Higher or Lower Gas Prices. Which Is It?

The government just passed a law requiring a huge increase in the fuel economy of cars.  Sounds great on the surface, but it gets complicated fast and opens the doors to a Catch 22.  The arguments for more efficient cars include: 1.) even though cars will cost more, we’ll make it up with savings at the gas pump. 2.) we’ll save the (always soon to be doomed) planet by burning less fuel.  These two arguments contradict themselves and the first contradicts another proposed government program, “cap-and-trade.”

A small majority of people are all for more efficient cars, at least when the question is posed where the only trade off is a more expensive car. Turns out there are other costs, like loss of human life. The main way car companies meet fuel standards is by making cars lighter, but this graph shows lower car weight means more people die.

car weight deathsI wonder if just as many people would be for more fuel efficient cars if they knew thousands more would needlessly die each year. I like small cars, but after learning this, if cars are made too light and less safe, I might start buying Volvo’s and just paying whatever extra tax they impose.
So, even though more people will die, at least we’ll be saving money, oil,  and CO2 emissions, right? Well, that’s another problem. If cars get better mileage, gas prices will go down.  When gas prices drop, people drive more, offsetting the increase in mileage. That’s why, despite ever increasing standards, we have continued to use more oil. That’s the “awful” thing about Economics, it causes people to change their behavior in response to the current situation. Thus, the second reason for increasing fuel economy, global warming, will not be helped. Not only will we drive more, offsetting any gains, but driving only accounts for 1.5% of CO2 emissions. So any savings would be negligible anyway.

Now that I have refuted the arguments themselves, I will explain how the lower cost argument contradicts the “cap-and-trade” system. Cap-and-trade is also supposed to save the planet, and it is really just a fancy and complicated way to tax carbon (to make fossil fuels cost more). It is more politically favorable than a tax because it is so opaque, and because it gives the government another way to play political favorites by controlling another facet of the economy. People can’t easily see the tax being levied because it’s buried in the cost, so it’s harder to notice it, except by the fact that it costs more. The same way you know you’re paying income taxes, but you just see what ends up in your bank account, you don’t really feel how much money was taken out before hand.

So, to sell the current fuel efficiency regulations, they told us we are going to save money by using less and driving down the cost, allowing us to use more. But someday soon they are going to say they need to greatly increase the cost of gas and other forms of energy so that we use less. So which is it? Do they want gas to cost less or more? Do they want us to drive less or more? Politicians make these over simplified arguments all the time. They know most people won’t stop to think of the second and third consequences of government action. They know most citizens aren’t versed in economics and thus don’t always remember that people respond to incentives! I believe most politicians know this truism, but they only invoke it when it is favorable to their goals.

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