Tuesday, January 19, 2010

The recession busting wonder drug: home insulation !

Half the world has gone mad about home insulation as a “job creation” measure to beat the recession. Unfortunately even J.K.Galbraith, one of Obama’s economic advisors, has got the home insulation bug.

Why home insulation should be a better job creator than the thousand and one other products and services that modern economies offer is a mystery. Presumably one argument is that we “need” better home insulation. True, but as it points out in chapter one of the basic economics text books, humanity’s “needs” (and greed) are almost infinite. There are an infinite number of things we “need” more of.

Of course it could well be that the market undervalues home insulation (in view of global warming, for example). But this is an argument for a PERMANENT subsidy of home insulation. It is not an argument for a sudden and temporary expansion in home insulation, presumably followed by an equally sudden contraction in this sector once the recession is over.

Rather than boost demand for one or two specific products, why not just boost demand for ALL products? One good reason for the latter policy is that if a country concentrates on a relatively small number of products to boost, its domestic economy will not be able to cope with the sudden increase in demand for the relevant materials. This is exactly what happened in Australia: most of the additional home insulation material was imported, i.e. many of the jobs were created outside Australia.

Having criticised Galbraith above, he does at least redeem himself when he says “First, there is no excuse for a single layoff in the state and local public sector”. Quite right. If there is one thing it should be EASY for any government to do (especially a government that issues its own currency) it is to avoid sacking any public sector librarians, street sweepers and so on.

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