Hennessey on CAFE

by on May 20, 2009 at 9:08 am in Data Source, Economics, Science | Permalink

Excellent post, filled with detail, by Keith Hennessey on CAFE.  Some highlights:

The NHTSA analyses look at a range of benefits to society, including economic and national security benefits from using less oil, health and environmental benefits from less pollution, and environmental benefits from fewer greeenhouse gas emissions (this is new).  They also consider the costs, primarily from requiring more fuel-saving technologies to be included by manufacturers….

Rather than maximizing net societal benefits, [the Obama] proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero…

The Obama plan will increase costs enough to further suppress demand for new cars and trucks. This will cause significant job loss, and probably in the 150K 50K range over 5-ish years, with a fairly wide error band….[updated to reflect an error in calculation, AT]

The Obama option would reduce the global temperature by seven thousandths of a degree Celsius by the end of this century….[and] would reduce the sea-level rise by six hundredths of a centimeter.  That’s 0.6 millimeters.

Note that these points are all drawn from NHTSA work (see Hennessey's post for details) not from a "think tank" study.  Finally, Hennessey is concerned about the future:

…As early as this fall, greenhouse gases could become “regulated pollutants” under the Clean Air Act. Once something becomes a “regulated pollutant,” a whole bunch of other parts of the Clean Air Act kick in, and EPA is off to the races in regulating greenhouse gases from a much (much) wider range of sources, including power plants, hospitals, schools, manufacturers, and big stores.

One of the scariest elements of this is called the “Prevention of Significant Deterioration” permitting system. In effect, EPA could insert itself (or your State environmental agency) into most local planning and zoning processes. I will write more about this in the future. It terrifies me.

Nartin May 20, 2009 at 9:22 am

insure that economic growth will occur in a manner consistent with the preservation of existing clean air resources

That is terrifying. I wish the government would just let companies make as much money as possible. Clean air is simply not that important, especially when compared to personal wealth.

PM May 20, 2009 at 10:09 am

“Since the US tends to import oil, a commodity produced in unstable and volatile regions, anything that reduces the amonut of oil per citizen the US consumes, or per unit GDP, is going to increase its national security”

Unless the cost to lessen that consumption in some other way decreases national security, say through the loss of economic base which funds the hard side of national defense.

Japan and Europe can far more easily afford to dictate higher gas mileage. They are geographically small (or a collection of geographically small) states that have long had extensive public transit systems. China is at a jumping off point in the development of its transportation system for massive swathes of the country, supportable by lower costs and a far higher population density. I’m not saying I oppose increased mileage requirements in and of themselves, but the causes, considerations and effects elsewhere are not the same.

Daniel May 20, 2009 at 10:32 am

Nartin,
The fuel economy mandate has very little to do with air quality. Air quality is improving because of pollution control technologies. Air quality isn’t going to reverse a 50-year-trend of getting better if Obama didn’t mandate more fuel efficient cars.

Value,
If Obama was concerned about national security and oil he would allow more energy exploration in America. Currently the federal government only leases 97% of federal lands for energy development. The US only has 3% of the world’s proven oil reserves only because Americans are forbidden from exploring in new areas. For example, there are 2.5 trillion barrels of oil equivalent in oil shale in the western U.S. They thing that 800 million to 1 trillion of that is extractable. That’s more than 3 times the Saudi’s reserves.

If national security were the driving factor, Obama would be opening up more American lands for energy production.

If national security were a driving factor, Obama wouldn’t be promoting a low carbon fuel standard. This mandate is discriminates against oil sands oil from Canada.

Also, the batteries in hybrid cars are lithium ion batteries. The world’s largest supplies of lithium are in Bolivia and China. http://www.nytimes.com/2009/02/03/world/americas/03lithium.html Does it decrease national security to have more hybrid cars?

National security implications of energy aren’t high on the President’s agenda.

Brian O May 20, 2009 at 10:42 am

I am largely impressed by the intelligence represented by the two bloggers here, and I often learn new things during my daily visits. Could someone please explain to me why these chicken little scenarios of economic destruction never actually happen with regulations? The same arguments were made about safety belts, previous CAFE standards, other emissions standards (SO2), etc., and never came to be. It reminds me of the Malthusian ideas of peak resources that sound reasonable, but never actually occur in history.

Is it perhaps because these studies ignore the new industries that spring up to meet the regulations, which might be impure from a market point-of-view, but are successful enough to offset the expected loss in jobs?

I’m really trying to understand this, but I think I’m missing something. Thanks.

