ENERGY EFFICIENCY BUILDING CODES AND CONNECTICUT– AN UNSURPRISING WHIMPER OF A BANG FOR OUR BUCK

A carefully constructed regulation can accomplish all kinds of anticompetitive goals ( ), while giving the citizenry the impression that the only goal is to serve the public interest.

Bruce Yandle (1983)

Professor Bishwa Koirala came to campus this past week. He gave a talk based on his recent research. His paper addressed a simple question – and the resulting answer proved surprising - perhaps because it is counterintuitive. Professor Koirala (and coauthors) looked to see if the mandated energy-efficiency regulations into existing building code regulations was worthwhile.1 He examined massive amounts of data – using the most recent energy-efficient building codes (IECC 2003 through IECC 2006) for the US at large – and for Connecticut as well.

Increased regulatory requirements designed to enhance the efficient use of energy in our homes would assuredly increase the front-end costs of construction. The costs would be passed along resulting in higher housing and building prices and higher rents. But not to worry: we were told that we would get our money back because our energy bill would be lower as a result of the enhanced building efficiency and thus the added cost would be fully offset or recovered. But was this true back then when we were mulling it over? Have the higher cost of regulations delivered the promised bang for the buck? This last question is the one posed by Professor Koirala. And the answer regrettably, is no, - not even close.

Surprisingly, the adoption of these building codes – back then - were not based on empirical work, nor on actual data. According to Koirala, government studies by the Department of Energy, the Environmental Protection Agency, and various private sector studies (including one by McKinsey and Company) concluded that energy regulations were desirable because the increased cost of requiring energy efficiency building codes would be fully offset by reductions in household monthly energy expenditures. But all these studies were based on theoretical assumptions - not on actual, hard data.

Koirala and co-authors find that energy efficiency regulations in building codes, once capitalized, are estimated to increase housing rents by 23.35 percent. The offset in reduced monthly energy expenditures only amounts to 6.47 percent. In dollar terms – the codes cost $163.19 per month and only save us $7.71. That’s for the entire US! As expected, it varies by region (and energy type and rent gradient.) I asked Professor Koirala to calculate the comparable numbers for Connecticut – which are not in the original paper. He kindly complied. In Connecticut, having the energy efficiency regulations embedded into building codes is costing us $164.07 per month. And they save us all of $8.08. Now about that (covered) bridge...

But notwithstanding the insightfulness of Professor Koirala's results - as is the case in these studies – it begs the question: why do we do this to ourselves? As individuals we would never purchase a car for $10,000 whose blue book value is $5,000. So why do we do we find ourselves on the wrong side of this energy cost trade-off thing - or, more accurately, stand by while Hartford and Washington do it to us?

Koirala does not go into the why – but the answer is not altogether that perplexing. The "Bootleggers and Baptists" metaphor that Professor Bruce Yandle used in his now classic paper of the same name helps understand the reason why.2 He has explained the metaphor: "durable social regulation evolves when it is demanded by both of two distinctly different groups: 'Baptists' point to the moral high ground and give vital and vocal endorsements of laudable public benefits promised by a desired regulation."3 In our case - in Connecticut, we have the green, sustainability and global-warming choirs and cheerleaders taking the moral high ground where everything is justified - and even vaguely critical voices pummeled into submission - in the name of abating or reducing global warming - cost-benefits be damned.

To continue: “the ‘Bootleggers’ expected to profit from the very regulatory restrictions and requirements desired by the Baptists (…) and so eagerly greased the political machinery with some of their expected proceeds.” Who could our Connecticut Bootleggers be? The manufacturers of bulbs, electrical equipment, windows, doors, heating and cooling systems and sundry home construction materials folks and so on - those who stand to benefit from the additional requirements embedded in the code of products that only they can provide and the more expensive components only a few make. Eliminating or handicapping rivals is always good for the bottom line.

Professor Yandle has wryly noted that regulatory reform can hardly be gained easily because it is the result of a costly political exchange. Alas, he also spoke of a special place for the creative application of economic logic – a place where individuals like Professor Koirala, who gain special satisfaction from calling attention to the ways in which we can improve economic efficiency, can do so. We’d like to think UNH’s Department of Economics is such a place.  People and their ideas make a difference.

arod

arodriguez@newhaven.edu

February 09, 2014

1 Koirala, Bishwa S., Alok K. Bohara, and Robert P. Berrens, “Estimating the Net Implicit Price of Energy Efficient Building Codes on U.S. Households,” (2014). Please email me at arodriguez@newhaven.edu if you would like a copy of the paper.


