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When the term 'efficient' is thrown around in government, it usually means that somebody is deciding what costs count and what costs don't.


The High Cost of Higher MPG restrictions

When the term ‘efficient’ is thrown around in government, it usually means that somebody is deciding what costs count and what costs don’t.

Who can oppose making cars "more efficient"? Could you imagine what would happen to legislation requiring cars to be less "efficient"? Certainly there weren’t many such politicians in Washington, DC. President George Bush signed the Energy Bill on Wednesday and overwhelming numbers of Congressmen and Senators voted for it.

But what counts as "efficient" isn’t always obvious. When the term "efficient" is thrown around in government, it usually means that somebody is deciding what costs count and what costs don’t. No one explains why politicians’ or regulators’ choices should be considered over those of the consumers who actually have to drive the cars that they wouldn’t otherwise have bought.

The claim is that forcing cars to get 40 percent more miles per gallon will save car owners lots of money. But if making cars get these additional miles per gallon costs less than what drivers would save, why do we need such a law? Wouldn’t consumers want cars that save them money, causing car companies to make more of them? We don’t see this happening because there are other costs. Smaller cars are less safe and more people will die driving them. Smaller cars are also less convenient.

Even conservative estimates from the Brookings Institution and Harvard University indicate that existing MPG regulations are costing thousands of people’s lives and over ten thousand additional injuries from car crashes each year.

Are consumers dumb? Don’t they know what they want? Can’t they decide for themselves if they want a large or a small car? A safer or a more dangerous car?

Ever since President Bush accepted conventional wisdom and announced that Americans were "addicted" to oil, the debate over these energy saving changes seems to have ended. As the price of gas has gone up, mileage per gallon standards are viewed as a solution, but people make the mistake of forgetting that there is a world market for oil and the world price will still determine our prices if we stop importing foreign oil.

In 2006, Americans imported 3.6 million barrels of oil per day. The optimistic estimates that predict what gas usage will be 13 years from now when gas usage is predicted to be much higher than it is now claim that even this massive change in gas mileage rules would only save 1.1 million barrels a day by 2020. By contrast, world consumption of oil in 2006 was 83.6 million barrels.

The problem is that even if the regulations were effective today the impact on worldwide use of gasoline would be very small, something much less than one percent. The long run effect on prices is likely to be a fraction of that. Americans would bear real costs in buying cars, safety, and convenience, but attain little benefit from lower prices. Indeed, whatever benefit there is from lower prices would be shared by everyone around the world.

So might the "efficiency" explanation really rest on concerns over global warming? To see if all this makes any sense there are really four questions that all have to be answered "yes."

1) Are global temperatures rising? Surely, they were rising from the late 1970s to 1998, but "there has been no net global warming since 1998."

2) But supposing that the answer to the first question is "yes," is mankind responsible for a significant and noticeable portion of an increase in temperatures? Mankind is responsible for just a tiny fraction of greenhouse gases and there are other causes beyond that ( e.g., the Sun). Over 100 leading climate scientists from around the world signed a letter in December stating: "significant new peer-reviewed research has cast even more doubt on the hypothesis of dangerous human-caused global warming." In December a list was also released of another 400 scientists who questioned the general notion of significant manmade global warming.

3) If the answer to both preceding questions is "yes," is an increase temperature changes "bad"? That answer is hardly obvious. Higher temperatures could increase ocean levels by between seven inches and two feet over the next 100 years. Although some blame global warming for seemingly everything, according to others higher temperatures will increase the amount of land that we can use to grow food, it will improve people’s health, and increase biological diversity.

4) Finally, let’s assume that the answer to all three previous questions is "yes." Does that mean we need to impose miles per gallon regulations? No, that is still not clear. We already have very substantial taxes on gasoline, averaging 64 cents per gallon in the US. Even if one believes that gasoline use should be restricted to reduce carbon dioxide emissions, the question is whether our taxes are already restricting use "too much" or "not enough."" But simply saying that carbon dioxide emissions are bad isn’t enough. Putting on too much of a restriction is just as bad as not putting on enough, and, besides the notion that the more restrictions the better, the 35 MPG limit is arbitrary. The new Energy Bill’s restrictions are not based upon any scientific comparison of the costs of the restrictions versus the benefits from choosing 35 MPG versus, say, 30 MPG.

However good the intentions, higher MPG don’t just mean fewer sports cars or smaller mini-vans. Ignoring consumer preferences means one thing: Americans will be poorer and less safe. The irony is that those who sell themselves as being so caring aren’t careful enough to investigate the impact of their regulations.

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Written By

John Lott is the author of Freedomnomics and a senior research scientist at the University of Maryland.

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