John Dewey May 20, 2009 at 11:52 am

valuethinker: “Since the US tends to import oil, a commodity produced in unstable and volatile regions”

Are you sure about that? The major sources of oil for U.S. refineries are: U.S., Canada, and Mexico. Nearly 60% of oil consumed in the U.S. is produced in North America.

Perhaps you are arguing that by reducing gasoline consumption, the U.S. would no longer purchase oil from Venezuela and Saudi Arabia. But why should that be the case? U.S. refineries are going to seek the lowest cost feedstock. The cost to produce and transport Middle Eastern and Venezuelan oil to refineries in Texas and Louisiana is lower than the cost to produce Canadian and Mexican oil. Saudi Arabia and Venezuela can simply reduce the price of their oil in response to any U.S. demand reduction. Canadian and Mexican producers cannot do so. A reduction in gasoline demand will almost certainly increase our relative dependence on Saudi Arabia and Venezuela.

valuethinker: “anything that reduces the amount of oil per citizen the US consumes, or per unit GDP, is going to increase its national security.”

How so? If Middle East oil production were halted, global oil prices would skyrocket – for all sources of oil. Reducing the oil consumption of the U.S. by 20%$ or even 40% will not change the impact of Middle East instability on global oil prices.

thehova May 20, 2009 at 12:05 pm

All that said, Obama is working us towards a great libertarian future. Right? I think that’s why libertarians voted for him.

KingM May 20, 2009 at 12:24 pm

Gary,

No, those countries aren’t going to invade us, but if there was no oil in that part of the world, there are two wars and hundreds of billions, perhaps trillions of dollars in defense spending and aid that would not have been spent to keep the oil flowing.

mulp May 20, 2009 at 12:36 pm

Let’s see, the free market is best at allocating idle resources.

Except when it comes to labor.

When restrictions are placed on labor saving oil and coal, which allow production with less labor, the laws of supply and demand work in reverse. If you can’t save labor by using cheap oil and coal, then less labor is demanded which then results in increased idle labor.

Yeah, right.

When it comes to problems like creating wealth from nothing, the government must get out of the way and let the physicist innovate in ways to turn loans that can’t be repaid into safe and secure highly profitable capital by financial innovations.

But when it comes to the problem of figuring out how to use labor to make capital which will convert free solar and wind energy into power that will substitute for oil and coal, well, that is absurd. Physicists know nothing about creating capital using labor. The economist knows that capital is created by innovations that eliminate labor.

valuethinker May 20, 2009 at 12:53 pm

John Dewey

You can’t have the argument both ways. If oil is a fungible commodity, with global demand (which it is, kinda sorta), then the effect the US has on world oil demand is significant. If the US economizes by, say, 2m b/d (10% of consumption) then that is equivalent to 1 revolution in a major producing country (a mid sized one, anyways).

Otherwise, we say the US imports from Canada and Venezuela, and it doesn’t matter about oil from the rest of the world. So reducing US consumption by 2m b/d reduces US oil imports from volatile political regions by 25% (40% of 21m b/d). Surely a good thing?

Of course, Venezuela isn’t stable, either ;-). Canada I guess we can say probably is.

You’ve trapped yourself into arguing that the US shouldn’t economize on fuel, because if it does, and the world price for oil falls, that will mean that Canada and Venezuela won’t invest in more oil production, which the US would consume. But on the other hand, if the US doesn’t economize on fuel, the US will need to import more, and will import that, presumably, from Saudi Arabia and co?

The practical reality is that cars last a long time. So improving fuel economy now has an impact on US fuel consumption 12 years from now. We can’t anticipate the geopolitics then (although I will say that I don’t see that the Middle East will be more stable).

Let’s take it as a given that if the US consumes less gasoline, it lowers the risk of a competitive race with India and China for that same fuel. You’re in the land of absurdity to argue that (as one poster here appears to) the US should consume as much fuel as possible to make it harder for China and India to consume it.

US oil production will also be lower in 12 years: it has been falling steadily since 1971, and even Alaskan production is falling. If 150/bl didn’t find that oil from existing fields, nothing will.

On Lithium, yes, one or two key sources. But there could be more in the future, or we could use a different battery technology. Most of the gains in fuel economy are, in any case, not about hybrid engines– more diesels alone would make a big difference.

Daniel

You’ve fallen into the ‘shale trap’. As Deffyes says ‘it ain’t oil, and it ain’t shale’. It’s a kerogen.

Those of us who were around in the 70s remember this was going to be the saviour too. The reality is, if it was, then oil prices have been high enough, for long enough, for us to overcome the incredible problems of producing oil out of a substance that isn’t quite a hydrocarbon.

