Renaissance (Congress)Man

by Don Boudreaux on May 29, 2006

in Energy, Politics, Property Rights, Regulation

Rep. Sherwood Boehlert (R-NY) believes that government must force automakers to increase the fuel-efficiency of the vehicles they sell.  Here’s part of a letter that he has in Saturday’s Wall Street Journal, explaining:

Your editorial opposing fuel economy standards ("Not So Grande CAFE,"
May 8) that the standards amount "to the government dictating the kind
of cars Americans will be able drive, even if those cars aren’t safe on
the road." This is wrong.

First, the goal of fuel economy standards is to enable
Americans to drive the cars they want — but that the automakers aren’t
producing. And what Americans want is the full range of vehicles
available now, including SUVs, but with greater gas mileage. The
technology exists to create those vehicles affordably, car buyers want
them, and the nation needs them. The fact that they are not on sale is
a classic market failure.

…..

Rep. Sherwood Boehlert (R., N.Y.)
Chairman
House Committee on Science
Washington

Rep. Boehlert whips the term "market failure" about too cavalierly.  The believable existence of genuine market failure requires an institutional setting in which a significant number of individual decision-makers each bears too few of the consequences of his or her choices — such as when, for example, an owner of a factory upstream pollutes a river in ways that harm downstream owners of riverside land because downstream owners have no effective way to enforce their property rights to an unpolluted river.

But the situation decried by Rep. Boehlert has none of the institutional prerequisites for "classic market failure."  If a sufficient number of consumers truly are willing to pay for more-fuel-efficient cars (as Rep. Boehlert asserts), surely at least one of the 20-plus automakers now supplying new cars to the U.S. market would discern this fact — and, out of pure self-interest, act to satisfy this consumer demand.  After all, if increasing a car’s fuel-efficiency would cost an automaker $X and if consumers are willing to pay $X+Y for such a car, then profits are to be had satisfying this consumer demand.  Importantly, consumers who don’t pay for more-fuel-efficient cars don’t get more-fuel-efficient cars, and all consumers who do pay for such cars will get them — ensuring no free-riding on the provision of fuel-efficient cars.

Rep. Boehlert doesn’t divulge in this letter his source of information about this alleged consumer demand, but surely now that he’s unearthed this valuable information, automakers will act on it voluntarily — assuming, of course, that the information’s source is credible.

Alas, I suspect that Rep. Boehlert’s source of information on this point is not credible — for, again, if Rep. Boehlert’s claim were credible, automakers wouldn’t have to be forced by government to satisfy their customers’ demands.

The arrogance and conceits of Rep. Boehlert and his ilk make me want to vomit.

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{ 14 comments }

blink May 29, 2006 at 5:33 pm

Based on the selection, market divination may be the least of Rep. Boehlert conceits. The premise of his position is more sinister, although he is too timid to state it explicitly.

It is not really the auto manufacturers he is chastising, but us, the consumers. He knows well enough that automobile manufactures supply the stock of cars we demand, but he disapproves of our choices. Instead of confronting us directly, however, he creates a scapegoat in the automobile industry. The same argument is made regarding obesity. It is not our fault that we consume too many Happy Meals – we should never have been permitted to choose.

Rep. Boehlert’s conceit is naked paternalism, but he lacks the forthrightness to state his beliefs candidly.

99 May 29, 2006 at 5:53 pm

*****"If a sufficient number of consumers truly are willing to pay for more-fuel-efficient cars (as Rep. Boehlert asserts), surely at least one of the 20-plus automakers now supplying new cars to the U.S. market would discern this fact — and, out of pure self-interest, act to satisfy this consumer demand."*****

Well, I think one of the challenges that advocates of mandated fuel-efficiency standards would admit needs to be overcome is the simple fact that there's not enough consistent demand for high milage vehichles because oil prices have a way of crashing every few years. This is not surprising, as oil price spikes prompt producers to pump more oil, and users to use less.

The obvious work around would be raising the price of gas at the pump via taxes. Unfortunately, the price inelasicity of gas is considerable; Americans, at least, often don't have any practical alternative means of getting to work, so increases in gas prices don't easily translate into reduced gas consumption. The only alternative is government forcing firms to make cars that get better mileage.

The real quetion to ask is: is there any valid reason whatsoever for the US government to care one way or another how much oil is consumed by US consumers. I'd say there isn't such a valid reason. But if such a valid reason exists, CAFE standards are a plausible means of getting there.

Caliban Darklock May 29, 2006 at 6:41 pm

I think this is a classic cases of jargon prejudice. To an economist, "market failure" means one and only one thing, and that thing is very clearly defined. To the layman, however, "market failure" has many definitions and might simply mean that the price of avocadoes is uncomfortably high today.

Just because your definition of "market failure" isn't met doesn't mean the market hasn't failed. In this case, auto manufacturers have built cars that get better gas mileage, but that wasn't really what we wanted. What we wanted was for the cars we HAD to get better gas mileage. We wanted the engines to improve. What we *got* was an endless stream of cars that look like suppositories, because it's a more efficient shape. The engine itself is largely unchanged.

