Economists Repeating Themselves: CAFE
Reading through Brad DeLong’s weblog today, I noticed a link to Vox Baby (a post titled “Don’t Linger in this CAFE”, showing once and for all that it’s not just me who cannot resist a cheap play on words), wherein Andrew Samwick says most of the same things I said in my previous post. All the things he says that I didn’t are in the following passage:
“The second issue is that the CAFE standards operate at the level of a fleet of vehicles produced by one manufacturer. I have never heard of a rationale for regulating a company’s whole product line. The more economy cars a company makes, the more fuel-inefficient cars it can make without penalty. Why provide an incentive for Toyota to make larger cars just because it happens to make good small cars? If the objective is to regulate the average fuel economy of all cars on the road, then there ought to be a tradable permit system established. We would get a better variety of cars on the market, though not at any one particular dealer. Pure welfare gain.The third issue is that the CAFE standards operate in a hidden fashion, and as a result there have been plenty of abuses. CAFE standards are negotiated behind the scenes with a few entities (the manufacturers). They lobby for complexity and then exploit loopholes, like the different standards for cars and light trucks or, as I fear, all these new flavors of SUV. Lack of transparency is the enabler of bad policy. Is there anything more transparent than a gas tax at the pump?
Keep it simple. Scrap CAFE, set a higher gas tax, and return the aggregate revenues from that gas tax through lower income taxes in a progressive fashion.”
Like Brad said in his post, it’s a good version of the economists’ rant against CAFE– which means that it describes an optimal policy, but not one that could ever see the light of day. Like I said before, if we could set a higher gas tax, that would be great– but it’s political suicide, so it won’t happen. Andrew’s tradeable permit idea is interesting, and it’d be nice to hear how he’d structure such a system; it would certainly make CAFE more efficient, at least if the underlying problems I mentioned in my previous post were addressed as well. Also, his comment about lack of transparency is a worthwhile point, as well– and it’s one that applies to administrative decisions throughout the executive branch.