Raise gas tax to get more efficient cars

Marketplace Staff May 21, 2009
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Raise gas tax to get more efficient cars

Marketplace Staff May 21, 2009
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Kai Ryssdal: Earlier this week the president announced tougher fuel economy and emissions standards for car and truck makers. The White House figures the new rules will save almost two billion barrels of oil over the next nine years and at the same time make it easier for us to breathe. Seems like common sense. But commentator Paul Kedrosky says good economic sense is something else again.


PAUL KEDROSKY: After years of auto companies saying that higher fuel-efficiency standards would bankrupt them, the Obama administration figured out a fix. Cleverly, it wiped out the auto industry first, and then raised fuel standards.

The right calls the standards an unnecessary intrusion into the economic lives of average Americans. If people want to buy massive, steel-clad gunboats and race down highways at top speed, getting 5 miles per gallon, all the while padding the pockets of America-hating fuel exporters, then that should be their right.

Environmental sorts on the left have complaints too. Some are already saying that 39 miles per gallon is not high enough. They point to Europe, where it is common now for many popular cars to get 50 miles per gallon and more.

But a more compelling criticism comes from recent economics research. To an economist, most things come down to price. A car that gets 39 miles per gallon is cheaper per mile to drive than a car that gets 18 miles per gallon. Make iPods cheaper, and more get sold. Make the cost per mile of driving cheaper, and people will drive more.

How much more? Research says it may be as much as 10-20 percent. People may not loiter on their way to work, but they will make more discretionary trips with their high-efficiency cars. And that has other effects too, like more highway congestion, and even more accidents and deaths.

Most sane people, even economists, want more efficient cars on the roads. But is the best way to do it making cars cheaper to drive? To an economist, the answer is obvious: we need to make it more expensive to drive, not cheaper. The best way to do that? Raise fuel prices. Higher gas taxes will cause people to drive less, cause emissions to tumble and motivate companies to build and sell more efficient cars. Granted, it might not be the same auto companies doing it, but I think we’re all OK with that.

RYSSDAL: Paul Kedrosky is a senior fellow at the Kauffman Foundation. His blog is called “Infectious Greed.”

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