While the systemic model, with its top-down, consequentialist policies put in place specifically to produce stability, often produces stability over the short run, it at least as often produces unimaginably wild instability over the long run.
This is a problem that crosses platforms. A common analogy is the fires in managed forests. While top-down policies designed to systematically control and extinguish small fires prevent problems in the short run, the lack of fires to clean out the dried brush ultimately leads to uncontrollable infernos.
I am more likely to write about an almost identical problem on this blog: the Federal Reserve. While top-down policies designed to systematically control and extinguish market phenomena like inflation and unemployment often allow for stability in the short run, the lack of market responsiveness ultimately leads to catastrophic crashes, runaway inflation, and heavy unemployment.
This is something that I have been thinking on quite a bit recently, and I have come to the conclusion that we have to embrace the chaos. Ultimately, we’re in for a wild ride no matter what, so why delay the reckoning? Let’s deal with the problems in incremental and manageable ways, preferably at the level of the individual. The only alternative seems to be waiting for intractable problems later.
The reason I bring this up now is because Motor Trend magazine recently published an article called “The Beginning of the End of Driving.” Read the following excerpt and try to tell me you remain unworried about the systemic vulnerabilities.
Continental plans to have autonomous assistance available for limited freeway driving and for construction areas by 2015, says senior vice president Ralf Lenninger. It will add low-speed city capability in 2017, followed by two-lane highway and country road driverless car technology about the end of the decade. The company calls this “the car you can’t crash,” and it will meet the company’s goal for a zero-percent accident rate.
Check out the specifics of what the Canadian auto workers are demanding this time around:
We’re not sure if the union asked for everything hoping they could at least get half, but most of the ideas have little chance of leaving the printed page: the government should maintain minority stakes in automakers, devalue the Canadian dollar, secure manufacturing commitments from automakers, examine the feasibility of a Canadian carmaker and halt free-trade negotiations with the EU and other carmaking nations like Japan and Thailand.
Nationalizing private industry? Check. Destroying the country’s currency for the benefit of a few privileged workers? Check. Forcing manufacturers into inflexible, unsustainable policies? Check. State-owned competition against the very companies they’re “negotiating” with? Check. Protectionism against the consumer for the benefit of a few privileged workers? Check.
In the meantime, the Canadian doctors union has been prescribing cyanide to poisoning victims, the Canadian firefighters union has been spraying kerosene on open flames, and the Canadian government workers union calls for more corruption in politics.
The worst part? These ridiculous demands are in response to GM moving Chevrolet Impala production from one assembly line in Oshawa to …another assembly line in Oshawa. One that was just given a $68 million investment to increase flexibility and efficiency.
When will they learn?
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.
Apparently the 2011 Volkswagen Beetle, which is a carryover from 2010 and is not changed in any way, has failed to meet new NHTSA safety regulations. How to address the issue I suppose depends on whether you are a regulator or have common sense.
But remember, these regulations are here for our protection!
The fix? To replace the non-compliant vehicles with ones manufactured before September 1, 2010. In other words, the replacement cars still won’t meet the new safety regulations, but didn’t have to at the time of their manufacture because the rules had yet to come into force. Seriously.
The end result may not make occupants of the 27 affected units any safer, but at least they’ll be on the right side of the red tape.
That’s some nice work there, Lou.
Despite the fact that xenophobia coupled to defunct economics is the driving force behind the “buy America” or “made in America” movement, it has no shortage of followers. The idea, of course, being that employing millions of people here to screw stuff together and then charging more for the end product is somehow better than moving those people to skilled jobs, outsourcing the mindless work, and then enjoying the higher standard of living that comes with cheaper products. After all, why bother with a high standard of living when it means that people who dropped out of high school don’t get the opportunity to make $70 per hour sweeping floors for the union?
And beyond that, the whole economic concept is backward. We ship these jobs overseas so that we don’t have to do them; what we import we import because we can. The idea of the “trade balance” as an indication of the relative economic power of a country is so outdated that it belongs more in mercantilist 17th century Spain than modern America. I know it is difficult to put the concept to rest because of the visceral reaction many people have to its nationalist implications, but it is so far beyond good sense that it constantly surprises me how so many people think it important. In no place is this sense of importance greater than in automobile manufacturing.
I suppose, then, that I should be less than surprised that MSN is offering up yet another article about it, entitled “Do You Really Drive an American Car?” I’d rather not split hairs about what makes a car “American” (which bafflingly includes Canada but not Mexico, or Central America, or South America), but I do think it’s important to point out the fact that the lines are so completely blurred these days that the idea of an “American” car is about as fluid as Washington’s definition of “fiscal responsbility.” That hasn’t stopped some people from drawing lines:
What most people see as “American” cars, the UAW does not. It bans Hondas, Toyotas, Volkswagens and all other foreign-branded cars from union property, as well as those cars from Detroit’s Big Three automakers for which final assembly occurs outside U.S. borders…
Okay, so nothing that is foreign branded is allowed. What about the Honda Accord, with 80% American-sourced parts, built in Alabama or Ohio? Even MSN has noted that it seems like that’s more American than the Corvette, with only 75% American parts, albeit assembled in Kentucky. And of course, the ostensibly American Buick Regal is built in Germany with 21% American-sourced parts. When compared with the stated cause of the “buy America” crowd, it is inane to write off the Honda. Its production involves many thousands more American jobs than the other cars. And the idea that the money “goes back to the headquarters” is similarly ridiculous; it’s a public company. If you want Honda to be a domestic manufacturer, buy the stock.
