Cash For . . . Caulkers?

Today in the New York Times, David Leonhardt reports on the latest stimulus scheme gaining steam in Washington, nicknamed "Cash for Caulkers." The idea is aimed at creating jobs in the construction industry by providing a tax credit for Americans who weatherize their homes. Like clunkers, caulkers would also involve "green" cost saving measures, as making sure homes are better at keeping the heat or air conditioning in will reduce energy costs and usage. But I'm just not sure the idea would work.

First, here's Leonhardt explaining one plan out there right now, created by venture capitalist John Doerr:

The Doerr plan would cost $23 billion over two years. Most of the money would go for incentive payments, generally $2,000 to $4,000, for weatherization projects. The homeowner would always have to pay at least 50 percent of the project's total cost. About $3 billion would be set aside for retailers and contractors in the hope that they would promote the program, much as car dealerships promoted cash for clunkers.

There are a few more variations on this theme, but you get the idea. Some immediate worries come to mind. For starters, this sounds like a logistical nightmare, as weatherization projects can differ greatly between homes. I also fear that it will be especially ripe for fraud, as there will almost certainly be contractors out there willing to claim that any home renovation qualifies as weatherization. Yet, Leonhardt appears to really like the idea, concluding:

The bottom line is that cash for caulkers would be trickier than cash for clunkers -- yet would have the potential to do far more good. McKinsey, the consulting firm, estimates that households could reduce their energy use by 28 percent over the next decade. In terms of greenhouse gases, that would be the equivalent of taking half of all vehicles in this country off the road.

And unlike many other climate-friendly policies, it would not cost money over the long term. Done right, cash for caulkers would be precisely the kind of stimulus that makes the most sense: spending money now to save money later.

I actually think, from a consumer standpoint, it's exactly the wrong kind of stimulus project. The reason why cash for clunkers worked so well was because consumers often only need to put a little money down initially when purchasing a car, but can pay the loan over 5 to 7 years. That means even though money is tight right now, that's okay: most of the cost will come in future years, as the economy improves.

Unless the caulkers program also envisions providing home improvement loans, I just don't see consumers jumping at the idea of coming up with $2,000 to $4,000 dollars to cover half the cost of these weatherization projects. Remember, the energy savings will be quite gradual, so there won't do much to help their finances at a time when Americans need it most.

I'm also completely unconvinced that people will be excited about weatherization. People loved cash for clunkers because it gave them a shiny new car to drive around. There's no instant gratification here, only the prospect of saving a few hundred dollars per year on energy costs going forward. The average American consumer has a notoriously short attention span and isn't fiscally responsible enough to much care about saving a few hundred dollars per year if it costs them thousands up front. If they were, these weatherization projects would already be wildly popular. So I think participation will be lackluster.

But if I'm wrong, and demand is staggering, then that could be a problem too. Effective weatherization isn't trivial: you need a company that actually knows what it's doing and can perform an extensive evaluation of your home to determine what needs to be done. Leonhardt explains his own experience in his piece -- it involved a highly skilled weatherization expert. Surely, there aren't many companies out there that truly specialize in this expertise, so how would the industry be able to handle the kind of demand Congress would hope for? Training would be required to hire more workers to develop the necessary skills, so the jobs wouldn't be shovel-ready.

Finally, there might be some political anger about this one: it would serve as yet another example of the government handing money to homeowners and ignoring renters. Most landlords have their tenants pay the electric bill -- so the property owners have no incentive to weatherize and wouldn't participate. As a renter myself, I can relate to the annoyance of the government focusing so much on homeowners with their mortgage bailout and home buyers' credit. Do they really need another subsidy?