Friday, December 19, 2008

Is Investing in Weatherization a Good Stimulus Plan?

An editorial in The Oregonian this morning touts a plan proposed by Joe Cortright to invest in weatherization of private homes as a way to stimulate the economy.  But is this really such a good idea?

Sure weatherization is good: saving money on energy costs and dependence on fossil fuels, reducing the carbon footprint of the state and injecting money into the economy in a downturn are all noble pursuits.  But is this plan the best way to address the very serious economic crisis in the state of Oregon?

The problem with this proposal is that the public goods aspect of this plan is minimal at best.  These are investments in which the costs and benefits are almost all private and thus there is not much justification for governmental involvement.  By contrast, investments in transportation infrastructure, education, and creating an infrastructure for a sustainable energy industry all have very strong public good aspects, the benefits are enjoyed by everyone, not just (in the case of weatherization) the private home owners.  The difference between something that basically replaces private investment and one that adds new public investment is precisely the difference in real stimulus versus little to no stimulus. In economic terms, the multiplier effect of this type of spending, on something that replaces private investment, is likely to be low.   By way of contrast, the governor's proposal to attack deferred maintenance at public colleges and universities has the same attributes of being quick to implement and a strong potential to suck up excess labor supply in construction, but it also represents a large and lasting public goods investment.    

Sure there is a social cost to the use of fossil fuel based energy and this is a problem.  But if you want private home owners to make these kinds of investments there are much more effective ways to do it - tax incentives, for example, or, even better in my view, a carbon tax on fossil fuel-based energy.  It is important not to confuse other goals with the immediate problem of fiscal stimulus in a horrendous downturn in the economy.  There is a way to align the two goals - like the aforementioned investment in sustainable energy infrastructure - but just because something is easy and sounds good, does not make it good economic policy and The Oregonian does itself no favors by not asking the hard questions when analyzing a proposal like this. I am actually fairly surprised that an economist has proposed this because in my view it does not survive the economics litmus test.

What troubles me most is that this is exactly the type of kind of nice sounding policy that becomes politically popular but that is actually damaging in that it stands in the way of better policy options and has the potential of, therefore, prolonging our misery in this terrible economic crisis.

1 comment:

AHardy9 said...

My company repairs and restores windows and doors which can be considered "weatherization." While the editor thinks this may be small dollars, it employs local labor (we don't ship windows overseas to glaze!) and most of the suppliers of bronze weather strip, glazing, etc are all American manufacturers. The concept of the Federal goverment giving money to colleges to do deferred maintenance is ludicrous! Those institutions have spent decades fundraising for new buildings and deliberately ignoring existing buildings that already have a named donor attached to them. There is very little net benefit to the community at large if the institutions don't value their existing infrastructure. One of the greatest obstacles we face is that most homeowners don't know that some simple maintenance can be done and is incredibly cost effective in terms of payback. If the stimulus plan can help people make the right decision to save the buildings we already have and not ruin them with plastic replacement windows we will have a better stock of homes for future generations. And we provide good jobs right in our own communities.