Saturday, June 11, 2011

Of Light Bulbs

Tyler Cowen gets one wrong. He approvingly refers to this article by Virginia Postrel. Ms Postrel's point, most generally, is that taxes or other commercial incentives are better solutions than regulatory bans. To the first degree, I agree. However, it is interesting to see how frequently she is wrong about the specifics that she is using/referring to while making the general point.

Ms Postrel is referring to the impending ban on incandescent light bulbs (called GLS in the lighting industry). She quotes Instapundit's dissatisfaction with the non-reduction in his electricity bills even after switching over to CFLs (compact fluorescent lamps). Okay. So? Controlling analysis for other variables, anyone? She believes GLS is a low margin commodity while CFLs are 'high margin specialty wares'. Are you freakin' kidding me? What are the odds that Ms Postrel has never read even a rudimentary analyst report on the lighting industry?

She refers to the American unwillingness to shift out of incandescent bulbs into CFLs. Okay. For the longest time, Bengal did not vote the CPM out. People are inertial. In this inertia, they make stupid decisions. Like not going to that expensive gym they have just taken membership of. Or not paying their taxes/credit card bills on time though these days, those payments are often just a click away.

She talks about the moral hazard problem makes this rule inefficient - about how people who know that CFLs consume less electricity are no longer incentivized to be careful about electricity usage and may end up leaving the bulb on for longer hours. Right. CFLs are about 5-6 times as energy effective as incandescent bulbs. The average American leaves the light on in his house for 6-8 hours typically (standard assumption in lighting calculations). If he shifts to CFL, Ms Postrel posits that he may be likely to leave the light on for more than 36-40 hours every day.

But the funniest part is reserved for the last. "The bulb ban makes sense only one of two ways: either as an expression of cultural sanctimony, with a little technophilia thrown in for added glamour, or as a roundabout way to transfer wealth from the general public to the few businesses with the know-how to produce the light bulbs consumers don’t really want to buy."

(emphasis mine)

Yes, apparently CFL manufacturing technology is one of the best kept secrets in the industrial world.

I invite Ms Postrel to read just one industry report on lamp margins by category. Or to visit one of the many CFL assembly operations around the world (mainly in China) to figure out exactly how high tech they are. Or, to just do some simple arithmetic before making claims on inefficiency.

Ultimately, she has exactly one point in her favour. That of the freedom of consumer choice. Usually, it's strong enough, but in this particular case, it doesn't seem so compelling to me. Else, you will soon see big protests or an active underground market in incandescent bulbs. (After all, marijuana has been illegal since forever, hasn't it?) I don't see that happening anytime soon.

As an aside, the US is a funny country. CFL is 3x the price of GLS and the adoption rate is just 25%. In India, CFL is 10x the price of GLS and the adoption rate is already 20%. And remember the fact that India is a fundamentally cash constrained economy, and the levels of electricity theft render the energy saving proposition useless in a few regions. For most Indians, the abiding value of GLS is not in its ability to light up fancy restaurants, but rather its promise of the being the only lamp you can buy with exactly one ten-rupee note in your pocket, the lamp that you grudgingly buy because paying up a 100 Rs. upfront is just not a viable option now, whatever its benefits in the future.

So tell me, have you also experienced Gell-Mann amnesia recently?

(Full disclosure : I work in the lighting industry, and my job is such that broadly, I'm happier when CFL sales increase. If you ask me personally, the tube-light remains lighting wise the best solution before the recent advent of LEDs, for many reasons. But then the upfront cost can be nearly Rs. 500 if you're also buying the ballast, and it's not a bulb-retrofit. )

Friday, June 03, 2011

Bad books - bleg

One kid from the insti on an internship wanted some help on his project. He is supposed to recommend how to improve demand forecasting in one of our businesses. He has a recommendation, which is simple, intuitive but assumptive. He tests it on one data point. It works. He tests on another. It doesn't. He wishes away the evidence. I don't let him move on. He finally says something to the effect of - 'it's a theory, I studied it at the insti.' I don't remember studying anything of the sort, so I ask him where he read this theory. He whips out a book. International authors, fancy cover. 10 pages devoted to A/F ratio (the theory). I skim through it. It's 10 pages of tables with lots of data points, calculations of the mean and standard deviation of those data points, celebrating the normal curve and devotedly explaining why 99.8% may not be very different from 100% but 90% is (I'm not kidding).

Then, somewhere in between, there's one little sentence. 'Since the forecasting bias (A/F) of last season was x, we can assume that maybe it will be the same this season'. That's it, that's all. The entire model, the entire meat and juice, apologetically assumed way, to devote 10 pages to arithmetic, banal arithmetic at that.
I fancy a job as an editor sometimes.