Zeal For Truth

My first reaction to legislation like this is always to laugh. If we can just raise gas mileage on cars by simply speaking such change into existence, why stop at 35 mpg? We should just mandate 70 or 150 mpg. I wanted to touch on some of the major flaws in this bill and explain very clearly why everything they claim they want to accomplish by it will only leave all of us worse off.

In an eleventh-hour compromise fashioned after two days of closed-door meetings, an agreement was reached to increase average fuel economy by 40 percent to 35 miles per gallon for cars, SUVs and pickup trucks by 2020… Supporters said the new requirement would save 2.5 million barrels of oil a day by 2025, when large numbers of the more fuel-stingy cars will be on the road.

It’s not that automakers don’t want to make more fuel-efficient cars - its the fact that gas mileage isn’t the only measure of efficiency in the total package. In fact, the most important factor to both consumers and producers is cost. The optimum price, where consumer and producer interests intersect, is the most accurate measure of this overall figure. An increase in gas mileage is going to raise the cost of the vehicle significantly. It will require the use of technology improvements that have not yet been refined by market processes. Imagine if the government had mandated all computers be 486s in 1989. That would have required all the companies to scramble and throw their R&D money into that venture rather than explore some of the other, much more market relevant technology that has got us to where we are today. Every investment has a cost and a risk - shouldn’t the automakers and auto consumers, who have the most interest in efficiency here, be left alone to make the best compromise?

But the legislation provides a bonanza to farmers and the ethanol industry. It requires ethanol production to grow to at least 36 billion gallon a year by 2022, a sevenfold increase of the amount of ethanol processed last year.

My man Stossel takes down this stupidity here:

But the reality is that for every mandated barrel of ethanol produced, the price for basic food staples here, and much more tragically, in the third world, rises. It could be argued that this is the law of unintended consequences in action - but the consequences are so well known and demonstrated that it’s hard to assume that our politicians don’t know about it.

Price gouging provisions that make it unlawful to charge an “unconscionably excessive” price for oil products including gasoline and give the federal government new authority to investigate oil industry market manipulation.

Ah yes, just wait folks, this vote will be pulled out as the election heats up. Naturally this is more a bill about economic morality (see the precise legal term “unconscionably excessive”) than about economic law. For that aspect, see this article from the Mises institute entitled: Price Gouging Saves Lives. The reality is that if I am stuck on the Oregon Coast with 1/16th of a tank of gas and a devastating tsunami about to hit, I would like to see gas at about $75 a gallon. No lines, no shortages - I can buy enough to get me up into the coast range mountains and be safe. People will not be encouraged to buy more gas than they need and take it from everyone else. That is the beauty of the price-system - it is the most efficient and, dare I say “moral” way of distributing goods and services.

This bill completely ignores the price system and assumes that a bunch of old white men in DC, whose only specialty is getting elected, are more capable of making broad and sweeping economic decisions than the experts in the industry and the consumers themselves.