LED lightbulbs probably are a pretty good idea despite the way that they’ve made my own little corner of the lighting industry shrink. However, it’s still true to say that said LEDs have shrunk the American economy. No, this isn’t a bad thing at all, but it is illustrative of how careful we’ve got to be about our economic statistics. For we generally all agree that if the economy gets bigger then we’re all collectively richer, right? And this isn’t in fact true, not the way that we do measure the economy. We all also think that rising productivity is a pretty good idea as that means that more is being produced with less human labour. That is, again, we’re all getting richer. And this also isn’t quite and exactly true, with LEDs as our example here.
We are counting ourselves as getting poorer while we’re actually getting richer. This isn’t really quite what we want our economic statistics to be doing really.
Justin Fox gives us our basic numbers over at Bloomberg but he doesn’t take them that next stage further. Which is fine, this wasn’t the point he wanted to illustrate:
Per-capita electricity use peaked in the U.S. in 2007. With the exception of a post-recession rebound in 2010, it has declined every year since. I already wrote a column about this epochal shift last month, but the chart that went with it is so remarkable that I’m going to recycle it here.
I’ll not steal his chart but this one of utility production is showing much the same thing:
As you can see that utility output has been pretty much flatlining for well over a decade now. Fox is looking at a more detailed part of that:
I’d been meaning to follow up on this. Then, in a blog post Monday, economist Lucas Davis of the University of California at Berkeley’s Haas School of Business beat me to it. The residential portion of the decline in electricity use, at least (my chart above includes commercial and industrial use), can be attributed largely to LEDs and other energy-efficient lighting.
Now note that this is good. What actually makes us rich is the output here, the lighting itself. We can see stuff. We usually measure this by lumens and they’ve just become very much cheaper when expressed in terms of the electricity required to produce them. But don’t forget how we measure GDP–that’s transactions at market prices. And that’s measured by the price of that electricity and the amount of it. So, we’re using less electricity to get the lighting we want. But we measure the economy by the amount of electricity, not the amount of light. The amount of electricity being used is falling (or flat in my larger scale graph) so we’re getting poorer. But we’ve got more lumens, so we’re richer.
Using a bit of the jargon, manufacturing output plus mining and these utilities gives us industrial production. That plus services is roughly the private sector economy. And yes, again, it really is true that as we get more and cheaper light we are recording this as us all getting poorer.
This is a slightly different point:
Economist Davis cautions, though, that there could be something of a “rebound effect” from LED adoption: As LEDs make lighting cheaper and less, well, bulb-oriented, we’ll find more things to light up:
Outdoor lighting, in particular, would seem particularly ripe for price-induced increases in consumption. These behavioral changes may take many years to manifest, as homeowners retrofit their outdoor areas to include additional lighting.
This is something known as Jevon’s Paradox. If we advance technology so that we have to use less of a resource to do something, great, we might do so. But we might have made it so much cheaper that we actually end up using more of it. Which way it goes isn’t really known until we see what actually happens. Historically, light has been a “normal good.” Whatever the price of it, the technology used to create it, whatever our own incomes, we seem to spend about the same portion of our income on it. This has been tracked through candles, gas lighting, electric, incandescents and so on. Whether it’s going to hold true for LEDs we just don’t know.
However, it is still true that the way we measure the economy is that LEDs have made us all poorer. We measure the electricity, not the light, and as they use less
electricity thus GDP is falling even as we all have more light.