So shale oil is one for the future, and likely always will be. Even if we could find enough water in a part of the USA that is water short, even water desperate, to produce it. It’s a gruesomely expensive and inefficient (and not currently doable in scale) way of generating liquid fuel.

Now the Alberta Tar Sands and the Venezuelan resource are real. Alberta really is another Saudi Arabia (200bn barrels extractible, say) and Venezuela 100-200bn barrels. The environmental issues are huge though.

Alberta will get to 2m b/d of oil sands: that’s almost certain. 3 or 4 would stretch the logistics and environmental capacity of that part of the world to the breaking point– Fort McMurray just couldn’t handle the strain. So let’s say 3m b/d as a base case, with 4 to 5 as the upside case if the world goes back to $150/bl oil. Probably not before 2025-30 though given the time cycle on these plants (and the probable need to build a nuclear reactor up there to provide steam for the SAGD processes).

Now that 4-5m b/d would be equivalent to 1/4 of US *current* consumption (70% of which is transportation). So if US transport got 25% more efficient, say, that would be 3.7 m b/d.

Venezuela we know the problem: they nationalized the oil companies that were doing it. They won’t be in a hurry to go back. But there’s probably 2 m b/d there, some day, when they have a more compliant government (like Cuba does, or Ecuador, or Bolivia, or Iraq).

Over to the US unexploited lands canard. Well, say they find 30bn barrels extractible. That’s an enormous amount. Given that that basically comes from offshore California, offshore Florida, and ANWR. Plus a bit from national parks (where we’ve generally not found oil). Most estimates for ANWR are around the 4-5bn mark and there’s not perfect evidence there is anything there at all (other than gas).

Roughly speaking that is 600m barrels pa over 50 year field life. So say 1.5 m b/d at peak (just less than 7% US current consumption). Or about half of what the US might get by improving its fleet fuel economy by just over 20%. Except of course the fleet economy improvement is a permanent ‘source’ of oil.

My main point is the ‘national security benefits’ are a flakey number– what’s the cost of nearly 5,000 American lives in Iraq? Wouldn’t that have been worth $1 trillion of conservation measures? Is there any American now who, having lived through the last 6 years of the Iraqi agony, wouldn’t logically rather that the US have spent that money on conservation?

Remembering how the Japanese got into WWII (their Navy told them they would run out of oil, if they did not seize Dutch Indonesia) reminds us that being dependent on a foreign commodity reduces your strategic options.

Once you see this from the lens that a dependency by the US on any external oil supplier, other than Alberta, is a strategic vulnerability, you start to think about doing quite dramatic things to cut oil imports.

So on a good day, with a fair wind, in 25 years time Alberta can supply 5 m b/d. Maybe domestic sources another 5 m b/d, if we can beat the normal logistic decay curve US oil production seems to be on. Who knows, maybe 1-2m b/d out of an ice free Arctic.

12m b/d. That’s probably where the US needs to be on oil consumption needs in 2034.

anon May 20, 2009 at 1:31 pm

“Could someone please explain to me why these chicken little scenarios of economic destruction never actually happen with regulations? The same arguments were made about safety belts, previous CAFE standards, other emissions standards (SO2), etc., and never came to be. It reminds me of the Malthusian ideas of peak resources that sound reasonable, but never actually occur in history.”

Please visit 1930, USA and the New Deal. A decade of misery.

DanC May 20, 2009 at 2:27 pm

valuethinker

if prices fall then the lowest cost producers can continue to produce, others drop out of the market. The middle east is the home of the lowest cost producers and they will continue to dominate world markets. The world’s dependence on middle east oil will remain substantial. Indeed investment in locations outside the middle east will fall if the world price of oil falls.

You also seem to miss my earlier point. If we impose huge costs on our economy by reducing the demand for oil who benefits? Assume that the US drop in demand leads to a drop in world prices, China and India will see a drop in world energy costs as a big boost to their economies. They will become increasingly dependent (heavier consumers) of middle east oil. If an international crisis occurs what side will India and China take in a middle east dispute? China and India will do what is in their national interests independent of the United States. The United States will become more isolated on middle east issues, especially Israel. Is that good or bad?

Simply, the Obama plan will do nothing, zero. to increase national security. It will do nothing to bring peace to the middle east. It will impose greater costs on the American citizens.

The Obama estimates on cost are conservative and estimates on benefits are often silly. The power we are giving to regulatory agencies will be destructive to the future of the country

John Dewey May 20, 2009 at 2:33 pm

valuethinker: “If oil is a fungible commodity, with global demand (which it is, kinda sorta)”

No “kinda, sorta” about it, valuethinker. Oil is a fungible commodity, with global demand.

valuethinker: “the effect the US has on world oil demand is significant.”

