Beware bold economists

There is, in other words, no market failure reducing household investment in these types of assets relative to other equally durable capital goods.

Given that, and especially with an emissions trading scheme providing price signals for emissions abatement, it is not clear why public subsidies for household capital spending should be compulsorily allocated to outlays on smart meters, insulation and solar hot-water systems rather than to renovating kitchens, extending patios or painting roofs. After all, once price signals are properly set, subsidising households to reduce their energy use is no more sensible than subsidising them to reduce their consumption of toilet paper, cat food or tinned beans. To suggest otherwise is to attribute a magical status to energy, as if it were uniquely worthy of being economised on.

The costs of throwing money at energy efficiency are likely to be compounded by the forced pace of the subsidised spending.

Goods such as solar panels are in relatively fixed supply in the short run, especially when account is taken of the need for specialised installation labour. A transient boost to spending therefore mainly increases prices, converting the subsidy program into a mere inefficient transfer from taxpayers to a favoured group of producers. Even by unexacting local standards, this does not seem a sensible use of public funds.

All of this is not to slight in any way the letter's authors, whose initiative in engaging a debate on these issues should be commended. It takes courage to make proposals as bold as those they recommend, and that courage helps illuminate the choices that lie ahead. But in considering those choices, it is crucial to recognise the severe limitations that afflict our ability to forecast and centrally manage the economy, and hence to view with scepticism interventionist cures and fiscal finetuning that may only aggravate the malady.

Nothing fortifies scepticism more, Blaise Pascal said, than that there are some who are not sceptics. By casting caution to the winds, the letter's bold recommendations make the case for taking great care all the clearer and more compelling.