Assume demand

The NYTimes editorial page asks the "if we build it, will they come?" question and answeres "no":

Yet for all the conditions attached to it, the multibillion-dollar aid package for Detroit’s carmakers approved by the White House (with Mr. Obama’s support) fails to address one crucial question: Who will buy all the fuel-efficient cars that Detroit carmakers are supposed to make?

The danger is that too few will, especially if gasoline prices remain low. Therefore, it might be time for the president-elect and Congress to think seriously about imposing a gas tax or similar levy to keep gas prices up after the economy recovers from recession.

And for you fiscal policy junkies:

A bitter recession is not the most opportune time to ratchet up the price of energy. But if the Obama administration is to meet its twin objectives of reducing the nation’s dependence on foreign oil and cutting its emissions of greenhouse gases, it needs to start thinking now about mechanisms to curb the nation’s demand for energy when the economy emerges from recession in the future.

Comments

[Carlos Ferreira]

On the look of it, makes perfect sense. Only with high gas prices do people get a real feel of scarcity of fuel, and are they motivated to buy the most fuel-efficient cars. I fear that, if petrol prices are low for long enough, car makers will be tempted to use the bailout money in the development of new, inefficient gas-guzzlers.

[odograph]

I predict that any "bailouts" passed will be for public consumption, and that the real motive and impact will be more structured liquidation.

I accept the argument that we have global overcapacity in autos, an insane menu of makes and models, which is not sustainable.

Congress probably gets this, and knows they can't change it, and so will only throw enough money to slow the inevitable.

(arguments about greening Detroit are political theater only)

[odograph]

(Note that I don't mean complete liquidation, just a shedding of divisions down to something manageable.)

[John Whitehead]

Carlos,

We'd be happy to add your blog to our blogroll if it didn't have the same name!

[phil]

Interesting blog in that it points to a real scepticism of fiscal policy as a way out of recession. Not sure if Odo's "bailout for public consumption" is really a criticism, but maybe it should be--not just for autos, but for everything. The negative externalities of most consumption likely exceed the positive. Should we not simply learn to enjoy life with less?

We need a new way to measure the welfare of the state. Keynes was OK for his time, but this world, with global warming and continued extravagant expenses devoted to encouraging production, seem (to me) to be a real drain on the long-term viability of our place on the planet.

Policy implications? Well, forget the bail-outs. Spend money on welfare, education. Encourage small business, not the billion dollar corps, to bring income and employment.

[artichoke]

If people don't want small cars, what business is it of our elected government to force them on us?

If they vote for such tricks at least we should throw them out at the next elections.

[odograph]

Artichoke - in what year was C.A.F.E. passed?

[Carlos Ferreira]

Hi John,

I'd be honoured to be added to your blogroll. Let me come up with a new title - anyway, just "environmental economics" doesn't really cut it.
I'll get back to you, OK?