Jay Reding.com

The First Law Strikes Again

Reding’s First Law of Public Policy: Every public policy has negative side effects, and the more idealistic the policy, the more detrimental the side effects.

As part of the recent energy bill, Congress and the President mandated a rise in the CAFE standards that would require each new vehicle in the United States to get 35 miles per gallon by the end of the next decade. GM Chairman Bob Lutz has noted that this will add an average of $6,000 to the price of a new vehicle. That $6,000 is a cost that will undoubtedly be passed directly to the consumer.

The raising of CAFE standards is a perfect example of my First Law of Public Policy. The rationale for raising CAFe standards is to “save the planet” by reducing CO2 emissions. Not only will it fail at that, but it will end up hurting more people than it ever helps.

It will fail for one key reason: new cars are more efficient than old cars. If you want to reduce CO2 emissions, you want to get rid of as many junkers as you can. You want people to buy new cars which take advantage of new advances. By artificially inflating the price of new vehicles, the government has ensured that more older cars will stay on the road. Which offsets many, if not all, of the supposed gains made by raising fuel efficiency standards.

Not only is the impact going to be small, but the costs will be high. One of the reasons why cars burn so much gas is due to safety. Cars have to be constructed with safety cages, rollbars, airbags and other technologies designed to increase crash safety. As any designer will tell you, the best way to increase fuel efficiency is to decrease weight. While we’ve made advances in material sciences which can help, those advances are costly. It’s cheaper to build a steel frame (and better for the American steel industry) than it is to build a frame out of a more exotic material like carbon fiber. But steel is heavy, and if you’re going to have a car that gets 35mpg you need to save every ounce of weight possible.

The costs of these new standards disproportionate effect the poor. Can a single mother pay an extra $6,000 for transportation? Does the middle class need to add another $10,000 to their car payments so that they can take the kids to soccer practice. All this talk about “saving the planet” has blinded people to the real-world externalities created by this legislation. It’s exactly why such rules should not be made so rashly. Yet we will all bear the costs of this new rule, and those who worry about how the middle class is getting squeezed out have a perfect case in point for why the expansion of government is against the interests of the American people.

The benefits here do not even come close to justifying the massive costs: which is precisely why raising CAFE standards was bad policy. The President should have vetoed this bill, but in the rush to appease the fear-mongering over global warming the government has enacted a poorly-considered rule that will add thousands of dollars to the prices of new vehicles, will reduce safety, and will hurt the American steel industry. This is why big government hurts the middle class and why basing policy off of interest group pressure and fear-mongering only hurts American citizens even more.

UPDATE: Steven Hayward advises some caution about Lutz’s remarks. It’s a point well taken, but it doesn’t negate that the benefit still doesn’t justify the cost. Even if the cost is only half what Lutz is predicting, it’s still a major cost for a minor benefit.

One response to “The First Law Strikes Again”

  1. Mark says:

    Under your logic, no environmental laws should ever be enacted under any circumstances because they pose an added cost to business. The toxic air of the industrial belt of lawless China must be Jay Reding’s flavor of utopia because “government” there doesn’t stand in the way of the business community’s bottom line.

    There’s obviously a happy medium here but your diatribe fails to acknowledge that. According to you (and Bob Lutz), ALL regulations on business pose a financial cost to doing business and thus necessarily do more harm than good. I may not be qualified to credibly speculate on whether recent CAFE standard increases are excessive (you simply take corporate America’s word for it as you always do), but I am qualified to discount your fundamental thesis that the costs of any and all regulation against business constitute a net negative for the common good.

    And where did this sudden concern for American automakers come from? Ever since I’ve been reading this blog, the destruction of the American auto industry has been a wet dream of yours.