Congratulations to the Volt!

by Russ Roberts on October 7, 2008

in Energy, Entertainment, Politics

I don’t know what is more depressing about the bailout bill, the fact that we’ve transferred so much power to the federal government or the fact that to get it passed, Congress added about $100 billion of goodies to make it palatable. Not to worry. Government has plenty of money.

Check this one out:

Buyers of plug-in electric cars would receive tax credits ranging from $2,500 to $7,500.

It’s a beautiful bootleg-and-Baptist inclusion. Makes the environmentalists happy and is a massive payoff to GM, struggling to stay afloat and makes a billion or so investment in their new electric car, the Volt. I was telling a friend about it, and not remembering the details, mentioned that the bailout bill included a big tax credit for electric cars. That’s good for the Prius, my friend said. Oh no, I said. They’ll figure out a way to target GM. If the Washington Post has it right, and I bet they do, somehow, a plug-in electric car is the key to goodness, not a mere hybrid. The Volt just happens to be a plug-in. Just a coincidence no doubt.

GM has been working so hard to find a way to create a less expensive more powerful battery so that the Volt will be more affordable. But you know, that’s awfully difficult. And they’re trying so hard. So you and I have just chipped in to help make the Volt affordable. Someone let the GM engineers know that they can rest a little bit.

UPDATE: Thanks to reader Patapon for pointing out that even though Toyota is working on a plu-in hybrid, it won’t qualify. Imagine that! More details here.

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{ 27 comments }

Speedmaster October 7, 2008 at 12:48 pm

Hehe, great observation, and I remember your podcast on the Volt. ;-)

shawn October 7, 2008 at 1:18 pm

it's remarkable how unpopular any criticism of this will be, also. if you question or outright dismiss the validity of this, you hate the environment.

it *sounds* like such a good idea…I really wish there was some way to convince the median voter that intentions are not the best measuring stick.

As someone mentioned the other day (I think this was a quote, but not sure where it came from):
"a: something must be done!
b: this is something!
c: let's do it!"

Martin Brock October 7, 2008 at 1:19 pm

Add that one to the $7500 credit for new home debtors included in the "stimulus package" earlier this year.

I wish GM the best of luck with the Volt, but you gotta wonder why some startup like Tesla, without the massive leverage, wouldn't blow GM out of the water. Why is Big Business so big? Is it really all about economies of scale? I doubt it.

I enjoyed the debate with Bernstein on Inequality. It's just the sort of intelligent give and take I tune in for.

Bernstein has a point about lower status being more stressful at some level, particularly for males. He makes a persuasive case.

I'm not surprised that Cuban life expectancy rivals ours if Cuba obsessively directs resources toward health care and similar consumption. There's no economic reason why central planners can't impoverish an economy this way.

Crusader October 7, 2008 at 1:30 pm

I've come to the conclusion that America = Rome in the 1st century AD. Bread and circuses for all.

Gary October 7, 2008 at 2:11 pm

Martin – Don't let the treasury pull the woll over your eyes, that $7,500 credit is kind of a sham. "Credit" in this instance is a bit of a misnomer… really, they allow you to defer the tax to later years. The "credit" needs to be paid back over a 5 year period, presumably when we're aready paying higher rates given the recent out of control spending by congress, the Fed, and the Treasury. Its really more of an interest free loan (except, as a taxpayer, you have to pay the interest on the money the government borrows from China to lend you the money anyway) that enables you to overpay for a house.

As for the Volt, I was intitally excited to hear about the progress that was being made. Initially, it looked like market forces at work – higher fuel prices inspire private industry to innovate. Neat.

Of course… as fuel prices have come down, and GM has drifted towards insolvence, big brother steps in to create artificial demand.

Tisk tisk.

Mark October 7, 2008 at 2:14 pm

"I really wish there was some way to convince the median voter that intentions are not the best measuring stick"

Shawn — "intentions are not the best measuring stick" — incredibly well-put. Good turn of phrase!

Mark

Mcwop October 7, 2008 at 2:44 pm

Crusader, don't you mean: "Wooden arrows, and Puerto Rican rum for everyone."?

Butler T. Reynolds October 7, 2008 at 3:05 pm

Dr. Roberts, I did not know that you hated the environment so much. *wink*

As I recall, wasn't the catalytic converter mandate a present to GM as well?

BTR

DK October 7, 2008 at 3:54 pm
Chris O'Leary October 7, 2008 at 4:07 pm

"I wish GM the best of luck with the Volt, but you gotta wonder why some startup like Tesla, without the massive leverage, wouldn't blow GM out of the water. Why is Big Business so big? Is it really all about economies of scale? I doubt it."

I would argue that history suggests that some start-up will still blow GM out of the water and that this subsidy will only increase that probability by reducing the need for GM to be excellent.

In effect, the government (and by extension you and I) is subsidizing and encouraging GM's mediocrity.