I doubt it is as significant as you apparently believe. If the U.S. reduces demand for oil by 20%, prices will decline only slightly. Other nations will take advantage of temporarily cheaper oil by increasing demand.

valuethinker: “You’ve trapped yourself into arguing that the US shouldn’t economize on fuel”

I never made that argument.

For me, the issue is not so much whether U.S. consumers purchase efficient vehicles. It’s whether or not they are allowed to do so voluntarily.

valuethinker: “if the US doesn’t economize on fuel, the US will need to import more, and will import that, presumably, from Saudi Arabia and co”

More than what? More than it does today? Doesn’t the level of imports depend on the number of vehicles we drive? the distance we drive them? the amount of domestic crude production?

So what if the U.S. imports more oil than it presently does from Saudi Arabia, Brazil, Nigeria, and Venezuela? If political instability outside the control of the U.S. causes oil prices to rise, the market for oil and oil products will quickly adjust.

By the way, how many times in the past half-century did political instability not caused by the U.S. significantly change the price of oil? When Saddam Hussein invaded Kuwait is one. When else?

valuethinker: “So reducing US consumption by 2m b/d reduces US oil imports from volatile political regions by 25%”

Why do you make this conclusion? Again, U.S. refiners are going to seek the lowest prices for their feedstock. If Saudi Arabia can offer the lowest prices, that’s where U.S. refiners are going to get their oil.

David C May 20, 2009 at 3:34 pm

They should have mentioned the non-linear relationship between emissions and temperature reductions. If x emissions reductions yield y temperature decreases, then 2x emissions reductions will yield greater than 2y temperature decreases. A better way to estimate the temperature reduction of a policy is to ask what would happen if every country on the planet was operating under the same constraints vs. no constraints, and what other policies are being used in conjunction with this one. If you don’t do that, you’re going to end up with small numbers that don’t sound like much. They only start to add up when you put the different policies together. Also, their baseline scenario of 3 degrees Celsius by 2100 is significantly lower than the most recent studies.

John Dewey May 20, 2009 at 4:11 pm

babar: “you all have convinced me that it is far better to tax fuel directly than to institute CAFE standards.”

Of course, elected officials cannot easily implement such direct taxes on the entire voting population. Voters would see the impact of fuel taxes every time they fill up. The cost of CAFE standards, though, would only be directly felt once every 4 or 5 years when a new vehicle is purchased.

Slocum May 20, 2009 at 4:22 pm

“I think the reason why these regulatory catastrophes never seem to happen is not because the economic destruction does not take place, but because we don’t recognize it when it does.”

Or maybe it’s because, when you check the details, the regulations lack actual teeth:

CAFE/GHG Standard Loopholes Appear

http://www.thetruthaboutcars.com/cafeghg-standard-loopholes-appear/#more-315761

babar May 20, 2009 at 4:49 pm

another way of putting what i just said: i don’t mind people being stupid, but i do mind people being stupid in ways that break the world, and i would like to stop them first. two years ago, i didn’t think that people could break the world by running unreasonable levels of household debt, but i didn’t really understand how the financial system worked at that point. we would have been much better if we had made people pay the costs up front — no negative amortization loans, for instance. well, i see another situation where mass stupidity could break the world, and so i think we would be better off reining ourselves in, through higher costs.

John Dewey May 20, 2009 at 5:21 pm

Forgot about the 4th government action which precipitated the perfect financial storm:

4. panicked Fed dropped federal funds rates from 5.25% to 2% from Aug-07 to Apr-08, weakening the dollar and burdening the economy with $140 a barrel oil.

Mike May 20, 2009 at 8:10 pm

Q: “Could someone please explain to me why these chicken little scenarios of economic destruction never actually happen with regulations?”

A: “Please visit 1930, USA and the New Deal. A decade of misery.”

*Sigh*. Actually you, anon, need to visit the 1930s. The decade was not an undifferentiated slump. After 1933 GDP increased at an annual rate of 10%. In 1937, Roosevelt decided the Depression was over and cut spending, while the Federal Reserve raised required reserves to tamp down a perceived inflation threat. GDP fell.

“Increasing regulations, stealth taxes, massive borrowing, will create the greatest crisis this country has ever seen.”

As opposed to now? Think more carefully before you call someone else an idiot.

assman May 20, 2009 at 10:29 pm

There is a simple way to reduce greenhouse gas emissions that also have large economic benefits: telecommuting.

To me its very weird when people try to design fuel efficient cars, better mass transport blah. The easiest method of reducing energy/oil consumption is large scale telecommuting. I mean 40 percent of the population should be telecommuting. What impact would this have? It would eliminate the rush hour commute. It would lengthen the life of infrastructure. It would improve productivity and add at least an hour of leisure to most people’s days. It would be a massive game changer.

