EconLog

Agoraphobia, 2002-10-21

The latest issue of Technology Review has a cover story that is filled with anti-market paranoia. The thesis of the article is that Detroit knows how to make automobiles with much higher gas mileage, but the corporate devils are keeping the technology off of the market.

All in all, there is no shortage of technology available and almost ready for the auto industry to adopt. And yet, SUVs still get an average of only 21 mpg. Asked why, General Motors’ Indra cites familiar industry arguments: innovations are too expensive; new components add weight, negating benefits. He says also that weight reduction—which, according to the DiCicco study, accounts for nearly one-third of the formula for boosting mileage—cuts into safety. That’s the argument the industry used as part of its lobbying blitz to kill tougher fuel-efficiency legislation last March.

My guess is that much of the rigidity of the car industry today is due to the weight of existing regulations. If the problem is slow adoption of technology, I doubt that more regulation is the solution.

Most economists would say that you should set an appropriate tax on gasoline (raise the tax if you want to discourage consumption) and let the market determine automobile technology.

Discussion Question. If technology for improving gas mileage were readily available and economical, what incentives would lead manufacturers to introduce it?