Home > Unintended Consequences > Great Moments in Unintended Consequences – Number 4438

Great Moments in Unintended Consequences – Number 4438

Pointing out unintended consequences is a bit of a hobby of mine.  On the one hand, I enjoy finding stories like the ones that follow.  On the other hand, it’s incredibly frustrating, because these consequences could have been avoided with just a little critical thought.  Anyway, enjoy part 4,438 of an ongoing series about unintended idiocy:

Tougher Fuel Economy Standards Lead to Worse Fuel Economy?

Autoblog has a post about a new study out of the University of Michigan, which shows that the recent redesign of the fuel economy standards is likely to lead to the building of larger vehicles, and with it, lower overall fuel economy.

A study by the University of Michigan shows that auto manufacturers could meet tougher fuel economy standards simply by increasing the size of the vehicles they sell. A “footprint-based” formula for calculating mileage targets was adopted when Corporate Average Fuel Economy standards were revised in 2007. Researchers now think this could lead to bigger vehicles on the road rather than increases in fuel economy for our nation’s fleet.

“It’s cheaper to make large vehicles, and meeting fuel-economy standards costs [manufacturers] money in implementing and looking at what consumers will purchase,” one of the researchers told Automotive News.

In this case, I do not really mind the unintended result.  I think of a fleet of reasonably-sized cars with relatively poorer gas mileage as preferable to a fleet of tiny, European-style cars with relatively better gas mileage.  I think the single-minded pursuit of fleet gas mileage has led to a decrease in overall driver safety, an increase in price, and general lowering of the standard of living.

Remember that automotive fuel mileage is but a portion of overall carbon and pollutant emissions, and the widespread availability of cars over clearly inferior modes of transit is a huge part of our comfortable living standard.  Cars are really useful to real people, and the balance of harms strongly indicates, in my opinion, that a few more miles per gallon in the fleet average will not produce the overall benefits that regulators assume it will.

Lower Credit Card Fees Lead to Higher Prices?

The Durbin Act that took effect on October 1, 2011 compelled the Federal Reserve to act in its regulatory capacity to cap the fees that

credit card companies charge retailers to accept their cards as payment (“swipe fees”) at a “reasonable” level.

CNBC is now reporting that an industry group has found that lower fees are correlated with higher prices to the consumer.  In other words, by capping the fees that credit card companies could charge retailers, the Fed has failed to induce retailers to pass their lower prices on to consumers.  In fact, in a plurality of cases, prices actually went up.

Retailers have been vocal against the high swipe fees because they said the fees would add to the product prices, and if the fees were lower, they could pass along those savings to consumers translating into lower prices.

Well, its been a little over two months since the Durbin Act has been implemented, so how are consumers fairing? [sic] The Electronic Payment Coalition (EPC) which represents credit card giants, and the regional and independent bankers

…[An EPC spokesperson said] “Our research looked at 21 different retail locations in six different U.s. cities out of those locations. 12 raised prices by five point one percent or kept prices the same, four stores kept the same prices and five stores lowered the price by an average of five point eight percent.

…In the last two months if you at the industry as as a whole, [the retailers] have seen an additional $825m in profit.”

Price controls never seem to work out the way politicians want them to work.  The Durbin Act was not initially conceived of as a punitive act against the credit card companies; rather, it meant to help consumers with lower overall prices.  In the latter it has so far failed.

The incentive on both sides of the regulation (i.e. credit card companies and retailers) is the same: maximize some combination of margin and volume in order to maximize net profits.  I fail to see how handicapping one side would induce the other side to magnanimity.

No corporation I know of will, all else equal, leave money on the table out of the goodness of their heart.  The savings coming from restrictions on card companies will go straight to the retailers’ bottom line.

And in addition to the redistributionist tax/subsidy scheme between card companies and retailers, it seems that consumers are not seeing any benefit.  It might be early to call this bill a failure, but its prospects were never very good anyway.

Read the entire interview for the context and a statement of conflicts.

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