That was a happy scene on the White House lawn, wasn’t it? A sunny day, the auto CEOs, Obama, a bi-partisan group of governors (well, Arnold was there), some politicians, and Ron Gettelfinger.
You could almost imagine it: A future of efficient, green cars made by unionized workers and a revitalized Detroit.
Sadly, we think Megan McArdle’s prediction for how things will actually play out (you know, like in the real, non-fantasy world), is pretty close to spot on (her words):
- It will raise the prices of cars, and make them less safe
- It will reduce our carbon emissions, but not by as much as advertised, because more fuel efficient cars make driving cheaper, so people will do more of it. This “rebound” effect robs about 25% of gains, and also means more congestion, and more wear-and-tear on roads
- This will either help the Big Three compete, or seal their doom as the Japanese manufacturers continue to eat into their market share. If I had to bet, I’d wager this means big ongoing subsidies for our favourite three public charities.
- If you want to cut down on the pollution from driving, this is about the worst possible way to do it. On the other hand, it may be the only politically feasible way to do it. If you take global warming seriously, as I do, it may be the best of a bad set of policy choices.
The solution to all this seems to be that if you want less pollution and an incentive for more efficiency, you just hike tax gas. It’s still a (somewhat arbitrary) government intervention, but it’s less distorting than this new plan. Unfortunately that’s a tax and taxes are politically less palatable. So better to just raise prices (and auto deaths) than to risk passing a tax.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.