This past Friday, President Obama announced new corporate average fuel economy or CAFE standards that would require the average vehicle sold in the United States to provide 54.5 miles per gallon. The White House estimates the program will save consumers $1.7 trillion in fuel costs by 2025.
Projections on the policy’s actual benefits are mixed. The Michigan-based Center for Automotive Research claims the more efficient cars would cost $10,000 more, thereby overwhelming the $8,000 savings on fuel the new designs would save over a vehicle’s useful life. The Boston Consulting Group estimates a much lower added cost of $2,000, which would save consumers a net $6,000.
Conservative ideologues will likely bemoan the new fuel standards as an outright assault on free market capitalism. That said, there are two reasons why more pragmatic conservatives should support this measure:
1. It Reduces Dependence on Fossil Fuels
One research report claimed that the fuel savings would result in $152 billion of added spending power that could create up to 700,000 American jobs. Furthermore, the country would spend less on oil, which props up petro-kleptocracies like Saudi Arabia and Venezuela. An economy less dependent on fossil fuels is ultimately safer and more secure from the effects of geopolitical unrest half way around the world.
2. Free Market Capitalism Applies Only to Companies Operating Under Free Market Conditions
It is well and good to be a strong proponent of free market capitalism, but it is unfair to expect the government to allow firms to benefit from the free market in good times, but to lavish tax payer dollars on them when they fail. If a firm takes money from the government in bad times, they should expect more government interference in return.
And the automotive industry is the poster child for government largesse.
By my count, American auto companies have cost the American tax payer nearly $90 billion over the last three years.
Consumers should get something in return.
That said, if the major automakers were to pay back the government in full, like many banks did, I would have a problem with all this government interference.
Until then, it is time for Detroit to pay the piper.