James Hamilton of EconBrowser takes issue with the Bush administration's proposed increases to the CAFE standards. He basically says a stronger motivation would be a gas tax. Such a move would encourage more fuel conservation but allow allow consumers flexibility.

"When you force consumers to buy something other than their first choice, the consequences may not be quite what the policy-maker originally envisioned. One example sometimes given is the shift to SUVs. Because the initial CAFE standards were different for "light trucks" as opposed to "cars", one way Detroit responded to CAFE was to create a new supersized vehicle that in practice is used the way a "passenger car" used to be, but that wasn't similarly regulated. A second example of a possible unintended consequence of tightening CAFE is that if American cars no longer have the characteristics sought by consumers, they will buy more imports," wrote Hamilton.

More after the break He points to a Stanford study written by Mark Jacobsen. He found that automakers fall into three groups. Toyota would be an example of the first group that has high CAFE numbers and boosting the standards wouldn't affect them much. BMW, on the other hand, doesn't meet existing CAFE regulations and simply pays the penalty. Then you have Ford that would stay just inside the standard to avoid bad publicity or litigation.

In other words, higher standards would affect only the domestic manufacturers. One possible scenario is that European automakers might "flaunt" their violations and Japanese automakers would sell more compact cars to produce more gas guzzlers.

The Jacobsen study tries to show that increasing CAFE would not have any real impact on fuel usage yet cost billions. He feels a gas tax would accomplish the same objective at significantly less cost.

Hamilton admits raising CAFE is more politically attractive

"The public evidently sees the costs associated with CAFE as borne by 'somebody else' whereas they know they pay the gasoline taxes themselves," writes Hamilton.

Someone please correct me if my memory fails, but I recall reading in either Lee Iacoca's biography or a think piece he authored that he proposed a 50-cent gas tax back in the '80s. The goal was to reduce fuel consumption and use the additional money to fund highway infrastructure improvements. The idea was rejected by President Regan but I always thought it was good one. I still do, but my only problem with a higher gas tax is that it impacts poor people much harder. If there was only some way to make it a sliding scale, but I know there isn't.

Automakers should be pressured to improve the fuel economy of their vehicles. But there should also be pressure on consumers.

[Source: James Hamilton / Econbrowser]

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