Unintended Consequences of CAFE

From the Wall Street Journal on the "corporate average fuel economy" rules of the 1970s:

Look at gallons consumed, miles driven, barrels imported or emissions emitted: CAFE has had no significant impact on energy consumption. Its sole practical effect has been to inflict on Detroit the need to produce, with high-cost U.S. labor, millions of small cars designed to lose money.

CAFE has to be the most perverse exercise in product regulation in industrial history. It confronted the Big Three with the choice only of whether to lose a lot of money, by matching Toyota and Honda on quality and features; or somewhat less money, by scrimping on quality and features and discounting, discounting, discounting. Rationally, they scrimped -- and still live under a reputational cloud in the eyes of sedan buyers. Yet notice that their profitable product lines, in which they invest to be truly competitive -- such as SUVs, pickups and minivans -- hold their own against the Japanese and command real loyalty among U.S. consumers.

Had CAFE not existed, there is no reason the Big Three today could not be competitive. As businesses do, they would have allocated capital to products capable of recovering their costs. Investments in fuel efficiency would still have taken place -- to the extent consumers valued those investments. That is, if they were profitable.

If Washington found this unsatisfactory, it could have done as the Europeans do and raised fuel taxes to coax the public to make different choices. Politically inexpedient? Well, yes, but that doesn't mean CAFE is an effective substitute. It isn't and never was.

Do read the whole thing, it is interesting throughout.

Lessons on Minimum Wage Causality

Hilary Clinton was on Jay Leno, and she tells this story about a 11 years old boy in Indianapolis (See 3:23 here):

... he said, "You know, my mom makes minimum wage and even though it went up, her hours were cut. So we're not making any more money. Can you help her?" You know, when somebody says something like that to you, it really does kind of energize me. I think, yeah, I can, I'm going to really try to help you, because this is wrong.

Watching her response, the causality appears to be lost on Clinton. The minimum wage caused the reduction in hours. Just as importantly, there is nothing that can be done about it. If I hold my iPod out over the floor and open my hand it will fall to the ground, and there is nothing Clinton can do about that either. Congress cannot pass a law changing the Laws of Demand any more than they can the Laws of Gravity. On a smaller note, I am concerned that a child so young is looking to politicians to solve their problems, especially when these particular politicians have no power over the situation, regardless of what they tell people.

HT: Cafe Hayek

Irrationality and the Minimum Wage

I have found that the hardest point to get across to students is the many adverse consequences of price controls, primarily because of their attachment to the idea of the minimum wage. Bryan Caplan has the best rejoinder I have ever read for this criticism from students:

What happens when my outraged students reach the "Salary Requirements" line on job applications? They could ask for a million dollars a year, but they don't. When their future rides on it, students honor the economic truism that labor demand slopes down.

The rest of the book is excellent, but would have been worth the read for that statement alone. Raising the wage, ceteris paribus, lowers employment.

FDA claims more lives...to its own benefit

It's hard to argue that the FDA does anything but kill sick people for the sake of politics. Here is a sad update on a legal case against them, provided by Alex Tabarrok at Marginal Revolution. Below is the cut and paste from the link:

Last year the Abigail Alliance won a stunning decision from the DC Circuit Court of Appeals that dying patients have a due process right to access drugs once they have been through FDA approved safety trials. Here's a sad update from Kerry Howley writing in the Aug/Sept. issue of Reason Magazine (not yet online):

After last year's ruling in the alliance's favor, the FDA argued that the group no longer had legal standing to sue it, since none of the patients who had signed the original affidavits were still members. They were all dead.