Wednesday, June 11, 2008

Government regulation that would have helped

Conservatives scream that the less governmental regulation the better for the economy. I tend to agree. Centralized bureaucracies are bad at making widgets. Why be efficient if you keep your job regardless of how well the product works?

But I don't accept the Republican/conservative that government has no place in the workings of the economy. I think that well constructed mandates, especially for broken markets, are vital to keeping businesses in business and consumers protected.

I think it is obvious that the global petroleum market is broken. I'm not sure where the fault lies, but as it stands now, state petroleum companies and the handful of large public companies are not responding to increasing price by increasing production. Likewise, consumers aren't really cutting back on consumption because realistic alternatives don't exist.

Government policy makers saw this years ago. Economists and geologists noted that increasing demand from emerging markets combined with a leveling off or decrease in production would push the price of oil to record heights. Democratic politicians responded by trying to increase CAFE standards, but were shot down by the Auto lobby and their Republican (and Michigan Democratic) lackies in Congress. Democrats introduced increased CAFE standard bills in the late 90s and into the new millenium. They finally passed a bill in 2007.

Now CAFE standards aren't the be-all and end-all of solving the spike in oil prices. But increasing effiency is an important part. Other good ideas exist.

But the biggest disappointment is that increased fuel efficiency is a real selling point now. SUVs have virtually no trade in value. Smaller cars and hybrids are all the rage.

So what has been the outcome? The Big 3 American automanufacturers are behind the ball and losing out to foreign competitors, akin to the late 70s and early 80s. In fact, General Motors will shutter four SUV plants because sales are so sluggish.

On the flip side, Hybrid Vehicles Fly Off Dealer Lots, Supply Challenges Mount.

Had CAFE standards been increased in 2000 rather than 2007, Americans would have more choices and American auto manufacturers would be competing against, rather than chasing, their foreign competitors.

Maybe we can learn a lesson here and apply it to the climate change debate?