David R. Henderson  

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The Economics of the Auto Indu... Lectures in Macroeconomics, No...

My co-blogger Arnold has an excellent blog on the auto industry. There's more to say, though.

Notice his first quote from Obama:

The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil.

Whether or not the auto industry is the "backbone" of American manufacturing--I think it's not--the second part of his sentence is simply incorrect. Even if one accepts as given that we should reduce our "dependence" on foreign oil, the way we'll do that is by using less oil. This has nothing to do with where the cars are produced or which company produces them. It has nothing to do with whether the cars that use less gasoline were produced in the United States or Japan or Korea or Germany.


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CATEGORIES: International Trade



COMMENTS (12 to date)
psugrad writes:

In addition, I'm afraid that if the auto industry becomes a GSE that car will become the focal point of our efforts to increase vehicle efficiency. Mopeds, scooters, bikes, etc will get passed over for the most part.

Perhaps this will be a lesson for all businesses - crank up your lobbying.

The Sheep Nazi writes:

My co-blogger Arnold has an excellent blog

And so he does, but the thing you linked to is called a post. The term blog refers to the site as a whole.

Acton. writes:

So Hummers, Ford Pick-ups, and Escalades are part of our energy efficient future?

lol. go green.

here's a good start to energy independence: let detroit go bust.

bad dog writes:

"The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil."

To me it's obvious that what Obama meant was he wants to see the American auto industry lead the global market (as it's a major source of jobs in the U.S.) and also lead in producing more efficient vehicles.

Him saying "If the market rejects American cars then we won't make them anymore" may play well at the next Economist Convention but probably not so good with the American public.

FroggyJ4 writes:

"This has nothing to do with where the cars are produced or which company produces them."

The United States government can force the auto manufacturers to produce more efficient automobiles more easily if they're in the United States. So if Democrats want to fight economic principles with legislation, it's in their interest to keep the US automobile industry strong.

Babinich writes:

David,

Could you please explain the impact that the two-tiered CAFE process has on automobile cost?

Ivan writes:

"Even if one accepts as given that we should reduce our "dependence" on foreign oil, the way we'll do that is by using less oil."

Which means that you assume away the possibility of reducing dependence on foreign oil by increasing domestic production, i.e. by lifting bans for offshore drilling.

Roman writes:

Well, when you have pledged allegiance to labor unions and you are in their pocket, you had better well float statements like that.

In response to Acton, I say reject the whole "green" and "organic" product sales pitch, because that is all it is. A sales pitch. "Green" products are just a way of getting you to let go of more of your hard earned bux in a socially acceptable and politically correct way.

John B. Chilton writes:

Let's play what assumption has Obama not stated that makes his theorem go through. Example: Raise barriers to importation of foreign cars.

Or perhaps Obama's sense of substitution possibilities and market incentives is underdeveloped. That's common amongst those not trained in economics.

Kenton A. Hoover writes:

If 50% of US oil consumption is due to poor housing energy management, perhaps we should convert our mortgage tax subsidy into a subsidy designed to decrease home energy consumption through sustained changes? In many states and at the Federal level, we've been doing this onesie-twosie in tax credits and refunds for better washers, dryers, toilets, fridges and solar buy-backs. Perhaps a wholesale approach?

aaron writes:

Even if reducing consumption could plausibly lower our dependence on foreign oil significantly, I think it is more important to use oil more efficiently. Unlike cap and trade and gas taxes, CAFE actually increases efficiency. This effectively increases supply and lowers prices, acting as economic stimulus. I view this is much better policy. Right now, despite a big fall in the sale of trucks/suvs, efficiency is negatively correlated with gas prices. This means that reductions in consumption for increased gas prices will come almost entirely from productivity destruction.

Jake Russ writes:

David,

I agree with you that it doesn't matter which country produces cars the cars that use less gas.

But I also believe you may be missing something with regard to Obama wanting to save GM: The Volt. To my knowledge no other company is as close to getting a working plug-in electric on the road. If the car does as GM promises (a big IF I know) then that car changes the car landscape in a fundamental way. It would reduce our oil consumption (but not get us totally off fossil fuels like coal) but it would give us a more diversified energy base as electricity can be produced by wind, solar, coal, nuclear, hydro etc. So I can at least see why GM might be worth trying to save, if you believe in that car.

Now this doesn't mean GM shouldn't go bankrupt and do a reorganization that allows them to shirk off some the fixed costs Arnold was talking about. I just think Congress won't let that happen. The want to "save the jobs..."

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