Oh I know there will be plenty of excuses but those are pure bullshit. Think about it … telecommutting solves a very large number of problems. The basic idea is that there is no need to transport the person to the job, you just need to transport the work he does to the job. This would save billions and billions of dollars and probably improve productivity. Why spend money inventing new technologies, investing in green blah when the simplest solution is just to change workplace culture.

Mike May 20, 2009 at 11:09 pm

Q: “Could someone please explain to me why these chicken little scenarios of economic destruction never actually happen with regulations?”

A: “Please visit 1930, USA and the New Deal. A decade of misery.”

*Sigh*. Actually you, anon, need to visit the 1930s. The decade was not an undifferentiated slump. After 1933 GDP increased at an annual rate of 10%. In 1937, Roosevelt decided the Depression was over and cut spending, while the Federal Reserve raised required reserves to tamp down a perceived inflation threat. GDP fell.

“Increasing regulations, stealth taxes, massive borrowing, will create the greatest crisis this country has ever seen.”

As opposed to now?

DanC May 21, 2009 at 12:20 am

Mike are you this dense?

The financial sector is heavily regulated by the government. Badly regulated because the government always badly regulates things. Look at the interventions that Dodd, Franks, and Maxine made at Frannie and Freddie. That is typical of government regulation.

Obama and the Democrats want to multiply the Bush spending ten times over. Or are you saying that Bush just didn’t piss away enough money for your taste.

The love affair that many are having with Obama is infecting the country with a terrible venereal disease that will infect future generations and destroy opportunity and growth.

Mike May 21, 2009 at 9:39 am

No, not dense, informed.

This CRA canard doesn’t remotely hold water. It does not explain the huge involvement of investment banking houses like Lehman and Bear Stearns, who had no government mandate.

And commercial banks being heavily regulated? How about (1) the repeal of Glass-Steagall (1999); (2) the refusal to impose regulations on credit default swaps (2000); (3) the use of off-balance-sheet SIVs to evade capital requirements; (4) the SEC decision to allow investment banks to lever up 30 to 1 (2004). Wasn’t the financial sector MORE regulated before 1980 than after? If they were so “badly” regulated, then why did we have no financial meltdowns between the establishment of the FDIC and the deregulation of S&Ls?

I have no love affair with Obama, but I’m sick and tired of people who try to tell us that everything was fine when we allowed “the market” to run things, when in fact the last 30 years have been little more than a series of booms and busts rivaled that did not increase the real incomes of 90 percent of the population.

And I’m also fed up with people whose arguments are so weak that they feel compelled to add gratuitous insults to distract attention.

John Dewey May 21, 2009 at 10:20 am

mike: “It does not explain the huge involvement of investment banking houses like Lehman and Bear Stearns, who had no government mandate.”

Mike, the CRA may not have directly caused Lehman’s failure. As I understand it, though, other government policies likely played a big role:

1. the Fed’s 1998 rescue of Long Term Capital Management led many to believe the Fed would bail out troubled financial firms;

2. the government backing of one half the nation’s mortgages – the implicit guarantee of Fannie Mae and Freddie Mac – encouraged risky practices;

3. the Fed holding the risk free real interest rate below zero for several years inflated the housing bubble and also encouraged risk taking;

4. mark-to-market rules enacted by Sarbanes-Oxley forced Lehman and AIG to recognize unrealized accounting losses when prices were distressed, and engage in fire sales of assets to raise capital and meet regulatory requirements.

Obama’s market interventions did not cause the 2008 financial crisis, of course. But big government interventions likely did.

mulp May 21, 2009 at 1:03 pm

Doc Merlin wrote: “The truth is, jobs that don’t create value are actually a NEGATIVE overall gain, because the money is taken at some cost from a more productive thing. Here this should explain it better http://en.wikipedia.org/wiki/Parable_of_the_broken_window

So, war is something that doesn’t create value. And if war doesn’t create value, then building up the military for a war that isn’t even going to be fought and that certainly wouldn’t create value must be just as bad.

But Reagan, Bush, and Bush either built up the military just to be prepared to fight a war that wasn’t going to be fought, or actually engaged in highly destructive wars, so the jobs this activity created had a negative overall gain.

And to finance these activities, Reagan, Bush, and Bush added to the US Federal debt what is now about 70% of the total debt, more than twice the debt accrued by all the presidents before Reagan plus Clinton.

