The appliance rebate program postscript

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Putting the PS on the now-closed Minnesota Appliance Rebate Program. I was on Morning Edition this morning to talk about it. Here’s the final outline:

WHY DO YOU THINK IT WAS SO POPULAR HERE?

Because, despite all of the kvetching, Minnesota’s economy is better than most of the rest of the nation. People have money to spend and people like a “deal.” Also, if you tell someone that they can’t have something, they generally want it more. Going in, it was widely publicized that there weren’t going to be many of these rebates available.

HOW DOES THIS COMPARE TO “CASH FOR CLUNKERS” PROGRAM

The car program, of course, was much bigger and didn’t involve the states. Everything happened through the car dealer and the deal was pretty much the same everywhere in the country. That’s not the case here.

Minnesota, for example, decided to give a (comparatively) lot of money to few people instead of a little money to a lot of people. Every state is different. In Pennsylvania, for example, the rebates only go to people who are buying appliances that use gas, because electric companies are required to offer rebate on appliances which use electricity.

There’s also the “jobs” issue. The car program caused American workers in the auto industry to go back to work. There’s little net effect on factory jobs with this program because (a) it’s so small and (b) most of the big manufacturers of appliances have shipped U.S. jobs to Mexico.

HOW MUCH MONEY ARE PEOPLE SAVING?

They’re not saving a dime. The program is designed to get them to spend their money, it’s only a question of how much they spend. And that’s the question with this program — how does it affect a particular family’s finances? Are they going into debt to get a new appliance.

The rebates were supposed to be from $50 to $200 depending on the appliance you have to buy within a month, but the numbers from the state aren’t adding up. According to a news release, 25, 926 people got the rebates. The state got $5 million in the deal so that works out to $192 average rebate. Aside from the fact that — theoretically — the average rebate should be a round number, we haven’t been able to find out why the average rebate is so high unless everyone is buying washing machines.

HOW MUCH ENERGY WOULD THIS PROGRAM SAVE IN A YEAR?

An energy-efficient appliance can save you an average of $75 a year so a rebate of $200 takes a little less than two years off the total payback time in which people actually make money by having a more efficient use of energy. I calculated that the total amount of energy that utilities won’t have to generate in a year around here is equivalent to about 2 1/2 hours at the big coal burning plant south of Stillwater.

However, you can’t apply across the 50 states. Some states, unlike Minnesota, did not require consumers to replace appliances. So if someone is buying a big chest freezer who didn’t already have a chest freezer, the program is actually increasing the amount of energy used.

WILL THESE NEW APPLIANCE SALES STIMULATE THE U.S. ECONOMY?

Perhaps, but not for the reason most people think.

The economy is an emotional thing fueled by our willingness to believe it’s getting better. That raises our confidence and that makes us spend money.

The people buying new appliances were probably going to buy them anyway — and, by the way, many utility companies were already offering rebates for this — over the next year or two. If people can be compressed into buying within a month, then at some point a couple of months from now, an economic report will come out and it might show a big increase in consumer spending. And some analyst will say it shows people are more confident about the economy and someone at home who didn’t buy a new appliance might say, “Hey, the economy’s getting better, maybe I’ll keep my job afterall. Honey, let’s go buy a freezer.”

As a result of creating the illusion of an improving economy, you actually create an improving economy. That’s what’s behind this program.

The economy is like a magic show.

  • bsimon

    “As a result of creating the illusion of an improving economy, you actually create an improving economy. That’s what’s behind this program.”

    Well put.

  • Sid Gasner

    Collins repeatedly reported incorrect info, stating dishwashers rebates were $ 50 (they are $150…significant I would say) and washers $200 if you buy a $1000 front loading washer (washers were $100 if purchasing an energy star rated model)

  • Karl

    Bob sez: An energy-efficient appliance can save you an average of $75 a year so a rebate of $200 takes a little less than two years off the total payback time in which people actually make money by having a more efficient use of energy.

    OK Bob, now that you’ve denigrated the value of energy conservation and the rebate program on the air–along with providing misinformation about the value of the rebates–let’s look at the numbers you cite here. Say you buy an energy-efficient dishwasher for $750. The appliance should last 20 years, so at an energy dollar savings of $75/year, your appliance is paid for after 10 years from the energy savings alone, and that’s without a rebate. With the rebate, your appliance is paid for after eight years. So for 10-12 years, you are actually getting paid $75/year to use your more efficient dishwaher. Not a bad return on your original investment.

    And while I’d love to see your “napkin calculations,” as you call them, I doubt you account for the external costs of generating power from older coal-fired plants like the King plant–air pollution, water pollution, health costs, etc.

