Monday, June 27, 2011

Economic Confusion

President Obama has proposed that cars in the U.S. should average 56.2 miles per gallon by the year 2025. Sounds ambitious but I'll give him credit for having an environmental vision. Yet just last week he decided to release 30 million barrels of oil from the Strategic Petroleum Reserve to lower oil and gas prices. Oil prices have since dropped about ten percent.

Now I'm no economist, but it seems to me one plan negates the other. If I understand the laws of economics correctly, the best way to get consumers to do something is to give them an incentive to do so. Therefore, if the president wants people to drive high mileage cars, shouldn't he allow gas prices to rise? Look how well hybrids and 40+ MPG cars are doing right now with gas prices around $4.00 per gallon. Take a look at the automobile markets in Europe and Japan. Over there, it's not unusual to have gas prices at least double what we pay in the U.S. due to high fuel taxes. Yet the people have a smorgasbord of fun high mileage cars to choose from.

So which is it Mr. President? Are you trying to bolster your environmental credentials by forcing car companies to add thousands of dollars of gas saving technology that nobody wants to buy? Or do you think we could lower our dependence on Middle East oil by letting gas prices go up and incentivizing people to buy fuel efficient cars? I'm not a lawyer like you but I think I know which method will works better.

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