But domestic branding is only part of the equation. It has to be screwed together here too, for some inexplicable reason. A domestic-branded car, like the Lincoln MKZ, which is assembled in Hermosillo, Mexico, is also not considered “domestic,” and thus excluded from UAW parking lots. But what if all of the parts were sourced in the U.S. but it was screwed together in Tijuana? How is that worse than having all the parts for a domestic-branded automobile made in China but screwing the car together in Flint? What is it about assembly jobs that makes them sacrosanct?
Obviously, the answer should be “nothing.” But the fact that auto assembly jobs are so fiercely protected reveals two very important truths.
First, the job priorities of the “buy America” crowd are simplistic and counterproductive. Auto assembly jobs are more demeaning, lower paid, less fulfilling, and more dangerous than the jobs that replace them when they are outsourced. Take Apple’s iPhone for instance. Which jobs would you rather choose from? In America you might design computer chips, manage the supply chain, write software, analyze data, render product designs, engineer phone parts, and audit the company. In China, you get to screw the phone together and …well, that’s it really.
Second, and the greater point, is that it highlights the economic stupidity of the mercantilist view of the trade balance. Remember that, in the ultimate trade balance tally, those aforementioned iPhones are being “imported” into the United States. But what’s the relative value-add? When you could train monkeys to screw these phones together, the total value of the assembly work is justifiably only a tiny percentage of the value of the phone. And why would we choose to pay more for so little value?
What really goes into the products doesn’t necessarily go into the trade balance accounting. By way of further example, one of America’s greatest manufacturing strengths is in the semiconductor sector. AMD exports 87% of its products; Qualcomm ships out 94%. What comes back to America is what cheap foreign labor put into a box and glued together. However, that final product is invariably more expensive, given that most consumers don’t find bare computer chips to be all that useful. Meaning the trade balance is skewed. This seems to be a lesser point to everyone but macroeconomists and union bosses.
So when it comes to our manufactured products, we should be asking more pertinent questions than whether it is “made” here. Where is the expertise? Where is the value-add? Where is the heart and soul of the product? It is not in the assembly, and I cannot fathom why we should want it to be.
What more can be said about ethanol? It creates greater amounts of greenhouse gases than gasoline, it pushes up the cost of food, it often takes more energy to create than you get from burning it, it causes massive distortions in the marketplace, and it costs billions upon billions of dollars in wasteful subsidies. Both radical environmentalists and conservative Republicans have banded together to highlight the myriad flaws in logic and politics implicated by the ethanol mandate.
Which is why it’s good news to see carmakers finally get in on the act. Usually government patsies, the carmakers are finally starting to push back with a lawsuit against the EPA for mandating E15, or a 15% ethanol mixture in gasoline. According to Autoblog’s Jeff Glucker,
The fight against E15 is heating up as a group of automakers have joined together to file a lawsuit that seeks to overturn the Environmental Protection Agency’s decision to make available higher blends of ethanol for newer vehicles.
The groups are looking to overturn the EPA’s decision to grant a partial waiver for E15. Besides the environmental and possible vehicular effects that E15 can cause, the idea that the EPA can even grant a partial waiver is also being questioned.
In other words, this isn’t a lawsuit that would cure the problem. Best case scenario, it would somewhat curtail the power of the unelected bureaucrats at the EPA and slow the as yet uninterrupted rollout of ethanol. However, given the regulatory climate lately, these are not insignificant goals. While we wait for momentum to build for the removal of ethanol subsidies, which will take cooperation from more or less every politician not in the corn belt, the least we can do is throw up every obstacle possible.
Also of interest to me, as a classic car owner, is the fact that E15 damages engines. Of course, ethanol is corrosive to any engine, but modern cars have been built to better cope with its deleterious effects. Less than a decade ago, however, no car was built to run on this poison, and God help you if you own a classic. According to Popular Mechanics:
Just about every gallon of gas pumped today contains as much as 10 percent domestically produced ethanol. Gummed-up fuel systems, damaged tanks and phase separation caused by stray moisture infiltrating fuel systems have plagued many consumers since this mixture debuted, and the problems will only get worse if government policy to increase the proportion of ethanol to gasoline is implemented.
Sounds like the basis for another Washington success story to me. Read the Popular Mechanics article to see how your engine is being eaten from the inside.