Arnold Kling

Unintended Consequences

Arnold Kling, Great Questions of Economics
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One of the poster children for the unintended consequences of government regulation is the specification of Corporate Average Fuel Economy (CAFE). In today's National Review Online, Ken Adelman writes,

Smaller cars means more death on the highways. Last summer, a National Academy of Sciences panel concluded that CAFE had contributed to between 1,300 and 2,600 traffic deaths each year, with ten times the number of serious injuries. Another authoritative source found similar results. The Harvard Center for Risk Analysis concluded that these regulations account for half of the weight reduction in new cars, which led to "2,200 to 3,900 additional fatalities to motorists per year."

In addition to forcing cars to be smaller, the original CAFE standards had a loophole. Sport-utility vehicles (SUV's) and their relatives were not included. Instead, they were classified as "light trucks."

One approach is to close the loophole for SUV's. However, a better approach would be to focus on the fundamental goal.

Overall, the goal is to reduce dependence on foreign oil. Making cars more fuel-efficient does not necessarily do this, because people do not hold their driving constant. Instead, they tend to take advantage of better fuel efficiency to drive more miles. Overall fuel consumption remains high.

To reduce fuel usage, we should increase the gasoline tax. To allow consumers and manufacturers time to adapt, we should phase in a gasoline tax increase, with a small increase (say, a nickel) in the near term cumulating to a larger increase (say, $1) after five years.

Of course, it is not popular to propose an increase in gasoline taxes (I'll bet that Adelman would attack such an idea). Politically, it is a lot easier to try to address the issue of energy independence by flailing at it with unproductive regulations such as CAFE.

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