As Reagan, Bush, and Bush claimed to be conservatives with conservative economic values, either their economic policies were totally contrary to what you believe is good politics and the largely non-conservative policies that preceded them were terrible, in which case, to the degree that Obama is running up debt in the manner of Reagan, Bush, and Bush, Obama has your conservative economic values at least when it comes to creating debt to create jobs, even if they have negative overall gains.

Of course, FDR ran up massive debt while president, most for the destruction labor of war, but he also oversaw the workfare jobs that built the Hoover Dam, many libraries, rest areas, archives of folk art and craft and history, and so on, much of that contributing positively to society and the economy for the subsequent six decades. Or are you going to argue that the labor building the Hoover Dam had a negative contribution to society and the economy? Or the TVA. And I find it interesting how many conservatives point to France as their ideal example of electricity generation, all built by government spending and government workers. Care to argue that the French nuclear power generation capacity has negative value?

So, bring this back to CAFE standards and the government forced job creation that will result, how can this be worse then the Hoover Dam or the French nuclear power generation capacity? Or for that matter the US nuclear power generation that was all built within the framework of government regulations that promised to make sure the investments were profitable, just like the French control of electricity generations ensured those investments were profitable?

Or how about the CAFE standards in the US and similar standards elsewhere in the world, that drove down demand for oil beginning in the 70s that resulted in oil prices falling to record low levels? Was all the job creation from those regulation of negative value given the fall in demand that drove down prices?

You can argue if you want that all government is bad, and that Somalia is the ideal national economy with no government regulation, not government jobs, and no government imposing taxes.

Mike May 21, 2009 at 1:44 pm

Alex,

Hennessey has revised his estimate of job losses to 50,000 (a 2/3 decrease). You might want to amend your post, too, for accuracy’s sake.

Greg May 21, 2009 at 1:58 pm

The disasters from regulatory catastrophes are all about what is seen and unseen, imho. Few would call Western Europe’s more regulated economies disasters, but the standard of living is lower than ours, GDP growth is lower than ours, unemployment is generally higher than ours.

There is certainly some brain drain and the birth rate will eventually turn these countries into something less than European but no one (well very few) in those countries perceive a disaster.

Changes are slow and sometimes over more than a generation. We adjust. The cars that I buy today are a lot more expensive, in part due to regulation, than the cars I bought in the 1970s. They are also better in some respects. My adjustment is buying every 10 years instead of every 4.

Rex Rhino May 21, 2009 at 2:56 pm

You can argue if you want that all government is bad, and that Somalia is the ideal national economy with no government regulation, not government jobs, and no government imposing taxes.

Why do misinformed people always bring up the Somalia myth? The civil war in Somalia is a proxy war with many factions backed by foreign states (who pays for those AK-47s and ammo and rocket propelled grenades, after all?), and caused by years of state-run European Imperialism followed by years of state-run Cold War intervention.

The strongmen who control Somalia exercise a greater degree of economic control and intervention in their territory than do most western governments, and a higher degree of taxation as well. They simply have several strongmen competing for control.

And to finance these activities, Reagan, Bush, and Bush added to the US Federal debt what is now about 70% of the total debt, more than twice the debt accrued by all the presidents before Reagan plus Clinton.

Oh, I get it… another brainwashed Democrat. You do realize, of course, that the Democrats and Republicans are *NOT* two fundamentally opposed ideologies, they are generally the same party with some minor aesthetic differences? Right? Republicans are not for deregulation or laissez-faire capitalism, and Democrats are not for shrinking the military industrial complex… The W economic plan and the Obama economic plan are virtually identical: throwing money around like there is no tomorrow, bankrupting the country and destroying the economy so long as it happens after the next election. Your petty partisan bickering means nothing to people who are equally critical of both parties.

DanC May 21, 2009 at 5:15 pm

So Tom says, if the domestic companies cannot turn a profit building cars that the government (government not consumers) wants screw them and all the people who work for them or supply them.

Without government CAFE mandates the domestic companies would have left the negative profit segment of the market and concentrated on things they could sell at a profit. The economy would have been much better off. Let Honda and Toyota build little boxes, just let the others build what they are good at building. That would have made sense.

Currently, only low wage countries can profitably build the new cars that the Obama administration mandates. More cars from Korea and China, perhaps Vietnam (GM China will spin off and make money) but the building of automobiles in this country will continue to decline. Higher prices for all production. All sing the praises of central planning, that worked well in the Soviet Union.

1 of 6 jobs in Ohio is tied to the auto industry, sorry guys, Tom says screw you.

What Tom doesn’t understand is that by running a command economy, we destroy the living standards of all the people.

