Thursday, August 25, 2005

CAFE, Hybrids & Gas: Economic Sins Against the Poor always suffer most?

Sum: Minimum "efficiency" regulations act like a minimum wage and hurt those that are the most vulnerable in our society. Efficiency regulations should be abandoned, letting those that care and can afford higher efficiency to pay for such on the market without government interference.

No, CAFE is not a new hip type of Coffee; nor place to imbibe such. However, it is an acronym for the gas mileage regulations car makers must abide by. Given RTs recent post, along with the recent spike in gas costs, and a recent NYT article about the increasing role economists play amongst environmental groups, I thought a short article was in order. Disclaimer: I'm not an economist and I'm sure my reasoning has been written about, with better evidence and detail, in other places.

CAFE requires cars and "light trucks" (i.e. vans, SUVs, non-18 wheeler trucks) to meet certain minimum mile per gallon gas requirements. Great idea, right? Save the environment, right? Well...maybe, although it certainly doesn't help the poor. Why?

Rich folks can afford more expensive gas and/or more expensive vehicles that get better gas mileage much more effectively than poor people can. CAFE standards effectively increase the overall price of a given vehicle by a set amount [Note: following numbers are representative only, not meant to be realistic]. This is an upfront cost that most poor folks are least well equipped to deal with. If Car A would cost 10k w/o CAFE regulations, and get 25mpg, it would cost (for example) 12k in order to meet the 30mpg cost. Poor man Joe will find it much easier to pay the extra cost for gas on a monthly basis than paying an increased amount to buy outright, or borrow, for the car upfront. In an unregulated world, those that care about MPG can also choose to buy Car B, which costs 25k and gets 50mpg (my Toyota Prius).

Theoretically, the government could set a car CAFE level of 50mpg. This would effectively force all car makers to license Toyota hybrid technology and force all car buyers to pay 25k (instead of 10-12k, for example) for vehicles. Again, the poor get the short end of a very heavy stick.

This was recently highlight by the NYT, where they talk of how a "green" group convinced Congress to require higher energy efficiency standards in air conditioners. The increased cost per unit? $300. However, consumers would save slightly over $300 over the life of the air conditioner (at current prices). Congress of course bought it. Sad. Frankly, the folks in my congregation who are poor would probably much rather pay a few extra dollars a month in air conditioning costs in the summer than pay $300 extra up front.

When will Congress learn to let the market make these decisions rather than imposing harsh de jure taxes on the poor?


Blogger Clark Goble said...

Don't most people get loans for cars? Further don't the poor typically buy *used* cars?

I guess I just don't see this line of reasoning. (Also, it didn't cover all SUVs, just light SUVs)

9:53 AM  
Blogger W. Lyle Stamps said...


Yes, most people take out loans. However, poor folks tend to have lower credit scores and hence, pay higher (sub-prime) interest rates on the loans. This holds true regardless of whether they buy used or new.

Yes, the _New_ CAFE changes only affected light SUVs; which are all but 50,000 vehicles, fyi.

The point is re: CAFE standards in the first place. W/o them, some cars would have lower mileage, but be cheaper, and hence, more affordable for poor folks.

10:42 AM  
Anonymous harpingheather said...

We have a responsibility to the Earth. Hybrids and fuel efficient cars are one way that we are starting to use to live up to that responsibility. The problem with your supposition is that we tend to be short-sighted and self-centered. The Rich(er) family is not going to buy car B. They are going to buy cheap car A simply because it is cheaper. They'll use the money for a vacation or perhaps a child's college education.

Sometimes the only way to get necessary changes made is to regulate them. The real questions to be asking are why do we have to pay more for fuel efficiency? Why do we have to regulate it? Isn't fuel efficiency something that should be the holy grail of the car industry?

1:39 PM  
Blogger W. Lyle Stamps said...

HH: If fuel efficiency were the holy grail, more car makers would be trying for it. I know there is a conspiracy theory, or two, out there...but I don't buy them.

You may feel that you have a responsibility to the earth, and I know I do (I drive a Prius and a motorcycle that gets great mpg), but...that doesn't mean we can impose our responsibility on others. Frankly, I care less about what the rich family does. Whether they do buy the more costly car or go for a college education doesn't matter. What does matter is that they have the _CHOICE_ to do so; one that isn't made for them.

However, if the choice was only made for the rich folks...I would have a lesser problem with CAFE standards and other regulations. They can more easily absorb the cost. Poor folks _NEED_ to be able to _Choose_ which purchase they would rather make.

3:05 PM  
Blogger RoastedTomatoes said...

Lyle, I agree that we're dealing with a conflict among multiple important goals here. It's important to reduce emissions, but it's also important to help the poor meet their transportation needs cost-effectively. As Lucy Mack Smith might say, we can't let one important goal (acquiring the faculty of Abrac or increasing fuel-efficiency) get in the way of other important goals (working for a living or making sure that the poor can meet their transporation needs). Okay, forgive the treasure-digging "humor" there...

Furthermore, I agree that regulations which tend to increase the cost of high-end vehicles will also drive up the cost of low-end vehicles--standard supply-and-demand stuff. Likewise, driving up the cost of new vehicles will tend to drive up the cost of used vehicles. So CAFE standards should be expected to increase the cost of cars across the board.

One approach to this is to say that the costs of CAFE on the poor are unacceptable, so we've got to cancel CAFE. (I think this is Lyle's approach.) The problem with this is that anulling CAFE altogether is a very blunt instrument for addressing its impact on the poor; most people in the car market in the US are not poor.

But, you might ask, are there other alternatives that meet both the goal of reducing emissions and the goal of helping the poor economically meet transportation needs? But of course! One possibility is to offer a special car-purchase tax credit for the working poor that would offset the price hike in cars associated with CAFE. This addresses Lyle's concern for the poor but also helps with the emissions problem.

A second option is to put a bunch of money into high-quality, inexpensive public transit, allowing more people at the lower end (and possibly other parts) of the income spectrum to comfortably drop out of the car market altogether. This would do even more to reduce emissions than CAFE does in the first place, and it would make sure that the poor are not burdened.

In other words, with some creativity, we can find policies that maintain CAFE's fuel-efficiency standards while simultaneously avoiding economic burdens on the poor!

6:48 PM  
Blogger W. Lyle Stamps said...


1. Inexpensive, high quality mass transport is a pipe dream. I love the DC Metro; however it is far from inexpensive and is heavily subsidized and comes closest to what you describe.

2. Another example is Amtrack. is even more dismal in being inexpensive and benefits mostly the middle to upper middle class who use it to commute between the NE cities.

3. Have to think more about the car buying tax credit. Not sure how this would work. Seems like a give away to the poor; which would be politically unworkable regardless of its merits.

4. CAFE might be a blunt instrument to help the poor; but helping the poor is only one benefit of removing undue government influence. If we are really serious about saving the environment; then we will force companies to pay for the externalities that aren't part of their bottom line. CAFE standards are a horrible way to do that.

8:14 AM  
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9:55 AM  
Blogger Stephen said...

Darn spammers, at least they are free market ;)

Seriously, though, check out the cheapest Honda Civics.

The problem is, the poor always suffer. However, if you work in the price of gas, what you are doing is limiting the sufferring as much as you can.

As for the air conditioners, must be why Texas has a flood of them at under a hundred dollars -- and very energy efficient too.

6:00 PM  

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