In the economy’s electric-vehicle sector, and in other climate-related matters, dreamy aspirations are encountering sobering trade-offs. Governments are learning hard lessons about the unintended consequences of policies oblivious about society’s complexities.
Economic stagnation has the European Union tiptoeing away from its mandate that new cars and vans be emission-free by 2035. “Self-destructive,” says Prime Minister Giorgia Meloni of Italy, where slack demand for electric vehicles caused Fiat to close its Turin plant for a month last autumn.
…..
The Wall Street Journal reports that almost one-third of all vehicles sold in the United States at prices below $30,000 are built in Mexico. About 70 percent of the 4 million vehicles assembled at the more than 20 Mexican factories are shipped to the United States. Trump, populist tribune of the downtrodden, favors 25 percent tariffs to make these cars significantly more expensive — the free-trade agreement he negotiated be damned.
Americans are keeping their cars longer, paying less on repair bills than they would on monthly new-car payments — particularly as higher interest rates, a result of government-caused inflation, have increased the cost of car loans. Steel and aluminum tariffs will increase new-car prices, and Trump’s tariffs will raise the prices of imported auto parts.
The Wall Street Journal reports, counterintuitively, that “car-insurance prices are particularly sensitive to tariffs.” Those prices reflect the cost of repairing cars, and six out of 10 replacement parts are imported from Mexico, Canada and China. An insurance industry trade association estimates a potential increase of “well over $7 billion” in the costs of claims.
Woody Eckard’s letter in today’s Wall Street Journal is excellent:
In Gerard Baker’s excellent column “Illiberalism Is Suffocating Europe” (Free Expression, Feb. 18), he notes that Europe lags behind the U.S. in the “investment to bolster productivity, raise living standards and revive competitiveness.” This is caused in part by capital flight, which is the flip side of the U.S. trade deficit that so worries President Trump and company.
Europeans are spending those dollars not on U.S. goods and services (the trade account) but instead on U.S. financial assets (the capital account). Instead of investing in the stagnant European economy that Mr. Baker describes, they instead are investing in our economy—i.e., raising our productivity, living standards and competitiveness. Mr. Trump should be laughing all the way to the bank.
Mr. Bhidé shares with Herbert Simon, the economist who brought practical psychology into economic analysis, a respect for the processes and routines that experience has taught us to employ when addressing challenging problems. Like Simon’s concepts of “bounded rationality” and “satisficing,” Mr. Bhidé’s “functional reasonableness” admires the application of reasonable (as opposed to optimal) processes for reaching practical answers with “relative confidence.” Mr. Bhidé teaches us not to expect the most interesting problems to be resolved by precise calculations or optimization algorithms.
What is especially appealing about this formulation is that it is not a one-size-fits-all view of managing uncertainty. It implies that different degrees of uncertainty should give rise to enterprises that differ in size, governance structure, funding sources and decision-making processes. Uncertainty is a guiding light for understanding what is essentially different about firms along these dimensions.
Mr. Bhidé believes that theories of firm structure and organization based on degrees of uncertainty deliver predictions that are different from, and more powerful than, those that flow from models of contracting costs and control rights. Firms operating at the high-uncertainty end of the spectrum don’t simply pioneer new products or services or rely on new patents. Their central commonality is operating in “unsettled markets.” Such enterprises can often trace their higher growth and profitability to an ability to adapt to changes, and not to any preparatory research about opportunities. This insight does more than illuminate the shortcomings of microeconomics. It allows us to see why and how enterprises structure themselves to foster imaginative learning and justification, and how they are able to communicate this learning and justification to prospective funding sources.
Intrepid researchers at the University of Surrey had placed sensors in 290 showers around campus, recording data for 39 weeks from 86,421 individual shower sessions. “Water consumption,” the study found, sensationally, “was reduced by up to 56% with high water pressure.”
The researchers, seeming puzzled by the results, recommended more study. But they also offered a theory along these lines: When a showerhead delivers a good, fizzing spray, people pop in and briskly get their business done, unlike when faced with a drizzle that prompts them to wonder if the Head & Shoulders will ever be adequately washed off their head and shoulders.
One researcher, perhaps trying to reassure eco-warriors distressed by the news, noted: “The best of all worlds is high pressure, low flow.” This is true, just as in the cake realm the best of all worlds is having it and eating it too. The showering ideal might be achievable in controlled laboratory conditions, but we all know what happens in the tiled wild.
GMU Econ alum Dominic Pino reports that “shareholder value is back at BP.”
Jimmy Alfonso Licon reveals some of “what Greta and the pope don’t grasp about degrowth.”
Matthew Lau defends Milton Friedman’s ideal of freedom. A slice:
Of course, faced with more than one choice, people often choose badly. Friedman’s view was that he has every right to persuade someone who is choosing badly to change his mind, “but if I can’t persuade him, do I have the right to force him?” His answer is, “No.”
And here we might imagine Friedman’s follow-up point: If the problem with being free to choose among more than one Netflix movie and more than one type of cereal is that people might choose randomly or badly, what is the alternative? To have the government decide what movies we watch and what cereal we eat? Or some activist somewhere?
There’s only one explanation for all the caterwauling.
Progressive journalists must believe that, despite the fact that Jeff Bezos owns the Washington Post, paid $250 million of his own money for it in 2013, has lost tens of millions of dollars operating the place over the years, and pays every last employee’s salary, he doesn’t get to actually decide what happens in the company he owns.
The employees get to decide that, apparently. It’s the closed-guild system of journalism. Nothing more.
This is also how progressives see the federal bureaucracy, public schools, public universities, and more — not as entities that exist to fulfill a specific goal and should be judged by how well they achieve it, but as distant check-writing institutions that have been placed into the hands of the American Left by divine design and must never be touched or questioned by those who are paying the bills.