Garble May 29, 2006 at 8:30 pm

This is bunk. It’s based on the idea that automakers are choosing not to improve fuel economy. In a way that’s true. But it’s true because most customers would rather have some other feature in their car instead of 10% fuel economy. Tires are a great example. Small narrow tires with a high sidewall have lower rolling resistance than big fat tires with a low side wall. That means that ‘pizza cutters’ get better fuel economy than the tires you see in current dealerships. But that’s what customers want. So that’s what the car makers put on. Bob Lutz said that fighting high fuel consumption by mandating more fuel economical cars is equivalent to fighting obesity by mandating smaller clothes.

happyjuggler0 May 29, 2006 at 9:04 pm

blink is absolutely correct. The automakers are doing their best to make the cars we want at prices we want. Therefore, to the extent that *we* aren't driving cars with high gas milage it is because we the people chose that way. We had plenty of options that were more fuel efficient, we had other things in mind.

If the demogogue Representative from NY wasn't a cowardly scumbag he'd advocate higher gas taxes if he thought we were consuming too much gas for pollution reasons or spurious national security reasons.

patrick May 29, 2006 at 9:18 pm

Don, I often why you even take on these sort of misguided legislators-it's just silly that government mandates can every do anything except make prices rise. But I'm even more filled with wonder when any rational legislator (I'm assuming the Boehlert is rational of course) whether Rep. or Dem. can cling to any notions of socialism like forcing cars to get 4 more mpg's than last year's model or over taxing gasoline to lower consumption. There isn't a single case where any of that has worked (along with socialized medicine, central planned economies, guaranteed job wages, etc).

Jake May 29, 2006 at 9:45 pm

While I agree the letter was paternalistic, perhaps the senator is implying that national security – admittedly public good – somehow hinges on domestic supplies of energy. If this is the case, the good may very well be undersupplied.

MjrMjr May 30, 2006 at 12:42 am

Garble is correct. Carmakers are giving consumers what they want. My 1991 Honda Civic weighed about 500 lbs less than the 2006 Civic offered by Honda. Mine didn't have power windows, power steering, power brakes, power door locks, ABS, or airbags. In 2006 it's not possible to buy a Civic without all of those options. But these luxury features add weight, which reduces the fuel economy. Were Honda to offer a stripped down version of the Civic without all of these features it would be lighter, cheaper, and get better gas mileage. The fact that they don't do this means that they don't think it would sell.

Alexei McDonald May 30, 2006 at 3:23 am

I suspect that the real drive towards fuel economy in the US will come from those firms that operate large fleets of commercial vehicles. Market forces, the business case and so on, you know.

mark adams May 30, 2006 at 6:13 am

Gas prices would have to rise a long way before consumption would fall. European vehicles do get better mileage but that was the case long before governments started putting high taxes on petrol. In Europe distances are shorter so you spend less time in your car and more people live in cities where parking space is limited. On top of which, driving a big car on European roads is not a pleasant experience.

In Britain the government introduced a fuel tax escalator in the 1990s to reduce fuel consumption. It was very unpopular and was abandoned after the government did some reaearch and found that the price would have to rise to £12/litre ($80/gallon) before people would stop driving.

More sucessful has been a switch to diesel. I remember hearing that one of the reasons US car makers have not gone with diesel has been emmissions laws in New York and California effectively ban the cars in thoses states. If that is true it is a tremendous indictment of government measures to protect the environment.

John F. Opie May 30, 2006 at 8:25 am

Hi -

Interestingly enough, VW has cancelled its highest-economy car, the Polo 3l, which got excellent mileage but was tedious as all heck to drive. It did all the right things: highly strung fuel efficient engine, narrow high-pressure tires, weight reduction, weight reduction, weight reduction.

Virtually no one bought them. VW lost money on each and every one, and it'll be a cold day before they'll produce a similiar car.

People want the squared circle: highly fuel efficient, but big, comfortable and fast. Choose the first and you don't get any of the last three.

To repeat: no one in Germany, despite the very high prices of fuel here (I drive a diesel and put close to 70 € in the tank last week!), wanted to buy the car. It was selling at a premium over the usual Polo (due to the use of magnesium and the like), and it flopped.

The market works. It just doesn't behave "rationally" when your idea of rationality is that the market does what you want it to.

John

Tony May 30, 2006 at 9:41 am

While in a Toyota dealership last weekend to look at the Prius, it was no surprise the dealership was accepting deposits for future shipments of the Prius, since all current stock was sold. What did surprise me is that they had the same system in place for the FJ Cruiser.

I know all people want better mpg, as Rep. Boehlert stated, so I can only imagine that Toyota somehow managed to steal money from the dolts placing a deposit on an SUV that averages fewer than 20 mpg. No doubt Rep. Boehlert should add theft and mind control to the market failure he's uncovered.

Duncan Brown June 1, 2006 at 1:49 pm

The CAFE standard are suspect in themselves. They were developed back in the Carter administration I think, and have been accreting bureacratic barnacles ever since. They are hugely complex, with all kinds of sliding scales for different vehicle types. They are a lobbyists's dream. That's why Congress members and environmental groups like them so much.

I would bet $500 that nobody on this weblog has ever looked at them in detail. I tried to write a brief summary of their provisions a couple years back and was stumped. It's a project I may return to in the future though.

Joe June 6, 2006 at 12:42 am

*****"If a sufficient number of consumers truly are willing to pay for more-fuel-efficient cars (as Rep. Boehlert asserts), surely at least one of the 20-plus automakers now supplying new cars to the U.S. market would discern this fact — and, out of pure self-interest, act to satisfy this consumer demand."*****

Don…you are absolutely right. A couple of selfish auto companies have gone ahead and made some fuel efficient cars. see -
http://quote.bloomberg.com/apps/news?pid=10000103&sid=aQ9WfhbLXdSg&refer=news_index

and by doing so they now are the two largest automakers – by market cap. I guess automakers aren't so stupid after all.. either that or these guys must read your blog.

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