Monday, July 09, 2007
Or, as P.J. O'Rourke once had it, is I-95 worth a gun against Grandma's head?
I was discussing the heat at a Fourth of July party and discovered that my interlocutors were putting up solar panels on their house. The cost? Only $64,000, but hey, because of Federal and State government subsidies, they only have to pay $12,000. What a deal.
Now, a quick seat-of-the-pants calculation tells me I spend about $100/month on electricity in round numbers, which comes to $1,200/year. So it would take me 10 years to earn back that $12,000, provided that I never had to use any of the electricity off the grid in the meantime. Which we all know is an unrealistic assumption. There are cloudy days, rainy days, snowy days, days of hail. Let's suppose I could eliminate two-thirds of my electric bill (seems pretty optimistic, but let's suppose). That takes us up to 15 years for a payoff. What about the cost of repair after the next hailstorm, or windstorm, or just plain wearing-out? Let's say 17 years. What about the opportunity cost of not investing that $12,000 in the S&P 500 (about 8-10%/year lost). I'm too lazy to calculate exactly; let's just say 20 years. And that's at the subsidized rate!
Does it make economic sense to spend $12,000 in this way instead of some other—if it makes you feel good, brother, then I'm a live and let live kind of guy—do it! But what about the cost to the taxpayer of that $52,000 stolen at gunpoint? Plus opportunity cost. People can do whatever foolish thing they want with their own money but when it comes to Grandma's money, keep your hands off, you have no right.
But, I suppose, it's not really about reality, it's about the latest fashion. Surely that's well worth stealing Grandma's hard-earned savings for.