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I'm not sure what to say on the anniversary of 9/11. I'm sad, of course, and angry that some of those who attacked us are still on the loose. I'm also sad that the event has become a political football. So rather then discuss the event and further contribute to the scrum, I'd like to discuss something I read in the Wall Street Journal yesterday.
The article, entitled How to Save Detroit And $50 Billion, discusses the effect of CAFE on the US auto industry. For those not up on regulation, CAFE (Corporate Average Fuel Economy) is a regulation requiring automakers selling cars in the US to meet certain fleet-wide fuel economy standards. Some automakers, such as Mercedes-Benz, just paid the fine.
They did this because, until this year, nobody in the US gave a damn about fuel economy. Americans wanted big cars, which is why Mercedes-Benz rolled out SUVs for the US market. US automakers who couldn't just pay the fine, had to make and sell small cars with UAW labor. In order to meet CAFE standards, they had to sell the small cars at cost, via rebates and other gimmicks. Well, now both parties (including McCain) want even CAFE higher standards, and US automakers want $50 billion in loans to develop cars that meet the standard.
The article suggests that the best way to help Detroit is to scrap CAFE and raise gas prices via a fuel tax. Although I agree that's a good idea, personally it may be a little late in the game. (Telling somebody who's heart has stopped "you should exercise more" is not helpful.) But raising fuel prices is good, and not just for Detroit.
My economic thoughts are heavily shaped by the book Hard Heads, Soft Hearts
, written by economist Alan Blinder. This book advocates public policy to benefit the majority of society, but carefully designed to actually work. In this case, CAFE is not working. That's why you see fleets of SUVs on the road - they count as trucks under CAFE and are held to different, lower economy standards. So, we need something that will work - market forces.
I also agree with T. Boone Pickens - our massive transfer of wealth overseas cannot continue. There are a number of potential alternative fuels, from coal conversion to ethanol to algae-oil. But these all have a problem - to produce useful quantities require multi-year, multi-billion dollar investments. Nobody's going to make these investments if oil could suddenly fall in price as fast as it rose.
Putting a floor on oil prices then accomplishes multiple goals. The US automakers will be able to sell fuel-efficient vehicles at a profit, because people will continue to care about fuel economy. Private investors, assured of a market floor for fuel, will be able to make the investments we need in alternative fuels. Yes,![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
rodney_g_graves we'll have to expand domestic drilling in the interim (which Obama supports) but considering how long we've digging this hole we find ourselves in, the sooner we stop digging the better.
The article, entitled How to Save Detroit And $50 Billion, discusses the effect of CAFE on the US auto industry. For those not up on regulation, CAFE (Corporate Average Fuel Economy) is a regulation requiring automakers selling cars in the US to meet certain fleet-wide fuel economy standards. Some automakers, such as Mercedes-Benz, just paid the fine.
They did this because, until this year, nobody in the US gave a damn about fuel economy. Americans wanted big cars, which is why Mercedes-Benz rolled out SUVs for the US market. US automakers who couldn't just pay the fine, had to make and sell small cars with UAW labor. In order to meet CAFE standards, they had to sell the small cars at cost, via rebates and other gimmicks. Well, now both parties (including McCain) want even CAFE higher standards, and US automakers want $50 billion in loans to develop cars that meet the standard.
The article suggests that the best way to help Detroit is to scrap CAFE and raise gas prices via a fuel tax. Although I agree that's a good idea, personally it may be a little late in the game. (Telling somebody who's heart has stopped "you should exercise more" is not helpful.) But raising fuel prices is good, and not just for Detroit.
My economic thoughts are heavily shaped by the book Hard Heads, Soft Hearts
, written by economist Alan Blinder. This book advocates public policy to benefit the majority of society, but carefully designed to actually work. In this case, CAFE is not working. That's why you see fleets of SUVs on the road - they count as trucks under CAFE and are held to different, lower economy standards. So, we need something that will work - market forces.I also agree with T. Boone Pickens - our massive transfer of wealth overseas cannot continue. There are a number of potential alternative fuels, from coal conversion to ethanol to algae-oil. But these all have a problem - to produce useful quantities require multi-year, multi-billion dollar investments. Nobody's going to make these investments if oil could suddenly fall in price as fast as it rose.
Putting a floor on oil prices then accomplishes multiple goals. The US automakers will be able to sell fuel-efficient vehicles at a profit, because people will continue to care about fuel economy. Private investors, assured of a market floor for fuel, will be able to make the investments we need in alternative fuels. Yes,
rodney_g_graves we'll have to expand domestic drilling in the interim (which Obama supports) but considering how long we've digging this hole we find ourselves in, the sooner we stop digging the better.