John V October 7, 2008 at 4:09 pm

Where's Muirgeo to blame this on libertarianism??

;)

Martin Brock October 7, 2008 at 4:17 pm

"Credit" in this instance is a bit of a misnomer… really, they allow you to defer the tax to later years. The "credit" needs to be paid back over a 5 year period, presumably when we're aready paying higher rates …

Thanks, Gary. I didn't know that. So it's an interest free loan of your tax obligation?

colson October 7, 2008 at 4:21 pm

While the environmentalists *should* be on our side in this, they most likely won't be. If they (environmentalists) ever wonder what the role of incentives are and why industry is steered in a given direction, this is an excellent reference topic.

We may be jumping ahead of ourselves here but only time, and GM's subsequent actions will tell.

Methinks October 7, 2008 at 4:22 pm

Crusader, don't you mean: "Wooden arrows, and Puerto Rican rum for everyone."?

That strikes me as a rather dangerous combination. Suggest it to Muirgeo.

Martin Brock October 7, 2008 at 4:25 pm

Gary,

Do you have to declare it as a liability on the mortgage application?

Adam October 7, 2008 at 4:51 pm

Let me reword that:

Buyers of cars that aren't plug-in electric would receive tax increases ranging from $2,500 to $7,500.

There, that's a bit more to the point.

Sam Grove October 7, 2008 at 4:59 pm

"intentions are not the best measuring stick"

But it would seem they are the best measuring shtick.

Jeremy October 7, 2008 at 5:10 pm

Toyota has a plug in hybrid version of the Prius due in 2010, the same year that the Volt is due on the market. I wonder if the tax credit will also apply to those who purchase the Toyota model…

Daniel Earwicker October 7, 2008 at 5:20 pm

I get the point of the gung-ho talk of how the threat of bankruptcy focuses the mind, and I can see how that might lead you to believe that the GM engineers might work harder at inventing a new kind of battery if their upper management are muttering about layoffs, but it doesn't ring true to me. In my own experience, when an R&D business is going through a time of relative uncertainty, the "workers by brain" have to struggle harder to concentrate. In fact some economic breathing space is practically a necessity for creative engineering to flourish. I'm not arguing for engineers to get special economic protection – just don't expect a straightforward relationship between design productivity and economic danger. The psychology of motivation for creativity is endlessly confusing and messy.

Patapon October 7, 2008 at 5:49 pm

"They'll figure out a way to target GM."

Actually, Russ – they did find a way to target only GM. Here's an article from the most tell-it-like-it-is automotive website on the net.

http://www.thetruthaboutcars.com/volt-birth-watch-89-toyota-wheres-our-gd-tax-break/

Gary October 7, 2008 at 7:31 pm

Martin says:

Thanks, Gary. I didn't know that. So it's an interest free loan of your tax obligation?

Response:

Yes, provided you feel that taxes are truly an obligation (which is another debate).

Martin says:

Do you have to declare it as a liability on the mortgage application?

Response:

I don't know. I read about it in a CCH tax brief. I don't have alot of clients that would qualify for a first time homebuyer fake credit anyway, so I've yet to see it in practice. My intuition tells me that when you apply for the mortgage, its not yet a liability, so no, but I'm not sure.

MnM October 7, 2008 at 7:47 pm

Knee-jerk: "Damn Libertopians and your myopic need to prop up Big Auto over the little guy! That car's probably made with worthless paper, by non-unionized child prostitutes! AND IT'S ALL YOUR FAULT!!"

Whoa, sorry about that. I must have been channeling someone else.

Methinks October 7, 2008 at 8:15 pm

Hilarious, MnM! The non-unionized child prostitutes was a nice touch.

MnM October 7, 2008 at 8:18 pm

:)

Eric H October 7, 2008 at 11:31 pm

On your initial question: how would you feel about the passage of a bill that identified and removed as much government intervention in the market as possible if that bill had $150 billion in pork attached? Yeah, it seems obvious to me which is worse.

Hammer October 8, 2008 at 8:55 am

D. Earwicker: It has a lot less to do with focusing the mind of engineers, and a lot more to do with encouraging the management to get out of their way. There was a really good series of articles about the Volt (linked to from here, somewhere, I think) that went into how the car's creation was more about changing how the hide bound, inefficient GM ran its business than it was about designing a new car. It was very interesting, and I think highly applicable considering just how often large companies tend to hamstring themselves with rules and layers of beaurocracy that impede workers being able too act upon decisions. Much like big government.

Allen October 8, 2008 at 9:38 am

I wonder if the Tesla qualifies for the credit currently. If so it would be kind of ironic because I doubt the intention was to create a tax credit whose only current use was for a 100k+ sports car. (For the record, I think the Tesla is interesting and their plan of using the high end market as a starting point and then working down to more mass-market friendly cars is pretty smart).

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