Before we go to the column, I want to say that I recognize that the price of gasoline is tied to the price per barrel of oil, which is at record highs, even adjusted for inflation. Pres. Bush recently pleaded with the King of Saudi Arabia to prevail upon his fellow members to raise production quotas (which would be logical from an economic point of view), and lower the price per barrel. His majesty apprently smiled, then shook his head, pointing north to the on-going American clusterf . . . I mean presence in Iraq as well as our continued blind and stupid support of the most aggressive policies of the State of Israel. Our on-going presence in Mesopotamia is certainly not helping in at least some aspects of our public policy.
Anyway, back to Krauthammer. His thesis is pretty simple (no surprise there), although he takes a bit of time to get to the money shot.
So now we know: The price point is $4.
At $3 a gallon, Americans just grin and bear it, suck it up and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures.
--snip--
America's sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company's fleet have to meet by precisely what date.
--snip--
It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy.
So, that's his point. Soaring gas prices are doing far more to push forward higher fuel efficiency standards than any amount of government regulation. So, we should not regulate at all, just let the market decide at what point Detroit decides to make automobiles that use gasoline more efficiently.
There are two problems with this position that should be obvious. The first and most obvious problem is the question begged by the entire premise - if no regulation is necessary, what, exactly is the prompting for more fuel-efficient automobiles? Obviously, the answer is the success of foreign models that are far more efficient and better built than their American counterparts. Along with official prodding since the dim days of the 1970's, the invasion of the American automobile market by, principally, Japanese and German cars has worked as a corrective to our Detroit-based hubris that American-made is the finest around.
Yet, foreign fuel-efficiency is based upon the simple fact that foreign countries have higher fuel efficiency standard, higher gasoline taxes and prices, and therefore greater incentive to make cars that are, relatively speaking, cheaper to operate. It isn't magic or mystery as to why German cars are both smaller and more efficient. Germans have paid consistently higher prices at the pump than Americans, as have the Japanese. At the root of our current desire for more fuel efficient automobiles is not the sudden spike in gasoline prices so much as the continued presence of fuel efficient cars from countries that have highly regulated petroleum markets.
Go figure.
Another little factoid that Krauthammer neglects is that the absence of regulation is itself a deliberate regulatory policy. We as a country are sending a signal to the petroleum industry that they are free to do whatever they want, to make whatever profits they might be able to squeeze out, rather than take some measure of control over a commodity that is central to the rest of the economy. Their continued high profitability becomes a greater good than other social goods. The opposite point, regulation is an expression of our collective will to decide that other social goods take priority over corporate profits, isn't so much Marxism (Kratuhammer manages to mentions Stalin, therefore resurrecting that wonderful old chestnut that liberals are nothing more than a bunch of pinkos) as it is the rational decision to insist that some things take priority over Exxon-Mobil making far more money this past year than ever.
Krauthammer tosses out a couple analogies that show he really doesn't know how to argue properly:
Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don't regulate. Don't mandate. Don't scold. Don't appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.
So, unlike the study of physiology or the pursuit of Arab-Israeli accommodation (which is being pursued by regional actors quite well, thank you very much, because they aren't pursuing comprehensive plans, but incremental steps), the pursuit of the socially desirable goal of more efficient automobiles should best be left to the oil companies.
Like most of those who think they understand economics, Charles Krauthammer betrays not just the ignorance, but social elitism of those who believe they know better how to decide for all of us how to live. I guess I thought that was Congress' business, because there's a line in this scrap of paper known as the United States Constitution about Congress having not just the right but responsibility to regulate interstate commerce. I know, I know, referring to the Constitution is so unfair. What did the founders know about free-market economics, right?
Probably more than a failed Canadian psychiatrist.
