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Government Can’t Order Results May 19, 2009

Posted by federalist in Regulation, Taxation, Transportation.

The Obama administration plans to order auto makers to increase the fuel economy of automobiles sold in the U.S. to 35.5 miles per gallon by 2016.

Well gosh, if the government can just order automobiles to be more efficient, why stop there?  Wouldn’t 50mpg be even better?  Indeed, it is not clear how the government intends to effect this order.  If it’s anything like past enforcement of CAFE mandates then:

  1. Domestic companies will try to comply by building fleets of efficient cars nobody wants and selling them at a loss.
  2. Foreign companies will generally try to make a profit, either by seeking subsidies or by paying government fines for noncompliance and passing them on to their customers.
  3. All companies will game the regulations — e.g., redefining “automobile” to exclude SUVs, or substituting diesel engines for gasoline (thereby achieving the nominal goal, but probably not in the way proponents wanted.)

Two years ago I noted that any bad regulation is just a disguised tax, and it is usually helpful to rephrase regulation in terms of taxation.  In this case, there is a simple tax that would achieve the government’s stated goal:

“If gasoline is cheap, there’s going to be a huge disconnect” between the vehicles available and what consumers will want, argues AutoNation Inc. Chief Executive Mike Jackson. He has long advocated a higher federal gasoline tax to ensure that gas prices stay above $4 a gallon, the level that drove demand for small cars last summer.

I.e., if the government really thinks it’s important to increase the distance an average car travels on a gallon of gasoline, it can avoid all gamesmanship and politics in achieving that goal simply by raising the existing gasoline tax.

But apparently The People don’t think it’s worth paying more at the pump to get more efficient cars on the road.  So instead the government pursues its agenda through supply-side regulation, disguising the costs to such a degree that nobody can hope to quantify them.  Of course, in the process all sorts of special interests crowd into smoke-filled rooms with bureaucrats and politicians to trade favors.  If the objective is met, it is at a much higher economic cost than the transparent and straightforward tax would have accumulated.



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