Townhall... The High Cost of Command

From Townhall.com…

The High Cost Of Command

by John Hayward

12/17/2010

The Center for Automotive Research has released an illuminating report on the effects of fuel economy standards desired by the Obama Administration.  These standards would begin taking effect in 2017, raising the mandated average fuel economy of vehicles to 60 miles per gallon by 2025.

The CAR study, as quoted by the Reuters news agency, says this plan would add an average of $6400 to the cost of new vehicles, causing Americans to hang onto their old cars for longer.  This, in turn, would cost the auto manufacturing industry 220,000 jobs.  Include the ripple effect on sales forces and suppliers, and you’re up to 1.3 million jobs.  Let it be noted, before we mull over those numbers, that CAR is funded by the auto industry, but their research is generally well-respected.

Defenders of the Obama policy would doubtless maintain that reducing our consumption of fossil fuels is worth these costs, although everyone gets a little queasy when discussing large-scale job losses these days.  Massive government subsidies were plowed into the Chevy Volt, a product of government-owned General Motors, for this very reason.  The direct federal subsidy for purchasers, when the Volt was rolled out, was $7500, but the subsidies invested in production amounted to another $7200 apiece, assuming Volt production over the next two years reaches the announced targets.  That’s at least $14,700 per unit in subsidies for a tiny, hideously overpriced car that few people would buy, at its nominal sticker price of $41,000.  Assuming anyone could buy them: a CNN report from November indicates the EPA is having trouble calculating the Volt’s fuel economy, and they can’t officially go on sale without an EPA fuel estimate.  Savor the fabulously expensive irony!

The fundamental issue here is the division of a resource, fuel, which is crucial to many sectors of our economy.  The government seeks to ration this resource by commanding us to use less of it, a command implemented by forcing manufacturers to supply us only with expensive, fuel-efficient cars.  The most likely result of this command will not be people happily paying another $6400 to drive those cars.  Instead, they’ll hang on to older vehicles for longer – an effect CAR’s chief economist, Sean McAlinden, calls “the Cuban auto syndrome,” because prisoners of that worker’s paradise are known to hang on to old vehicles for decades.

The alternative is to allow market forces to drive the consumption of fuel.  The government is tempted to tinker with this, too.  Statists frequently advocate slapping huge taxes on gasoline, which is already heavily taxed, on the theory that people will use less of it, when it becomes more expensive.  Once again, the “unintended consequences” of this government command would be devastating: increase in the cost of nearly all goods, since fuel is used in their creation or delivery, along with massive unemployment as driving long distances to work becomes impractical.

Another expression of government command comes in the form of subsidies for mass transportation, especially railroads.  People might not be inclined to purchase rail tickets, or put up with the slower pace of railroad transportation, at their true price.  The government spends billions subsidizing these tickets, to create the illusion that they cost much less… when, in fact, the subsidized portion of the cost is merely mixed into the slurry of general taxation, and spread across the many people who do not ride trains.  Personally, I like trains, and would love to have high-speed rail service across my home state of Florida, but I would want this service paid for by its users, not financed by deluded deficit spending or high taxes.  So far, nobody has figured out a way to do that.

If we let market forces determine the cost of fuel and automobiles, increased fuel efficiency will come naturally.  In theory, it would also come much more gradually, and we’ve got to SAVE THE EARTH RIGHT NOW!!!!!, but in practice free-market technology is never as slow as statists claim it will be.  Plenty of people willingly buy fuel-efficient cars now.  Attracting their business is a goal automakers will pursue of their own volition, with rational and profitable business plans. 

People will voluntarily adjust their lives around fuel prices that rise naturally, due to dwindling supplies, with much less economic disruption than the violent changes ordained by central planners.  Corporations have a powerful incentive to attract their business, by exploring new sources of fuel, or developing alternative energy technologies that actually work.  I’ve been told, by people in the know, that such technologies are fifty to a hundred years away.  We have enough fossil fuel to get there in a reasoned and scientific way.  The journey is no faster when undertaken in a blind panic, by politicians who draw great power from the votes of blind people… but it will be a lot more painful.

The market is far better at allocating resources than any central planners who have ever lived, or will ever live.  We don’t need to trash our auto industry, and every industry connected with it, to learn that lesson one more time.