That he’d seen it in Germany, and “it works,” if memory serves.
Well, ol’ JFK certainly got the first half of it right. If by “future” he meant a universe in which the state asserts and is conceded the right and power to control every last little penny-ante detail of the citizen’s life. In Germany of course the party then in power simply asserted that it was going to do so, and then did. Here in the U.S. we’ve arrived at a point where the government just taxes you to death if you don’t do what the government can’t constitutionally force you to do directly. Tomato, tomahto. Whatever.
But here’s the point of this post. In the Frankfurter Allgemeine Zeitung we read an article over a forthcoming new law and accompanying regulations which are going, allegedly, to accelerate the Germans’ drive towards “minimum energy buildings.” The first such round of Fiat Lux! legislation came in 2009, apparently. The next two steps are mandated for 2014 and 2016 respectively, and they’re supposed to reduce energy consumption per newly-built structure by 12.5% per step.
Tellingly the statute and regulations are proposed in order to implement an EU policy.
Oh sure, one may qualify for an exemption from the new standards, if one can demonstrate that the cost-benefit analysis over the expected life span of the new building produces a negative number. Of course, every time one looks up from one’s breakfast burrito it turns out that the “renewable energy,” which Germany has embraced with a faith so touching one is tempted to overlook how closely it comes to problems with the First Commandment, is going to get vastly more expensive — unexpectedly! — as Instapundit is fond of observing; the most recent numbers quoted show increases by 50% more than previously estimated. So all we have to do is artificially crank up the cost of the energy one is saving and hey presto! the cost-benefit analysis goes positive. Right now they estimate (and let’s not forget how unfailingly accurate government estimates of cost are) the extra costs for the 2014 step-up at €1.2 billion per year over the construction industry; the 2016 mandates will (sure you can take this to the bank) come in at only €2.5 billion per year.
The government estimates that each percent of consumption reduction will add 1.7% to the cost of building. The article unfortunately does not mention whether the novel concept of diminishing marginal returns has been taken into account in calculating that number. Anyone want to bet it hasn’t? Anyone want to bet that the last 5% reduction in energy consumption will cost exactly what the first 5% cost?
Let’s run this through the Countrylawyer Patented Economic Translation Machine. I bought my house back in the mid 1990s for roughly $180,000 (yeah, I over-paid, and yes, I understand that what I paid wasn’t the builder’s cost, and the German numbers are builder’s cost figures). Let’s just assume though that my builder made $45,000 on the sale, for a GP% of 25%. The BLS shows a cumulative consumer price index increase from my month of purchase to now of 45.25%, so that makes my builder’s cost to build my house right now $196,000. Each percentage of that cost works out to be $1,960. We have gas heat and hot water, and electric everything else. Over the past twelve months we spent $604.90 on gas (I keep the thermostat on 61 during the winter) and $2,254.08 on electricity, or $184.84 per month average. Our local utilities in fact do charge on a linear scale above the monthly minimum bill, so each percent total energy reduction will net me out $22.54 per annum savings. Let’s get real optimistic and assume that my house has a useful service life of 75 years. Per Revenue Ruling 2012-28, the § 7520 interest rate for October, 2012 is 1.2%. An extra $22.54 per year, ignoring inflation and at a 1.2% discount rate, will be worth $1,110.56 over the house’s 75 year useful life span. That is, of course, if I were paying cash for the house and expected to live in it for the full 75 years. But my service life in this house, as of now, is more in the range of 30 years (if that). In contrast I’m paying the full cost of the percentage reduction in consumption up front, and I have no way of ensuring that I will get my money back out of the house (it will experience economic depreciation and functional obsolescence over time). Recall also that we’re ignoring the additional cost of energy-efficient maintenance and repair as well. My net present value of that extra $2,254 over 30 years is $565.03, for which I would be paying $1,960. I’m upside down to the extent of 71% of the out-of-pocket cash cost of each additional 1% efficiency.
But here’s where the Germans have really gone off the rails. It has to do with New York City, and the lethal combination of insane building codes and rent control. The expense of upgrading to new building codes, and the restricted ability to pass along those increasing costs to renters, has ensured a steadily diminishing stock of housing in the city, with the result that costs for halfway decent housing have skyrocketed and the city is crowded with places like Bedford-Stuyvesant. If you remove the economic incentive to keep the place up, the owner has no incentive to do so, at the risk of pointing out the obvious. If you force him to upgrade what happens is you run capital out of the housing market. Who will pump his money into a place where he’s exposed to unknowable future expense which he can be reasonably assured he won’t be able to pass on to his customer? The only option left is housing projects, which coincidentally sprawl all over the city. For a description of what public housing looks like, I refer you to P. J. O’Rourke’s Parliament of Whores.
The new law in Germany exempts existing buildings from the new statute and regulations. So let’s see where that leaves us: We’ve made new construction vastly more expensive and less economically attractive. We’ve built in an incentive to go with the old existing building. Although for the moment there are no upgrade mandates, we can’t be sure of that, so we trade the possibility of expense with the old building for the guaranty of expense with the new. They’ve also written in a mandate for sellers and landlords to document their building’s energy consumption (O! for a plaintiffs’ bar in Germany). And finally, this being Germany, after all, they’re looking at establishing an Energiepolizei. Yep, you heard right: Around here you hear lines like, “What are you gonna do? Call the energy police on me?” See, that’s a joke here.
The premise of Friedrich Hayek’s The Road to Serfdom was that the path Germany had followed to get where it was in 1944 was the same road that Britain was on, only with a 20-30 year time-lag. He observes in the book’s opening that that is precisely the point of his concern for his adoptive country. Where Germany had been, Britain was; where Germany was, Britain was heading.
I can’t recall the number of times that I’ve been reading a narrative by someone who survived 1933-45 Germany, in which a person’s having to travel from Point A to B is referenced. And almost invariably the phrase will come up that the narrator, or the traveller, or the prospective traveller has “excellent papers.” You see, without “excellent papers” you might be detained underway and invited in to chat with your friendly neighborhood Staatspolizei official. I guess soon we’ll hear people talking about their house or apartment, and how so-and-so had “ausgezeichnete Papiere” for the place.
So in a very real sense dear ol’ JFK in fact had seen the future. My question concern is, are we still seeing the future in Germany?