2 Yandle,Bruce, “Bootleggers and Baptists” the Education of a Regulatory Economist,”Regulation Volume 7, No. 3 (1983) 12-16.

3 Yandle,Bruce,” Bootleggers and Baptists in Retrospect,” Regulation, Volume 22, No.3(1999).

China? Seriously Dambisa?

I suppose intellectual vacillation is inevitable – perhaps even desirable.  And even changing one’s mind is ok – following a process of inquiry, introspection, examination, reflection, alteration, adaptation, as the case might require.  The fact is that for most people such rethinking of one’s position, when it does happen, typically comes about slowly and with deliberation.  And when it arrives – well, we respect and commend the process of inquiry and discovery.

It’s the radical about-faces that are puzzling and perplexing.  Alan Greenspan’s post-fallout and much ballyhooed  “I've found the flaw" volte-face comes to mind.

How can he have been so wrong? – We inevitably ask of the flip-floppers.  We question their motives, their interests, their original understanding, and even their intellectual capabilities – hell, even their sanity. 

But as much as we lament Greenspan uncharacteristic outburst – he seems to be well on his way to being exonerated and vindicated. I dunno about Dambisa Moyo. It’s frankly a little sad to see her turnabout.

Many of you may recall Dambisa Moyo – who burst into prominence in 2009 with her seemingly startling claim that aid (as in foreign) was keeping Africa poor.  This was the theme of her book: Dead Aid.  But it was her eloquence, and passion – and the fact that she was Zambian- that really propelled the message - MEMO TO THE WEST: we don't need your frickin' aid!  Speaking for Africans – especially sub-saharan Africa, her message was simple, straightforward, and appealing:  stop the aid, its curtailing our entrepreneurship, our initiative our ability to pick ourselves up by our bootstraps!

It wasn’t the first time we heard that provocative message. And Dambisa Moyo wasn’t the first African either.  There was not too long ago George Ayittey - drawing from in his aptly named 2005 book Africa Unchained - angrily railing that the “externalist orthodoxy … which portrays Africa as a “victim” and suggests that the solutions to Africa’s problems must come from external sources.” We applauded his vision and his choosing to cast his lot with the “cheetah generation” the new breed of Africans taking their future into their own hands.  Other, less familiar but equally articulate coreligionists are Andrew Mwenda and Ngozi Okonjo-Iweala and my personal favorite Eleni Gabre-Madhin.  The view is also very much present in the West; William Easterly, for instance – whose subtitle on his take on the matter says it all: The White Man’s Burden: Why theWest’s Effort s to Aid the Rest Have Done So Much Ill and So Little Good.

Critics of aid have been around for awhile.  The great P.T.Bauer whose Dissent on Development  published in 1972 – outed conventional development theory, and was shunned for it. As an important aside, once an intellectual outcast, Bauer is now celebrated – see the laudatory tome by Dorn, Hanke and Walters – The Revolution in Development Economics.

But this compelling counterfactual was not enough for Ms. Moyo – she opted out of the cheetah generation.  She has become enamored of China’s economic success – and is now peddling its development model to the rest of the world; she gushes over and talks-up China’s ability to pull up millions of its citizens out of a once dismal poverty and conveniently dismisses and overlooks the accompanying atrophied political environment and social unrest.   In a bizarre Ted Talk, and warming up to the task in a NY Times editorial last year, – Ms. Moyo presumes to take down the West and (what she considers) its fetish with democracy and political rights – she manages to argue, after rhetorically asking “Is China the New Idol for Emerging Economies?” that the choice before third world developing economies is either economic security or market democracy – full stop.  And thus, in one fell swoop Ms. Moyo conveniently forgets how it was market capitalism that enabled the infrastructure, the trading spaces, the open markets, student-exchanges, the free-flow of ideas, in which China has prospered.  It is because of the wide-expanse of markets that now traverse the world that allows firms to distribute costs across considerably larger domains and the reduced restriction to the free flow of capital facilitate investments across the world.  Clearly China has benefited.  Is China growth limitless?  Doubtful.  We’ve seen this before. Here is Josef Joffe in a comment from a brilliant essay in the Wall Street Journal (10.25.13):

The rise-of-the-rest school assumes that tomorrow will be a remake of yesterday—that it is up, up, and away for China. Yet history bids us to be wary. Rapid growth characterized every "economic miracle" in the past. It started with Britain, the U.S. and Germany in the 19th century, and it continued with Japan, Taiwan, Korea and West Germany after World War II. But none of them managed to sustain the wondrous pace of the early decades, and all of them eventually slowed down. They all declined to a "normal" rate as youthful exuberance gave way to maturity. 

