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I Confess I Find It Hard to Know What to Do with This...

Chris Bertram writes:

What “lump of energy” fallacy?: Brad DeLong has just posted a couple of links to articles that attack an article by David Owen in the New Yorker [subscription required]. Owen’s article relied heavily on the claim that increased energy efficiency doesn’t really deliver the hoped-for environmental benefits, because of something called the “rebound effect”. Here’s an explanation of that effect by James Barrett in one of the linked pieces:

In essence the rebound effect is the fact that as energy efficiency goes up, using energy consuming products becomes less expensive, which in turn leads us to consume more energy. Jevons’ claim was that this rebound effect would be so large that increasing energy efficiency would not decrease energy use...

Owen’s critics say that although the rebound effect is real, whether it is large enough to have the effects Owen claims is an empirical matter, and they are sceptical. Basically, they argue that the increase in energy consumption is not just down to lower prices but also to greater wealth, house size, etc. and so without greater efficiency, we might be consuming a whole lot more energy than we actually are. Basically: it all depends on the facts, and the jury’s out.

Ok, so now let’s do a little substitution in that sentence quoted earlier.

In essence the rebound effect is the fact that as labor efficiency goes up, using labor consuming products becomes less expensive, which in turn leads us to consume more labor. [The] claim was that this rebound effect would be so large that increasing labor efficiency would not decrease labor use...

The amended claim reads as the response those same economists might make to Luddites everywhere. “Don’t worry, the new technology will not put you out of work!” Or perhaps, more honestly, “even if the new technology puts some people out of work for a bit, it will not reduce and may even increase demand for labour, and people will be better off.”... [W]hy do [at least some] economists respond to the claim about energy efficiency with “its an empirical matter”, whilst chanting “lump of labour fallacy!” at people who worry that technological change will cost jobs? Why is one a matter of looking at the evidence, whilst the other is determined more or less a priori?

Bertram seems to go from a real world in which Barrett and Kahn criticize Owens, to a counterfactual world in which Barrett and Kahn "might" say something about technology and demand for labor, and then come back to a real world in which he sees "economists... [dismiss] worry... that technological change will cost jobs... more or less a priori."

Let's be clear: to the best of my knowledge--and I have looked--neither of "those same economists"--the two people I cite, Jim Barrett nor Matt Kahn--says to Luddites or to anybody else: "Don't worry! New technology will not put you out of work!" They simply do not say what Bertram says they "might" say. It is true in the subjunctive that if your grandmother were to have wheels then she would be a bus. But it is much more important that it is true in the indicative that your grandmother does not, in fact, have wheels. Let's stick to what people do say in this one.

I say that--at least among those economists I speak too, whether of the left, of the center, or of the right--it is simply not the case that one set of issues is settled by examination of history and evidence and the other settled by a theoretical a priori argument. Both are settled by examination of history and evidence.

In the case of the effect of new technology on the demand for labor, at a price this afternoon of $0.14/pound a pound of potatoes costs thirty seconds' work at the average wage for people in America today and cost two hours' work for the Daly branch of my ancestors in pre-Potato Famine Ireland, suggesting that all the new technologies invented and all the capital formation undertaken since the 1840s have in aggregate multiplied the bargaining power of labor when buying potatoes by a factor of 240. Ever since the catastrophic downfall of the handloom weavers that you are in big trouble if your skills are substitutes for the capabilities of new technology (and in clover if your skills are complements). But in general it has not been wise to bet that new technology will reduce the bargaining power of and so immiserize labor.

In the case of the effect of energy efficiency-improving technologies on energy consumption, both Kahn and Barrett have things to say about this that are grounded in evidence. They do not say: "it all depends on the facts, and the jury’s out." They say: it all depends on the facts, and the jury is in.

First Kahn:

Kahn: For products that require our time to use (such as driving) or for which we have limited demand (refrigerators), I do not believe that the rebound effect is an important issue.  Consider another example,  building energy codes. In California, new construction has faced more stringent energy efficiency standards. In this case, there is no “rebound effect”.   No Don Trump builds a bigger building because energy efficiency per square foot has increased. There are certainly cases in which David Owen is right. Consider the washing machine for clothes and dishes. As washing machines become more efficient and cheaper to operate, people do more loads of wash. This technology saves us time and people have a very high demand for clean underwear! Consider a central air conditioning system. There are people who would love to set their thermostat at 65 degrees on a hot summer day. In the past, when AC units were inefficient this would have cost a fortune. As air conditioning units become more energy efficient, some people may choose to lower their summer thermostat reading. While such diversity exists, the average person will choose to have a lower energy bill. My bottom line is that energy efficiency improvements will shrink our carbon footprint.

Now Barrett:

Barrett: [T]he rebound effect is real. The theory behind it is sound: Lower the cost of anything and people will use more of it.... The problem with knowing how far to take things like this is that... the real world is complicated and trying to disentangle everything that’s going on is very difficult. Owen cleverly avoids this problem by not trying to disentangle anything.

One supposed example of the Jevons paradox that he points to in the article is air conditioning.... Owen notes that between 1993 and 2005 air conditioners in the U.S. increased in efficiency by 28% but by 2005 homes with air conditioning increased their consumption of energy for their air conditioners by 37%. Owens presents this as clear and obvious proof of a Jevons effect. Case closed.

Here is where Owen gets lazy: A few key facts disprove the point.... Real (inflation adjusted) per capita income increased by just over 30% over that time period. All else being equal, when people have more money, they buy more stuff, including cool air. The average size of new homes increased... over 16%. More square feet means more area to cool and more energy needed to cool it. In 1993, of homes that had A.C., 38% only had room units.... By 2005, 75% of air conditioned homes had central units.... Finally... the efficiency of the average central air unit in service in 2005... [was] about 11.5% more... than... in 1993....

All of the increase in energy consumption for air conditioning is easily explained by factors completely unrelated to increases in energy efficiency. All of these things would have happened anyway. Without the increases in efficiency, energy consumption would have been much higher....

It’s easy to be sucked in by stories like the ones Owen tells. The rebound effect is real and it makes sense. Owen’s anecdotes reinforce that common sense. But it’s not enough to observe that energy use has gone up despite efficiency gains and conclude that the rebound effect makes efficiency efforts a waste of time, as Owen implies...