President Obama may have a political Midas touch, but his decision to tighten fuel efficiency rules for cars was assailed from two directions.
Some critics charged that the rules would force car prices higher at the worst possible time — dealing a possible lethal blow to the American auto industry and hurting struggling consumers at the same time. Others berated the president for preferring regulation over a simpler tax increase. The Corporate Average Fuel economy standards — or CAFE — are costly, inefficient and politically craven.
Both criticisms rest on mistaken assumptions about pricing. Firstly there is scant evidence that tightening fuel standards were a major force in pumping up the price of cars in the 1970s and 1980s. Between 1978 and 1985 U.S. automakers managed a 50 percent increase in fuel efficiency without breaking a sweat.
The notion that CAFE standards significantly push up prices assumes technological stasis. Auto research continually spins off fuel efficient technology. The automakers and buyers then face a trade-off between deploying this to cut down gas usage, or to enhance the power and size of the vehicle.