China? Seriously Dambisa?  How about a tonic? And then you can reconnect with the Dambisa who deserved that Hayekaward.  Here’s a dabble of Alex Tabarrok to remind you of how the entire world benefits from the global free market umbrella created by supporters of free trade since the end of the second world war.  And here’s touch of William Bernstein on how TRADE (and free markets) shaped the world.  And last, a little helping of Douglass North – to remind you that the fundamental “sauce” responsible for sustainable benefits from market capitalism are the formal and informal institutions associated with democratic capitalism; you can’t just pluck one and not the other - and expect it to work. 

arod

arodriguez@newhaven.edu

Where Have all the Yutes Gone?

Vinny Gambini: It is possible that the two yutes... 
Judge Chamberlain Haller: ...Ah, the two what? Uh... uh, what was that word? 
Vinny Gambini: Uh... what word? 
Judge Chamberlain Haller: Two what? 
Vinny Gambini: What? 
Judge Chamberlain Haller: Uh... did you say 'yutes'? 
Vinny Gambini: Yeah, two yutes. 
Judge Chamberlain Haller: What is a yute? 
Vinny Gambini: [beat] Oh, excuse me, your honor... 
[exaggerated] 
Vinny Gambini: Two YOUTHS. 

Joe Pesci and Fred Gwynne (My Cousin Vinny, 1992)

First there was a brain drain.  But by now kidneys, lungs, and all other organ parts have long blown the joint.  The yutes of Connecticut are all gone.  Between 2000 and 2010 Connecticut’s population increased by 168,532 individuals, a 4.9 percent increase.  Yes – an increase.  But hold off a tad before you start planning a welcoming party for all these folks.  Despite the positive spin from the state of Connecticut via the deft hand of Patrick Flaherty who proceeds to make lemonade “Young People Aren’t Fleeing and the Cities Arent’ Dying” things are pretty grim.  It turns out stark and alarming trends emerge once we take a look at how the different age groups fared relative to each other within Connecticut and how Connecticut fared when compared to the rest of the country.  What do we find? Practically the entire gain in people in the state was seniors age 55 or older. And most of Connecticut’s youngun’s are gone - and going: the under 20 crowd declined by 1.1 percent and the 20-34 group barely budged at a measly 1.4 percent. 

Let’s take a closer look.  What are others saying?  A study on the relocation habits of recent college grads– here - by Alicia Sasser Modestino at the Boston Federal Reserve Bank reveals an interesting statistic.  How many of our kids stay in Connecticut after they graduate from one of our colleges?  I have recalculated Table 1 to reflect the information for Connecticut (as opposed to Massachusetts in Appendix Table 2 – here - of the Sasser Modestino Report). 

Table 1

Percent of Recent Graduates Educated Within the

State – 1 Year After Graduation

State	Class of 2008	Class of 2000	Class of 1993
Connecticut	47.9	59.2	58.4
Connecticut Rank	41	38	34
Competitor states
California	87.3	84.4	86.9
Illinois	78.2	77.1	81.7
New York	76.4	70.7	71.2
North Carolina	66.7	69.7	69.5
Pennsylvania	67.6	63.4	67.0
Texas	86.8	86.7	87.3
Washington	82.8	71.1	73.3

Pretty darn poor record – less than half of those we educate and train stay around; and by comparison with the class of 1993 Connecticut’s performance in keeping those we educate is getting worse.  And in case you were wondering - the Same Boston Fed report concludes that “recent college graduates are leaving the region primarily for employment-related reasons.”  But we already knew that (see my lack-of-jobs rant here).

Let’s check some more.  Using readily available Bureau of the Census 2010 census data we ask - how has Connecticut fared?  Then – second – we ask how Connecticut should have fared had it resembled the broader (United States) experience – its relative performance.