Tom May 21, 2009 at 7:01 pm

DanC

Toyota and Honda make fuel efficient cars with higher domestic content than many American cars. They build them in factories in the US.

We can no longer let the weakest companies drive policy for the nation and the world.

The job losses are a canard. Witness 50,000 over 5 years vs. 524,000 in December, 2008. As I believe Dr. Phil says “how is that working for you.”

The notion that the American people should subsidize GM and Chrysler so they can make gas guzzling behemoths that poison the air and contribute inordinately to global warming is laughable.

Hennessey asked for different numbers. Here they are: autos contribute 40% of the CO2 that we produce. Reduce that my 30% and you have reduced total CO2 by 12%, all else being equal.

So, no DanC I don’t say screw the American worker, quite to the contrary, I believe Americans can solve any problem put to them, and I expect these efficiency gains to come at a cost savings, at least to the automakers, not a cost. Everywhere you look (acid rain, solar energy vs fossil fuel), the savings always exceed expectations and the feared costs melt away as companies switch their energies from avoiding change to maximizing their profits with the current rules.

That last bit may be unfamiliar, it is also known as capitalism.

Tom

DanC May 21, 2009 at 9:00 pm

Tom take a basic econ class, please.

Still you are wrong on so many points where can I start?

Do Toyota and Honda have the same cost structure as GM, Chrysler, or Ford. No. Will they come closer in the near future. Yes. Where will they all build the new cars to meet the new mandates? Out of the United States.

If GM, Chrysler and Ford had not been forced to build money losing small cars, they might never have needed a bailout. They would have concentrated on markets were they had a comparative advantage.

Tell you what why don’t you tell Americans to solve cancer in ten years, eliminate poverty and build cars that get 100 miles to the gallon.

Lets see CAFE standards were a huge drain on the domestic auto industry, that cannot be argued away, but you argue the hell with them we are better without those jobs and besides mandates never hurt anyone.

Having politicians make demands on companies to build cars that they can not sell at a profit is not capitalism. You clearly have no idea what capitalism is.

Forcing companies to do what the government thinks is best is not capitalism. What it will do is limit choices. Tom thinks that is wonderful. That is his little wonderland where centralized power forces companies to do what he thinks is best and people can only buy what he approves.

BTW the UAW sees the handwriting on the walls. They are convinced that GM will as quickly as possible move production to China and other lower wage countries. Why? The UAW is making wage concessions but they can not overcome the additional production costs of the new mandates. Those jobs are going away. And the people who gave haircuts to those people and served meals to those people, they are out of work too. But to Tom the ends justify his central planning.

Tom sounds like a college freshman throwing BS around, but so do have the Obama advisors.

If oil prices hit new highs and stay there people will adjust. Indeed if politicians had courage they would just raise gas taxes and get the same result more economically. But Obama and his ilk prefer complex stealth taxes – like increased regulations and mandates. They don’t care about all the deadweight costs of their system.

So in Tom’s view Stalin was a titan of capitalism.

John Dewey May 21, 2009 at 10:59 pm

tom: “if only the politicians weren’t spineless we would change behavior with a tax.”

Why do you claim that politicians are spineless? They are simply acting in their own self-interest. Americans do not want to be taxed any more. This week, even Californians showed that to be true.

See, the problem is that Americans are not convinced that global warming will be a disaster. How do I know this? Because the vast majority of them are demonstrating by their actions that it’s not that big a deal. If they believed CO2 emissions were a threat to their childrens lives, they would voluntarily buy fuel efficient cars, voluntarily live close to workplaces, voluntarily reduce the size of their homes. But that’s not happening.

Throughout its history, this nation has made the sacrifices necessary when faced with a threat the people perceived to be real. If global warming were a real threat – and if Americans believed their actions could avert the crisis – CAFE standards would be unnecessary.

Tom May 22, 2009 at 12:45 am

DanC wonders:

“Toyota profits are down, why?”

I hope you are sitting down DanC. I will reveal the reason for you right now, as it has apparently eluded you.

Given your demonstrated education level, this will qualify as an entire Junior level college course for you.

We are in a recession.

There. I did it again. I responded with a real, verifiable, true fact. You on the other hand, have not provided any sources for your claims. You have theories. Some of which might be true, but based on your posts they are just DanC theories, and they don’t stack up against the facts I have supplied, with sources, which by and large disprove your DanC theories.

That fact above relates a cause to an effect.

Cause: Recession

Effect: Toyota’s profits are down.

It is, (dare I say it), capitalism at work. Remember capitalism? It is one of the things that make this country great. We need to use some of that greatness to improve our car manufacturing.

