Alan Reynolds, the Answer to CAFE is NOT Taxes

In his WSJ Opinion piece today, Alan Reynolds of the Cato Institute gives proponents of free market capitalism whiplash, and in the headline and sub-head alone. "Fuel Standards Are Killing GM" ...he writes. Great! Get rid of CAFE! I'm on board with that, but then, in the next breath... "A higher gas tax is a better way to get green cars on the road."

No, no, NO! Just for a sanity check, I took a quick look at the Cato web site, and noted that Reynolds should probably review the tagline of his organization: "Individual Liberty, Free Markets, and Peace." /shaking head/

Reynolds recognizes that CAFE as it stands does not work, and specifically for GM, it's disastrous:
...only those companies most successful in selling the smallest cars with the smallest engines will, in the future, be allowed to sell the more profitable larger pickups and SUVs and more powerful luxury and sports cars.

GM accounted for about 19% of vehicle sales so far this year, but the company had a much smaller share of the market for small cars and SUVs (which accounted for 20% of total sales through May). To continue offering a Toyota-like array of larger cars and trucks under ever-tighter CAFE rules, GM would have to capture a much larger share of the market for small and/or diesel-powered vehicles.

General Motors does produce competitive cars and trucks, but not one of them is small. [bold added]
GM's only competitive strength is in the type of cars 1) that American's want (go figure!) and 2) that politicians think are bad. Does this make Alan Reynolds question whether the government has any business at all in dictating fuel standards or anything else? Of course not.

But wait! He then says
General Motors is likely to become profitable only if it is allowed to specialize in what it does best -- namely, midsize and large sedans, sports cars, pickup trucks and SUVs. The company can't possibly afford to scrap billions of dollars of equipment used to produce its best vehicles simply to please politicians... [bold added]
Another ray of hope, soon to be dashed on the rocks of pragmatism (i.e. being a slave to the "practical" with no recognition that any kind of fundamental principle should be adhered to). Here it comes...
As a matter of practical politics, rescuing GM from strangulation by CAFE will require offering economically literate environmentalists a greener alternative, i.e., one that works. Luckily, the government has two policy tools that, with minor modifications, really could discourage people from buying the least fuel-efficient vehicles.

One is the federal excise tax on "gas guzzlers"...

Second... to stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel. [bold added]
This is a mind-blowingly stupid argument, especially coming from a senior fellow at an organization that is supposed to support free markets. It's clear that Reynolds supports nothing of the sort, and sees no contradiction between free markets and the interventionist, extortionist policies he advocates. It may also be interesting to pick apart that previous quote, simply because it is so rich in idiocy.

First is the obvious pragmatic focus on "practical politics" and doing what "works." I have attacked this method of thinking countless times in the blog. Just search for pragmatism if you're interested.

Second, he said "economically literate environmentalists." If that isn't an oxymoron, I don't know what is (sorry... couldn't resist)

Third is the part where he says that "government... policy... really could discourage people from buying the least fuel-efficient vehicles." Am I missing something, or did he spend the first half of his article discussing how GM's best competitive edge in the market are those same inefficient vehicles he wants government to discourage?

Is he assuming that, while GM may not be able to break into the small car market, they'll be able to profitably turn their larger, marketable vehicles into fuel-efficient ones, and yet retain the power and features that make Americans buy them in the first place?

And even worse, from someone who should defend free markets, why is Reynolds not questioning the absurdity and evil of the government making these dictates on the market in the first place?

Finally, look at this sentence: "To stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel." Here, Reynolds acknowledges that consumer choices are being distorted by oddities in which fuel is taxed at what rate, but he doesn't seem to grasp that what he is proposing is doing the same damn thing to car production and purchasing decisions!

Sorry, but this article has me quite frustrated and angry. I normally don't abuse the bold and italics buttons this much.... But let's end on a low note. If you're wondering what grand conclusions this guy reaches, here you go:
The bottom line is that CAFE standards are totally unenforceable and ineffective. Regardless of how much damage the rules do to GM and Chrysler, Americans can and will continue to buy big and fast vehicles from German, Japanese, Korean, Chinese and Indian car companies. CAFE standards might just be another foolhardy regulatory nuisance -- were it not for the fact that they could easily prove fatally dangerous for any auto maker overly dependent on the uniquely overregulated U.S. market.
The bottom line is not the impracticality of CAFE standards, but that they have no right to exist in the first place because they violate the property rights of the auto producers.

He recognizes that if CAFE kills GM, we will still buy big cars from foreign companies, so he advocates raising taxes to nudge us away from it, thus violating our property rights.

And finally, he sees that the U.S. market is overregulated, and yet he proposes taxes to take their place, ignorant of the crucial thing that regulations and taxes have in common, that they both violate property rights.

This is one confused man, and he is no defender of free markets. In fact, under the auspices of a group like Cato, this type of thinking will do more harm to the cause of liberty and free markets than someone who openly argues for socialism.


Robin said...

Suppose we were talking about marijuana. And suppose someone suggested that if the government insists on discouraging the use of pot it would be more effective to end that product's current tax-exemption (or even put a stiff tax on pot) rather than rely on seemingly harsh penalties (years in Club Fed) that clearly do not work.

Is that much different from saying the price system (including taxes, as it always does) is a more effective rationing device than CAFE's toothless regulatory charade that dispenses rewards and death penalties to car companies based on their fleet "average" fuel economy?

Another point: BMW has a version of the X5 that puts out 555 horsepower, but buyers are exempt from the gas guzzler tax because it's called a truck. I'm all for abolishing the gas guzzler tax, but applying it to sedans but not SUVs makes no sense at all.

Yet another: I wrote that it also makes no sense to tax the most efficient fuel (diesel) more heavily than gasoline, while making the least-efficient fuel (ethanol) tax-free and subsidized.

If there was something wrong with any of those points (other than the fact that we all hate taxes), I have yet to hear it.

But I do agree that what cars we buy is none of the government's business. Anyone who knows what I drive knows that all this meddling doesn't work.

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