The economic theory of “creative destruction” is important when understanding the value innovation has on long-term economic growth.
Popularized by Austrian economist Joseph Schumpeter, the theory says the short and long-term benefits of entrepreneurial activity and competition will far outweigh the short-term losses caused by a new product replacing an old one. Audiotape makers may lose their jobs to the makers of compact discs, who may lose their jobs to the digital age.
When it occurs organically, it’s a beautiful process that begets economic progress and benefits the consumer. When forced on businesses and consumers by our government, it does far more harm than good. And that’s exactly what’s occurring with the federally mandated incandescent light bulb ban.
In 2007, Congress passed an energy bill that placed stringent efficiency requirements on incandescent bulbs in an attempt to phase them out beginning in 2012 and replace them with more expensive but more energy-efficient bulbs, the most popular being compact fluorescent bulbs (CFLs). Politicians used a distorted view of creative destruction mixed with global warming concerns to sell the regulation. They said it would create jobs, save consumers money, and reduce greenhouse gas emissions. But what’s really happened?
Politicians, as they typically do, fail to see the unintended consequences of their legislative agendas. When it comes to CFLs, for example, the exposure to mercury vapor is dangerous if the bulbs are broken. Hospitals and medical charities warn that CFL bulbs cause migraines and epilepsy attacks. Other critics also point out that CFLs do not work well in colder temperatures and thus will force Americans to use more heat. CFLs do not work well with dimmer switches, and the lifespan of the bulb diminishes when turned off and on frequently.
The latest attack on compact fluorescents is jobs. The Washington Post recently ran a story on General Electric having to close its major incandescent factory in Winchester, Virginia—a factory that employed 200 people. And the jobs that will likely be replacing those will be in China, where the United States gets much of its CFL bulbs. The process of making CFLs is labor intensive, and labor in China is comparatively much cheaper.
As a result, Representatives Joe Barton (R–TX), Michael Burgess (R–TX) and Marsha Blackburn (R–TN) introduced the BULB Act last week, which would repeal Subtitle B of Title III of the Energy Independence and Security Act of 2007—the phase-out of the incandescent bulb. Blackburn said, “Washington banned a perfectly good product and fired hard-working Americans based on little more than their own whim and the silly notion that they know better than the American consumer. Now, hundreds more Americans are looking for work while assembly lines in China are churning out fluorescent bulbs for the U.S. market.”
To be clear, this is not Schumpeter’s model of creative destruction; it’s economic ignorance. If consumers really wanted to buy fluorescents rather than cheaper incandescent light bulbs, they would purchase them without a government ban. And if China produced those fluorescents, cheap imports mean businesses will find better productive uses for labor in the U.S. That’s the organic nature of creative destruction, but in this case, a mix of special-interest politics and concern that energy use in the U.S. is producing too much greenhouse gas emissions resulted in needless regulations and mandates. Rather than an innovation valued in the marketplace, consumers are forced to accept a product they do not want.
Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.
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