ver the past decade the “demand side management” (DSM) model o public policy has crept into the state o North Carolina’s approach to regulation at both the state and local level. Currently this approach dominatesenergy, transportation policy, land use, and water policy.The purpose o such policies, o course, is to manage consumer demand. But what does that mean? What is thephilosophy behind this approach, and is it appropriate in a ree society, a society where government is supposed to bethe servant, not the master?
Wh I Dmnd sid Mngmn?
In order to understand the appropriateness o DSM policies, we must understand what economists mean by
. Demand reers to people’s decisions about what and how much o a particular product or service to purchaseand consume. That is contrasted with the
, which reers to decisions by producers regarding what and how muchto produce. In markets, the two are linked by the act that suppliers decide what to produce based on their expectationsabout what demanders will want at dierent prices.In other words, demand is maniested in human behavior and choices, and the act o supplying is an attempt toaccommodate those choices. In this sense, ree markets are dominated by what might be called “supply side manage-ment” by consumers. I those operating on the supply side o markets do not strive to provide what demanders want,they go out o business.In a ree society, government should take that same perspective. For those goods and services that the governmentprovides — parks, libraries, transportation and education services, etc. — the role o government is to substitute orthe suppliers, or the producers in the market place. That is, government should assess the needs and wants o thecitizenry and then devise methods to satisy those preerences.The advocates o DSM turn this relationship between government and citizens on its head. Examining the state-ments made and policies pursued by those who advocate DSM as an approach to public policy, one nds that they take“demand management” literally. In their view, demand is not something government is meant to respond to; it is thereor government ocials to manage.DSM advocates’ approach is to use public policy and government orce to control the purchases and consumptionhabits — i.e., the behavior and choices — o citizens.While not always the case, most o this control is done indirectly by managing and manipulating supply. Ater all,people can consume only what is produced. When government ocials want to control people’s choices with respect towhere they live or how large their house or lot size is, they control the location, density, and size o homes that devel-opers can build. I they want people to use certain modes o transportation rather than others, they manipulate thesystem o roads and public transportation and mandate the kinds o cars that can be built. An exception to this kind o control sometimes occurs when government ocials want to manipulate people’sconsumptions decisions regarding electricity usage. So-called energy eciency standards, such as those that were ad-opted by North Carolina in 2007 as part o its renewable energy portolio and eciency standards, oten impose directrestrictions on the amount o electricity people can use, leaving the implementation o the policy and restrictions up tothe public utilities (more on this below).Unortunately, state government and many local governments in North Carolina have ully embraced the DSMmindset, apparently with no reservations or moral qualms. The two areas where the approach is most prominent areenergy and transportation, which are both used as umbrella issues to justiy the manipulation o demand in otherareas.