Tag Archives: economics

Standards and Markets

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The EPA has decided to revisit, revise, and lower fuel efficiency standards for cars sold in the US for the model years 2022-2025.  The Obama administration EPA had mandated that overall fleet fuel efficiency—averaged across all models of cars built by a manufacturer—be raised to 54.5 miles per gallon by 2025 from 35.5 miles per gallon in 2016.  This would have represented a greater than 50% increase in fuel efficiency in just 10 short years.

Environmentalists are up in arms over the move.  Fred Krupp, Environmental Defense Fund President:

Designing and building cleaner, more cost-efficient cars is what helped automakers bounce back from the depths of the recession and will be key to America’s global competitiveness in the years ahead.

And Jon Foley, California Academy of Sciences Executive Director, tweeted

This move wastes energy, and makes more dependent on foreign oil.

Both misunderstand.  Krupp is right that building better cars helped automakers recover from the Panic of 2008, but he missed two Critical Items.  One is that American automakers, pre-Panic, were churning out junk and losing market share to better manufacturers.  When they stopped building junk, they got competitive again.

That brings me to the second Critical Item.  It was free market competitive forces—and the Panic to drive that home—that enabled the American automakers, building better cars, to get back into the game.  It was free market competition, in response to changing consumer demands, that pushed automakers to build more reliable, more fuel efficient cars (and trucks), with competition moving to hold prices down.

Neither of those had, or have, anything to do with government mandates.

Foley just seems to have not been paying attention over the last few years.  New technologies for locating oil and gas and for extracting those have lowered the cost of oil and gas for a whole host of uses, including car and truck fuel, and those technologies have led the US to be a larger producer of oil and gas than any other nation, save Russia—and we expect to surpass Russia in a couple of years.  There’s not much dependence on foreign oil here.

Oh, and one last thing.  The cost of buying a car won’t be so great now that manufacturers don’t have to waste capital on crash courses in engine development and can instead move at the pace of market competition.

Now, if only we could get rid of the ethanol mandate, too, so car maintenance and food costs could be reduced.

The Fed and Inflation

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There was a Letter to the Editor in a recent Wall Street Journal that talked about a “half-truth” that inflation is “always” a result of rapid economic growth and low unemployment.

The Fed’s obsession with its arbitrary 2% inflation target compels them to argue that higher inflation is desirable because it is always linked to stronger economic growth. The governors simply ignore evidence to the contrary, such as in 2017 when, after the first quarter, growth accelerated and unemployment fell, yet inflation rates declined.

Couple things about this claim. One is that that isn’t the only argument the Fed makes on the matter or on the Fed’s role. The Fed’s role is to maintain price stability (and low unemployment, but price stability facilitates that), and any target rate of inflation, within a broad range, does that.  The Fed targets 2% in order to have…engineering slop…as a cushion against the natural fluctuations of inflation taking the economy into a deflationary period, which if sustained can have more deleterious effects than high inflation.  Much higher target rates make maintaining stability more difficult.  Two per cent is a suitable middle ground target.

The other thing relates to those natural fluctuations in inflation rates, and their inputs. Stauffer is assuming, falsely, that a single occurrence, a single quarter’s behavior—an anecdote—is the trend.  Not at all.  It’s just noise.

An Example

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This is part of what’s wrong with today’s American higher education.  The numbers appear in a Wall Street Journal article about the possibility of ex-Secretary of State Rex Tillerson becoming chancellor of the University of Texas system.

The system has an enrollment of more than 230,000 students, an $18 billion annual budget, and more than 100,000 employees.

That’s ridiculous.  There’s no reason for having an employee for every two students.  How much better would the students’ education be were some of those $18 billion redirected toward books and lab equipment and classroom facilities and away from excess payroll?  How much more opportunity would there be were some of those $18 billion redirected toward lower tuition and housing fees and away from excess payroll?

Idiocy in the Nanny State

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Starting in May, the Food and Drug Administration will require chains like Applebee’s and TGI Fridays to list calories next to all their menu items. That includes alcohol.

Because we need to know that stuff.  Or so says Government.  And of course, we’ll pay for that knowledge in higher prices for our drinks, because generating and posting that information—and defending against lawsuits over trivial errors in the postings—doesn’t come free.

Never mind that most of us don’t care.  Nana Government knows better.

Never mind, either, that Government already provides those data for free, for all who actually do care.  Here’re some data for beer.  Nana clearly thinks we’re just too stupid or lazy to make use of those data.  Or not smart enough to know we should care.

Credit Reports and Tax Liens

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The thee major credit reporting firms, Experian, Equifax, and TransUnion, are moving to eliminate records of tax liens from their credit data and credit reports.

The three companies, which provide vital, behind-the-scenes services in consumer credit, have been grappling with class-action lawsuits over their handling of consumers’ tax liens and judgment information.

This is a mistake.  The right answer is to defend, actively, those suits that are wrong, rather than to surrender to the extortion of lawfare, and to correct the mishandlings of the tax liens in their data and reports.

Running away from the matter altogether can only further deprecate the usefulness of these credit reporting agencies. All debt needs to be reflected in the reports so that accurate pictures of an individual’s credit risk can be developed.

Beyond that, a tax lien cuts two ways: it’s the result of a serious failure, whether of the one with the lien or of events beyond the person’s control. With the other slice, like any credit card, a record of prompt payments, keeping the lien current until it’s paid off, would reflect favorably in the minds of lenders reading the reports.

Absent the data, though, a loan’s interest charge would need to be increased to reflect the greater uncertainty, or the loan denied altogether, and either of these outcomes will harm far more consumers far more deeply than the numbers and injuries claimed by the suits.