Monday, January 14, 2008

Will's Blog

Just wanted to let everyone know about my good friend Will's blog( . He was actually the inspiration for me to start this blog. He was also the inspiration for me to play in his fantasy baseball league a few years ago, but, it ended up being more of a negative than a positive, so I won't talk about that anymore. No hard feelings though.

Anyway, Will has consistently posted very insightful and intelligent comments to my posts (see comments section). I will highlight what he wrote in response to my post on Mitt Romney (by the way, Mitt's real name is "Willard").

Will said, "Now when it comes to the free market and oil prices, you have pointed out a great example of the failure of the free market (which I recognize was not your intention and you may not agree). The price of any scarce resource obviously incorporates the production cost (in this case extracting and refining oil) which is directly passed on to the consumer. But other costs such as pollution and injury to nat'l security and not incorported into price in the free market; these are called 'externalities'. The only way to incorporate externalities into price is to tamper with the free market via legislation: in certain situations where the public good (e.g. an intact ozone layer and a terrorism-free homeland) is at stake, government must make corrections to the free market to influence consumer behavior.

On another side note, how elastic do you think the market is for gas? Can we assume a 1:1 ratio of increased price to decreased consumption (i.e. perfect elasticity)?? hells no my friend. Have you been on a highway lately? people love their SUVs/cars and despite rising fuel costs consumption seems to be as robust as ever. (I don't really know if that's true but it seems like it.)"

Wow, that was a lot of info. I hope you are still reading. I completely agree with his points. Free markets do not take into account 'externalities'. The government must do so. I think they should make a HEAVY case for making us energy independent and green the next "race to the moon" as JFK did in the 60s. I mean, get everybody charged up and behind it. Stress it in schools. Procure and cultivate a whole new generation of new "green scientists" from our current crop of children in K-12 and in college. Pour tons of money into the program. It will be the best investment this country can make on an environmental, geo-political, and national security front.

Now, however, I do not think we should go in and save Detroit (GM and Ford). Why? Let me tell you why.

Who makes the most fuel-efficient vehicles? The most hybrids? That's right, Honda and Toyota. What do American companies like GM do? Here are some examples:

A. On May 23rd, 2006, G.M. announced its ''fuel price protection program''. If you live in Florida or California and buy certain G.M. vehicles by July 5, the company will guarantee you gasoline at a cap price of $1.99 a gallon for one year -- with no limit on mileage. Fuel usage will be calculated by the miles they drive, as recorded by OnStar, and the vehicle's fuel economy rating. G.M. will credit drivers the difference between the average price per gallon in their state and the $1.99 cap. Guzzle away. ''This program gives consumers an opportunity to experience the highly fuel-efficient vehicles G.M. has to offer in the mid-size segment,'' Dave Borchelt, G.M.'s Southeast general manager, said in the company's official statement. Oh, really? Eligible vehicles in California include the 2006 and 2007 Chevrolet Tahoe and Suburban (half-ton models only), Impala and Monte Carlo sedans, G.M.C. Yukon and Yukon XL S.U.V.'s (half-ton models only), Hummer H2 and H3 S.U.V.'s, the Cadillac SRX S.U.V., and the Pontiac Grand Prix and Buick Lucerne sedans. Eligible vehicles in Florida include the 2006 and 2007 Chevrolet Impala and Monte Carlo, Pontiac Grand Prix and Buick LaCrosse. The 6,400-pound Hummer H2 averages around nine miles per gallon!

As Tom Friedman from the NYTs pointed out in an editorial last year: "Our military is in a war on terrorism in Iraq and Afghanistan with an enemy who is fueled by our gasoline purchases. So we are financing both sides in the war on terror. Here's a rule of thumb: The more Hummers we have on the road in America, the more military Humvees we will need in the Middle East." He continues, "Every American, and every American company, has an obligation to reduce oil consumption. No one should be making a huge gas-guzzling Hummer, and no one should be driving one, and no one -- certainly not G.M. -- should be subsidizing people to drive them."

B. G.M. also sells more cars that get 9 to 11 m.p.g. -- the Hummer -- than any other company. Even though G.M. justified the $1.99 program as giving consumers a chance to drive some of its most fuel-efficient cars, it did not include its best-selling, most fuel-efficient model, the Chevy Aveo (35 m.p.g. highway), in the program, but did include seven gas-guzzling trucks.

C. G.M. still does not have a family-friendly hybrid on the market -- nine years after Toyota introduced the 45-m.p.g. Prius hybrid.

D. Because of a federal loophole and ethanol subsidies, the average gas mileage for the American fleets are artificially inflated because a dual-fuel vehicle that can run on either gasoline or 85 percent ethanol, or E85, is credited with a much higher mileage rating than it really gets. That keeps the overall mileage of the cars and trucks that a company like Ford or General Motors makes in any given year within the government's mileage limits. By agreeing to build flex-fuel vehicles credited with phony mileage, Detroit gets to make many more bigger, heavier gas guzzlers without having to pay fines for exceeding the federal mileage standards. For instance, the 2006 G.M.C. two-wheel-drive Yukon 1500 actually gets 15 m.p.g. city and 20 m.p.g. highway. But under this loophole it is rated as getting 33 miles per gallon for purposes of meeting the government's fleet fuel economy standards. The Union of Concerned Scientists calculates that the loophole increased U.S. oil consumption by 80,000 barrels per day in 2005 alone.

If you are not ready to vomit after reading all of that while we have so many young soldiers getting killed or maimed in Iraq, then listen to your heart to make sure it is still in your chest. These people are criminals.

Now, as far as Will's 2nd point about high gas prices having little impact on the number of cars on the streets, he again, is correct. New data from American Express and the Consumer Federation of America say that consumers are buying just as many gallons as ever, but paying more for them, and that has forced cutbacks in other purchases. In fact, spending is down in every other sector, except when it comes to gasoline. Thus, Will's original premise that free markets cannot fix everything is correct. But, I will reiteriate, the way to fix it is not to subsidize the crooks (GM, Ford), but to subsidize alternative forms of energy.

1 comment:

Will said...

Steve - you're too kind.

I didn't know any of that stuff about the loopholes w/ the flex fuel ... that truly is sickening.