that everyone’s too stupid (or, in a more polite manner, subject to hyperbolic discounting) to realise that the new bulbs will actually save them money in the long term by consuming less electricity. There are also the more cynical in the industry who insist that it’s actually a case of regulatory capture. The light bulb manufacturing companies managing to get us all away from using cheap as spit bulbs and onto something with a decent margin on it.
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This has a number of implications in the larger world as well: for example, it means that bureaucratic regulation on car mileages (like CAFE in the US) is contra-indicated. A simple tax on petrol will drive up average mpg because we’re not all as thick as bricks. Assuming that climate change really is a problem that must be dealt with then a carbon tax is going to do the job. For we’re not all so dim that we cannot work out the utility of using fossil fuels or not given the change in prices.
That is, we don’t need to be regulated into behaviour, we can be influenced into it through the price system. Something that really shouldn’t be all that much of a surprise to us market liberals: for we’re the people who already insist that people do indeed respond to price incentives in markets.
