UCS's Flawed Economic Reasoning
By David Henderson
Last week, I received a request from the Union of Concerned Scientists to sign a letter asking the government to impose even higher miles-per-gallon standards on cars. The letter explains:
Last year, the Environmental Protection Agency (EPA), the National Highway Traffic Safety Administration (NHTSA), and the California Air Resources Board (CARB) worked together to set standards through 2016 that would raise the average fuel efficiency of new vehicles to about 34.1 miles per gallon and cut the average global warming pollution from new vehicles to about 250 grams per mile. Now, your agencies are working together to develop the second phase of standards covering new vehicles sold in model years 2017-2025 that could cut new vehicle global warming emissions up to an additional 45 percent and raise fuel efficiency standards to as much as 60 miles per gallon.
What I found striking about the letter is that it doesn’t read as if it was written by an economist. Let me count the ways.
1. The letter states:
Strong, cost-effective standards will provide consumers with a wider choice of cleaner and more fuel efficient vehicles that save drivers money. In the absence of standards, market barriers prevent drivers from realizing these savings, leaving drivers without the options they need to respond to volatile and rising gasoline prices. Standards are the right policy approach given the realities of this marketplace.
Reducing choice will increase choice? How does that work? What are the market barriers that prevent drivers from realizing these savings? They don’t say.
2. The letter states:
Our continued dependence on oil puts our economy at risk from the effects of oil price volatility and energy insecurity. Oil price spikes were associated with most of the U.S. recessions in the past 40 years. The United States currently sends $1 billion each day to foreign countries to pay for oil and other petroleum products–that is equivalent to more than half of the average daily U.S. trade deficit over the last decade.
Do they realize that as long as the oil market is a world market, we are subject to oil price volatility? This has nothing to do with we’re we are a net importer or exporter. Also, depending on imports does not imply energy insecurity, as I have written about elsewhere (here and here.)
3. The letter states:
Strong standards that save drivers money can also support robust employment. Increasing standards will promote new vehicle technologies and increase investment in the auto industry, generating new jobs throughout that sector. The savings consumers realize at the pump will also shift consumer purchases away from the petroleum and wholesale industries to other parts of the economy that generate more jobs for every dollar spent.
Translation: These standards will be expensive. Remember that jobs are a cost of a policy, not a benefit.
Totally missing from the letter is any recognition of tradeoffs. Yes, we can have cars that get higher miles per gallon but these cars, all else equal, will be more expensive, less safe, and less well-performing. Also, raising the standards so high will cause people to hold on to their lower mpg vehicles even longer.