Bob Collins-
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Putting the PS on the now-closed Minnesota Appliance Rebate Program. I was on Morning Edition this morning to talk about it. Here’s the final outline:
WHY DO YOU THINK IT WAS SO POPULAR HERE?
Because, despite all of the kvetching, Minnesota’s economy is better than most of the rest of the nation. People have money to spend and people like a “deal.” Also, if you tell someone that they can’t have something, they generally want it more. Going in, it was widely publicized that there weren’t going to be many of these rebates available.
HOW DOES THIS COMPARE TO “CASH FOR CLUNKERS” PROGRAM
The car program, of course, was much bigger and didn’t involve the states. Everything happened through the car dealer and the deal was pretty much the same everywhere in the country. That’s not the case here.
Minnesota, for example, decided to give a (comparatively) lot of money to few people instead of a little money to a lot of people. Every state is different. In Pennsylvania, for example, the rebates only go to people who are buying appliances that use gas, because electric companies are required to offer rebate on appliances which use electricity.
There’s also the “jobs” issue. The car program caused American workers in the auto industry to go back to work. There’s little net effect on factory jobs with this program because (a) it’s so small and (b) most of the big manufacturers of appliances have shipped U.S. jobs to Mexico.
HOW MUCH MONEY ARE PEOPLE SAVING?
They’re not saving a dime. The program is designed to get them to spend their money, it’s only a question of how much they spend. And that’s the question with this program — how does it affect a particular family’s finances? Are they going into debt to get a new appliance.
The rebates were supposed to be from $50 to $200 depending on the appliance you have to buy within a month, but the numbers from the state aren’t adding up. According to a news release, 25, 926 people got the rebates. The state got $5 million in the deal so that works out to $192 average rebate. Aside from the fact that — theoretically — the average rebate should be a round number, we haven’t been able to find out why the average rebate is so high unless everyone is buying washing machines.
HOW MUCH ENERGY WOULD THIS PROGRAM SAVE IN A YEAR?
An energy-efficient appliance can save you an average of $75 a year so a rebate of $200 takes a little less than two years off the total payback time in which people actually make money by having a more efficient use of energy. I calculated that the total amount of energy that utilities won’t have to generate in a year around here is equivalent to about 2 1/2 hours at the big coal burning plant south of Stillwater.
However, you can’t apply across the 50 states. Some states, unlike Minnesota, did not require consumers to replace appliances. So if someone is buying a big chest freezer who didn’t already have a chest freezer, the program is actually increasing the amount of energy used.
WILL THESE NEW APPLIANCE SALES STIMULATE THE U.S. ECONOMY?
Perhaps, but not for the reason most people think.
The economy is an emotional thing fueled by our willingness to believe it’s getting better. That raises our confidence and that makes us spend money.
The people buying new appliances were probably going to buy them anyway — and, by the way, many utility companies were already offering rebates for this — over the next year or two. If people can be compressed into buying within a month, then at some point a couple of months from now, an economic report will come out and it might show a big increase in consumer spending. And some analyst will say it shows people are more confident about the economy and someone at home who didn’t buy a new appliance might say, “Hey, the economy’s getting better, maybe I’ll keep my job afterall. Honey, let’s go buy a freezer.”
As a result of creating the illusion of an improving economy, you actually create an improving economy. That’s what’s behind this program.
The economy is like a magic show.