If GM and Chrysler can’t or won’t do it for some reason, than we have Ford, Aptera, Tesla and companies we haven’t even heard of yet. The era of gas guzzling polluters has been over for 27 years, but apparently GM and Chrysler didn’t get the memo until this recession.

Since you enjoy your Socratic method, here are two question for you: What will Americans do with the money they save by operating the new fuel efficient cars? What will the auto manufacturers do with the profit they make on selling the new fuel efficient cars (especially now that they have you hoodwinked into thinking it is actually costing them $1,300/car)?

Hey this asking-leading-questions-without-providing-any-sources is fun. But pretty pointless.

Spock Out.

Tom

DanC May 22, 2009 at 2:23 am

BTW if others want to read a basic news report that demonstrates how weak a grasp Tom has on the issue (even the Obama administration refuses to make the silly feel good claims Tom makes) you can read the following by Neil King Jr in the Wall Street Journal
http://online.wsj.com/article/SB124295367747745591.html

valuethinker May 22, 2009 at 1:23 pm

John Dewey

‘kinda sorta’ because the market is not perfect. Canadian heavy isn’t a perfect substitute for Saudi light nor Brent Crude. And you can get oil shortages in the Continental US because the pipelines are set to flow oil from Texas and landing points to the East, not the other way.

Both of these factors were big factors in the spread between WTI and Brent that opened up last year.

So it’s mostly a fungible global commodity, but not wholly.

US is one quarter of world demand, oil production is short term highly price inelastic (so is consumption) so yes, a 10% reduction in consumption will have an impact on the world picture.

In essence, if you reduce your consumption of an import, and the price of that import goes from $50 to $150, say, you are going to be less vulnerable to it– less oil per capita, less oil per unit GDP. Remembering that the life of your capital equipment (in this case cars and trucks) is 12 years average, so the time lags are very significant. Having to switch to fuel efficient cars or reduce transport distances in an economy is a painful experience (James Hamilton, amongst others, reckons it was a major cause of the productivity slowdown of the 1970s/ early 80s) if you have to do it in a hurry (ie ahead of the natural scrappage rate).

On geopolitical disruptions to the oil price:

- 1973 – Arab Israeli war and embargo
- 1979 – Iranian Revolution
- 1939-1945
(- 1941 of course (Japanese attack on US due to oil embargo, that tipped the balance in the Imperial Cabinet))
- 1990 you have already named

The world oil supply is very vulnerable to political instability in a very small area (the Persian Gulf). And a handful of countries. That’s why the USN sits in the Gulf region with that vast base infrastructure, Diego Garcia etc. There’s no other reason to be sitting in such g-d forsaken places.

Because supply is almost completely price inelastic (short term) and demand also very much so (elasticities of less than 0.1) a small disruption of supply (losing 2-3 m b/d) for any length of time can cause a huge price move. And as James Hamilton points out, maybe evn this time, a recession. Right now we are in the flip side of that, a fairly small fall in consumption (c. 5% or 4m b/d) has a huge impact on price the other way (despite OPEC).

From public statements by Dick Cheney and others there is little or no doubt that a key virtue of Iraq was that it had the world’s second largest oil supplies, and these could be ‘freed up’ for exploitation by US companies– the intended Oil Act which the CPA introduced rather gave that game away. Or put it the other way: would the US have worried so much about Iraq if it had not been a major oil producer? Which other repressive regimes has the US invaded to ‘liberate’?

On the strategic level, if the US imports less oil:

- there’s more for the rest of the world, so the US is in less direct competition with those countries to access that oil
- the US is less dependent on supplies from volatile regions (that’s true, even if the US doesn’t directly import from those regions, because a supply interruption there has a knock on effect on prices and availability for everyone)
- a finite supply has its life extended (and oil has to be finite at some level)

It’s an extreme assumption about elasticity if:
- we assume that a reduction in US consumption is wholly offset by other countries consuming more oil (because it is cheaper)

Even if it is true, if there is a subsequent disruption of supply, and oil goes from $3 to $12 (as it did in 1973) or $40 to $100 (1980) or something over 100% (1990 from memory), then if the US consumes less oil, the hit to the US economy is smaller (even if the hit to global GDP is the same).

This is a logic virtually every oil importing country has thought through, with a decision to reduce oil imports. Japan of course in particular, but also France (the switch to diesel cars, the TGV train system etc.).

Sure in some ideal world the US would make this happen via higher gasoline taxes. But that’s a political non-starter. CAFE is a second best solution, but historically it had a tangible and durable impact on US gasoline consumption.

It has its mirror in the European challenge over Russian natural gas: more efficient boilers, better insulation and alternative methods of home heating. The Russians have shown they can, and will, turn the tap off.

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