Thursday, September 11, 2008

Kill CAFE Rules and Save Taxpayers $25 billlion

In a thought-provoking opinion piece yesterday, this Wall Street Journal article by Holman Jenkins offers a novel—and to my mind theoretically (but not politically) practical way of saving taxpayers $25 billion+ dollars in Federal loan guarantees:

"For a sum small compared to their revenues but large in relation to their market caps, the Detroit auto makers were all over the two conventions. Their lobbyists had something to sell -- a plea for $50 billion in federal loans. Congress practically owes us this money, Ford, GM and Chrysler argue -- because Congress slammed us with new fuel mileage mandates that will cost us $100 billion to meet.

John McCain caved. The White House is in the process of caving. Barack Obama didn't need to cave. But before rushing to pass the legislation, there's an easy way to save $50 billion or whatever part of these loans wouldn't be paid back: Just repeal the fuel economy rules."

To note: I say in my title here that it's $25 billion, the Journal quotes $50 billion. Smart $ is on the former.

The corollary, according to this classic by my favorite contemporary economist, Greg Mankiw from Harvard, is that rather than burden the OEMs and consumers with CAFE rules that just don’t work, is to permenently raise fuel taxes above where they are now. The following from Mankiw is a must read:

Raise the Gas Tax

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