    Quite frankly, I was astounded at your nay-saying attitude toward the rebate program and energy conservation in general (Conservation is like a magic show? Really?). It was a spiel more worthy of Rush Limbaugh than MPR.

  • Bob Collins

    //. So for 10-12 years, you are actually getting paid $75/year to use your more efficient dishwaher. Not a bad return on your original investment.

    Which is pretty much exactly what I said, especially in the original post a few days ago. But it’s not automatically a good investment. So let’s do the math on that. If you’re saving $75 a year on, say, a front loading washer — goes for about $1,100 and you get $200 back. your initial investment is $900, right? If you save $100 a year on energy, your original investment pays for itself after 9 years. People replace their appliances every 12-14 years, so then — and only then — are you financially to the good, and then for only 3-5 years. It’s not a bad deal; but it’s hardly a 403B, especially if you’re carrying debt.

    Let’s suppose you don’t pay off your credit card on time. Now you’ve got to deduct the 21% interest. But over 10 years, if you don’t carry debt, the return is 2 +/- % per year. That’s better than nothing, but it’s not that great of an investment and if you’re buying appliances as an investment in personal finance, you simply have to run the numbers, even though someone might accuse you of being anti-energy conservation.

    The other aspect of the original napkin calculations are they assume a dishwasher in which the heating coil is turned on to heat the water even more than the water you paid to heat coming out of your water heater.

    IF you currently have an old dishwasher and you use the heating element function, you can cut your energy cost by about 75% by turning that element off. You can do the same by buying a new one and turning the element off.

    But much of this energy savings philosophy assumes facts not in evidence. Why have a button on an Energy Star appliance that increases your energy cost by 75% by using it?

    This was also true with the Cash for Clunkers. People assume that people drive the same when they trade down to a more energy efficient car. Studies show they don’t. The cost of gasoline is the biggest factor in how much people drive. We know that. Take a new car, and chances are equally good that people will drive MORE because it costs them less to drive per mile. But the net energy savings is completely offset by that and, arguably, the pollution caused is increased.

    //And while I’d love to see your “napkin calculations,” as you call them,

    Which you can if you’d go back to the post of a few days ago.

    // I doubt you account for the external costs of generating power from older coal-fired plants like the King plant–air pollution, water pollution, health costs, etc.

    That’s a good point but it gets back to the point of the program. IF you want an environmental benefit, why not just use stimulus cash to pay Xcel to get rid of that belching monstrosity up along the St. Croix? The problem in these sorts of programs is they tend to be evaluated as one or the other but actually they are “Swiss Army Knife programs” that have a little effect on a lot of different areas instead of a big effect on one.

    That’s not denigrating energy conservation — which, of course, I never did; that’s clarifying the effect.

    But, again, we don’t really know the effect on energy since the Energy Department chose to let each state come up with its own program. Fortunately, Minnesota took a smart view and REQUIRED it to be a 1 for 1 replacement. Not every state did that.

    What’s the energy savings in someone, as I pointed out, who didn’t have a freezer, who bought a freezer and is operating it?

    I would contend there not only ISN’T an energy savings, but it offsets the energy savings somewhere else.

    That’s just reality. I didn’t make it up.

    But when you try to ask “does this program really work,” someone usually says “it’ll save jobs,” but when you point out that it won’t save many jobs, you get “it’s an energy conservation program,” but when you point out it doesn’t save THAT much energy — for reasons mentioned, you get “it’ll stimulate the economy.”

    True, it’ll do all of those things; it just won’t do all of those things with the way the national program — and the reality of appliance manufacturing — exists.

    //Conservation is like a magic show? Really?.

    Never said that. The economy is like a magic show.

    go read it again.

    You’re right of course, it wasn’t dishwashers that were $50. It was freezers that was $50.

    Is energy conservation good? Of course it is. Nobody ever said otherwise. But it’s more important to consider how people use different appliances (or cars).

    But the reason I don’t apologize for doing the math? Is because we’re talking about my money that’s help you buy your appliance.

  • Bob Moffitt

    I imagine the local appliance stores were rather busy on March 1. Not all jobs are in manufacturing. There are people who make a living selling appliances. There are also those who deliver and install them, plus the people involved in recycling the old appliances.

    I think you are right on about how illusion creates reality in terms of our consumerism-based economy.

    I wonder if we will see continued improved sales in appliance in coming months, as we have in auto sales. How much credit, if any, should we attribute to these programs for restoring “the illusion” of a improving economy, and thus making it a reality?

  • tiredboomer

    >> But the reason I don’t apologize for doing the math? Is because we’re talking about my money that’s help you buy your appliance.

  • cindynordin

    where do i find out where my rebate is? is there a site or phone # where i can check the status?