How did Connecticut fare?  In table 2 below  is data for Connecticut.  “Pre-adults” consists of the population under 20, the 20 to 34 year-olds are considered “Young Workers,” “Mid-Career” the 35-54 year olds, “Older Workers” are those between 55-64 years of age, and “Retirees” are age 65 and older. All data is from the Bureau of the Census for the respective years and geographical unit.[1]

Table 2

	2000	2010	Change	% Change
Total Population	3,405,565	3,574,097	168,532	4.9%
Age Group
Pre-Adults (Under 20)	925,702	915,773	(9,929)	-1.1%
Young Workers (20-34)	639,211	648,275	9,064	1.4%
Mid-Career Workers (35-54)	1,061,856	1,060,035	(1,821)	-0.2%
Older Workers (55-64)	308,613	443,452	134,839	43.7%
Retirees (65 and Over)	470,183	506,559	36,376	7.7%
	3,405,565	3,574,094	168,529	4.9%

What do we find? The Young Workers segment increased at a rate of 1.4 percent.  Although positive the gain is middling compared to the increase of 6.4 percent nationally for the same age group.  And pity the Mid-Career workers of our state.  Whereas nationally this group increased by a tad under 4 percent, we registered a decline of 20 basis points.  The figure below visually reproduces the data table.

Figure 1

Source: US Bureau of the Census

And as you can see – we did really well with the energetic, entrepreneurial, innovative silver-hair set.

Still, let us put things into perspective.  And it looks even worse.  It is possible and important to distinguish the relative influence of national forces from State-wide forces.  A shift-share analysis identifies what portion of each group’s change in Connecticut resembles change in the United States – and what portion is unique to Connecticut.[2] 

The table below contains national data on the same age groups for the same period. 

Table 3

	United States
	2000	2010	Change	% Change
Total Population	281,421,906	308,745,538	27,323,632	9.7%
Age Group
Pre-Adults (Under 20)	80,473,265	83,267,556	2,794,291	3.5%
Young Workers (20-34)	58,855,725	62,649,947	3,794,222	6.4%
Mid-Career Workers (35-54)	82,826,479	86,077,322	3,250,843	3.9%
Older Workers (55-64)	24,274,684	36,462,729	12,188,045	50.2%
Retirees (65 and Over)	34,991,753	40,267,984	5,276,231	15.1%

Table 4 nets out the portion of each Connecticut group’s reported change that is attributable to common national patterns.  This net effect is the Connecticut “sauce” – our doing, our’s alone.  For example, Connecticut’s Pre-Adult (under 20) population shrank by 9,929 from 2000 to 2010.  Had Connecticut mirrored the national average, we would have experienced a net gain of 32,143 individuals. Consequently, the Connecticut effect is -42,072    (-9,929 – 32,143 = -42,072) or almost 5 percent of the average size of the group.[3] Same calculation is documented for all the groups.

Table 4

Age Group	Average Population	CT Effect	Percent
Pre-Adults (Under 20)	920,738	(42,072)	-5%
Young Workers (20-34)	643,743	(32,144)	-5%
Mid-Career Workers (35-54)	1,060,946	(43,498)	-4%
Older Workers (55-64)	376,033	(20,112)	-5%
Retirees (65 and Over)	488,371	(34,521)	-7%

Connecticut’s birth and death rates do not differ much from national averages.  Thus, we can surmise that net out-migration is the most likely cause of the observed population changes.[4] The figure below conveys the table information graphically.

Figure 2

Interesting – the senior set proportion increased in Connecticut but less so than for the United States.  And as for the yutes – forget about it.  Folks left – have been leaving, and will continue to leave – simply put.  They are voting with their feet.  The only ones interested in coming up here are Rick Perry and other state governors angling to take more work to friendlier climes.  Gail Collins – what do you say about that?  Here’s what your state – Connecticut - has to boast: no jobs, hyper-expensive housing, taxes up the wazoo, no jobs, a regulations morass, no jobs, regulatory paralysis, no confidence on the political leadership, no jobs, – can you blame folks for leaving? 

arod

arodriguez@newhaven.edu

---

[1] http://www.census.gov (visited 11/25/2012).

[2] See James R. Moor, “Connecticut’s Workforce Drain,” The Connecticut Economy (Summer 2002), pp: 6-7; See, for example, Steven P. Lanza, “Connecticut Job Losses: Our Share of National Effects? Or Are We Shifting Ourselves? The Connecticut Economy (Spring 2004), pp: 6-7. I draw from Lanza for the analysis here. 

[3] The average size of the group is obtained by adding up the 2000 and 2010 recorded group population and dividing by two.

[4] In 2007, the United States death rate was 803.6 per 100,000 whereas Connecticut’s was 818.1.  Source: CDC/NCHS National Vital Statistics System, Mortality.  In turn, the United States reported birth rate in 2010 was 13.0 births per 1,000 population (3,999,386 births); Connecticut reported 10.6 births per 1,000 population (37,708). Source: Births: Final Data for 2010, National Vital Statistics Report, Volume 61, No.1 (August 2012). US Department of Health and Human Services, Center for Disease Control & Prevention, National Center for Health Statistics.