Friday, December 21, 2007

Mandates As Law


Today I was busy writing an email to a well-known expert on automobile emissions and legislation and a proponent of allowing California to have standards that are stricter than Federal ones. I expressed my opposition with several reasons.

He responded with a simple question:

George Bush just signed a law for 35mpg by 2020. Do you disagree with that as well?
My rather lengthy response was this [try to get through it]:
I believe that regulations for toxic substances is a legitimate function of government in protecting the commonweal. Establishing and enforcing reasonable safety levels for products is a legitimate function in protecting the commonweal. Setting arbitrary mileage mandates, within arbitrary time constraints, that are poorly conceived, defined and administered is not a legitimate function of government and leads to poor choices by manufacturers responding to those artificial limitations and more costly choices for consumers. CO2 is not a toxic gas and mandating smaller, higher mileage vehicles does not increase occupant safety.

If oil-based fuel becomes increasingly expensive, consumers will choose vehicle alternatives that offset that expense as they have done already in response to $3.00 per gallon fuel. The real marketplace demand for efficiency puts immediate pressure on manufacturers to provide products that meet consumer demands. Government interference is not necessary. If, on the other hand, oil prices decrease because of increased production or alternative extraction methods or profitable development of alternative power sources, then consumers can have a full choice of vehicles without the costs that government-forced marketplace manipulation would generate... such as the $100 billion plus that automotive manufacturers must spend to meet mandated mileage/emission requirements... that would be passed along to consumers.

The best products and solutions come in response to a marketplace where consumers are free to select products that meet their needs, their budgets, while providing safety and not creating a toxic environment... something that, for example, government-mandated ethanol fuel increases cannot do or more nickel-based batteries cannot do.

Toyota created the Prius, not because of a government mandate, but because it saw a market opportunity based on real market demand. Ford created the Escape SUV hybrid for the same reason. GM is creating the Volt, not because it sees an immediate mass market, but because it sees it as an opportunity to get people to think about GM as an innovative company with exciting products. People respond to creativity as well as need. Government-mandated requirements simply force a marketplace people don't want (restricted choices, unexciting products, unnecessary costs) and place the blame on manufacturers.

The focus on automotive vehicles has always been an easy target for government and special interests because they are highly visible and everyone has or wants one. Yet politicians conveniently ignore many other more pressing issues regarding resource management and energy when they parade their "energy bills." For example, with a growing population (including millions of undocumented "guests"), what is being done to ensure adequate fresh water and electricity? California certainly is not addressing those needs internally, but wants to tell everyone else what their cars and trucks must be like. Hmmm.

I believe that experts such as you need to be addressing the systemic issues that will allow manufacturers greater range of responses to a marketplace that will naturally demand greater efficiency out of their vehicles without sacrificing the enjoyment or utility they derive from them. Those systemic issues include the availability of appropriate support technology and infrastructural changes which would allow manufacturing of non-fossil fuel vehicles on a mass-produced basis.

Where, for example, is the government mandate that automotive batteries must exceed lithium-ion performance with no safety risks by the year 2015? Then vehicle manufacturers can design and build electric vehicles that people might actually want because they have the power and range that is needed. Where is that government mandate that natural gas fuel cell filling pumps must be available in the same number at service stations as gasoline pumps by 2020? Or do vehicle manufacturers have to hope "a miracle happens" and people can actually use the vehicles they build to meet government mandates? Automobile manufacturers have spent billions and built millions of E85 flexible fuel engines for their vehicles. Where are all of those government-mandated E85 stations that should have been set up long ago? Consumers have paid for the product without the benefit because the government pushed a phony "solution."

Government mandates don't work because they disregard the fundamentals of the marketplace. They simply add unnecessary costs to products.

People didn't demand a 500 gb hard drive for their computers when all the software was DOS based. Would it have made sense for the government to demand that computers be built for specifications that required software not yet created to use and cost the owners unnecessarily in the process?

You are well-intentioned. You want people to buy innovative, super-efficient products so that we all can have more with less. You want them to want that. Some people are willing to pay more for an innovative product that provides them perceived advantages. But just because they perceive the advantages doesn't mean the rest of the marketplace does... or realistically should. Some people opted for those $8,000 low-definition plasma TVs because they were innovative and conferred some perceived benefits on them. Good for them. They made it possible for people to now buy $1,000 high-definition plasma TVs. The government didn't have to mandate that every manufacturer build them when the marketplace wasn't there. Now they are all scrambling to respond to the market demand and the selection is enormous and the product affordable.

So, no, I do not agree with the Federal mandate of 35 mpg or a California mandate of 43 mpg. I believe the marketplace, driven by real market forces and proven support technology and available infrastructure, is a better arbiter of how products should be engineered and resources allocated. That marketplace may well dictate that 0 mpg is a better target... no gallons at all. But that will happen when all of the pieces are really ready to come together and it will come together better than those 1980 vehicles that stalled and required constant maintenance because unproven technology was forced into action by government mandates in response to California allowing too many people with too many automobiles to reside in areas that had unfavorable atmospheric conditions.

If you believe California should force the issue, convince your politicians to add a $3.00 per gallon gasoline tax and people will angrily buy the smallest vehicle they can get their hands on... and won't blame auto companies for forcing them into products they don't want or can't afford.
I posed this question before and I'll do it again: what happened to the concept of a market economy?


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)