Author Archive

Sen. Clinton’s Untimely Proposal

As a means of conserving oil, Sen. Hillary Clinton wants Uncle Sam again to mandate a maximum speed limit of 55 MPH. Presumably she’s aware that lowering the speed limit will cause us to spend more time on the roads and less time at our destinations.

But on her website, Sen. Clinton expresses concern that Americans are strapped for time: “Today’s families are often stretched thin – working to make ends meet while also trying to carve out time to care for their young children and aging relatives.”

Assuming consistency across her various policy positions, we can conclude that Sen. Clinton is confident that the value of the time that a 55 MPH speed limit will force us to waste on the roads is worth less to us than oil we’ll save by driving more slowly.

Let’s explore. Assume that the typical car on the road today gets 25 miles per gallon on the highway and that a gallon of gasoline costs $3.00. Further assume (rather generously) that driving more slowly will increase the typical car’s fuel efficiency from 25 mpg to 35 mpg.

On highways where the speed limit currently is 75 MPH, reducing the speed limit to 55 MPH will cause a driver to cover 20 fewer miles in one hour of driving. To travel these 20 miles at 55 MPH will take 21.82 minutes. That is, the distance a driver covers in one hour driving at 75 MPH requires 81.82 minutes to cover while driving at 55 MPH.

At today’s average hourly wage rate for non-supervisory workers of just over $16 — but let’s call it an even $16 — this 21.82 minutes is worth $5.82. (That is, working at a wage rate of $16 per hour, a worker will earn $5.82 in 21.82 minutes of work.)

But how much does the driver save, fuel-cost-wise, by driving more slowly?

Driving at 75 MPH (and getting 25 mpg) costs the driver $9 of gasoline per 75-miles driven. (Remember that gasoline is priced at $3 per gallon.) Driving at 55 MPH (and getting 35 mpg) costs the driver $6.42 of gasoline per 75-miles driven.

In short, for every 75-miles covered on a highway, reducing the speed limit from 75 MPH to 55 MPH will save a driver $2.58 in fuel cost — and this assuming that the increase in fuel efficiency of the average car caused by the lower speed limit is a whopping 10 mpg. But the resulting greater time on the road will cost a driver earning the average non-supervisory wage $5.82 worth of his or her time per 75-miles driven.

The net cost to the average worker driving the average car will, under the above reasonable assumptions, be about $3.24 per 75-miles driven. Not a good deal, Sen. Clinton.
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Here’s a challenge for a clever student: assume (as is reasonable) that an enforced speed limit of 55 MPH will cause the price of gasoline at the pump to fall. By how much would it have to fall (under the above assumptions) in order to make the $$$ saved on gasoline exceed the $$$ value of the extra time spent driving?

Constitution Going to the Dogs

I realize that what I’m about to ask is the intellectual equivalent of taking your date to a monster-truck rally, but where oh where in the U.S. Constitution is the national government empowered to govern the treatment of pets?

The New York Times has some details.

Do Senators Stevens and Lautenberg — who introduced the Pets Evacuation and Transportation Standards Act into the U.S. Senate — and the 349 U.S. House members who’ve already voted for this bill, understand what they did when they pledged to uphold the Constitution? Did they read the document? Are they illiterate? Dead-dog stupid? Or are they simply, well, politicians?

This Man Should Quit Politics and Become an Entrepreneur

Rep. Sherwood Boehlert (R-NY) believes that government must force automakers to increase the fuel-efficiency of the vehicles they sell. Here’s part of a letter that he has in Saturday’s Wall Street Journal, explaining:

Your editorial opposing fuel economy standards (“Not So Grande CAFE,” May 8) that the standards amount “to the government dictating the kind of cars Americans will be able drive, even if those cars aren’t safe on the road.” This is wrong.

First, the goal of fuel economy standards is to enable Americans to drive the cars they want — but that the automakers aren’t producing. And what Americans want is the full range of vehicles available now, including SUVs, but with greater gas mileage. The technology exists to create those vehicles affordably, car buyers want them, and the nation needs them. The fact that they are not on sale is a classic market failure.

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Rep. Sherwood Boehlert (R., N.Y.)
Chairman
House Committee on Science
Washington

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Rep. Boehlert whips the term “market failure” about too cavalierly. The believable existence of genuine market failure requires an institutional setting in which a significant number of individual decision-makers each bears too few of the consequences of his or her choices — such as when, for example, an owner of a factory upstream pollutes a river in ways that harm downstream owners of riverside land because downstream owners have no effective way to enforce their property rights to an unpolluted river.

But the situation decried by Rep. Boehlert has none of the institutional prerequisites for “classic market failure.” If a sufficient number of consumers truly are willing to pay for more-fuel-efficient cars (as Rep. Boehlert asserts), surely at least one of the 20-plus automakers now supplying new cars to the U.S. market would discern this fact — and, out of pure self-interest, act to satisfy this consumer demand. After all, if increasing a car’s fuel-efficiency would cost an automaker $X and if consumers are willing to pay $X+Y for such a car, then profits are to be had satisfying this consumer demand.

Rep. Boehlert doesn’t divulge in this letter his source of information about this alleged consumer demand, but surely now that he’s unearthed this valuable information, automakers will act on it voluntarily — assuming, of course, that the information’s source is credible.

Alas, I suspect that Rep. Boehlert’s source of information on this point is not credible — for, again, if Rep. Boehlert’s claim were credible, automakers wouldn’t have to be forced by government to satisfy their customers’ demands.

The arrogance and conceits of Rep. Boehlert and his ilk make me want to vomit.

A Deficit of Understanding

As readers of my regular blog Cafe Hayek know, I’m obsessed — perhaps even too obsessed — with straightening-out the widespread and deep misunderstanding of the so-called “trade deficit.” One blog-post is no place to review this misunderstanding, much less to correct it. (I recommend this essay as a place to begin if you’re interested in learning the rudiments of this concept.)

But let’s review just one simple point: if the U.S. trade deficit (more properly called the “current-account deficit”) increases, this fact means that foreigners are investing relatively more in the United States — investing more in dollar-denominated assets — than Americans are investing in foreign assets.

Here’s a letter that I sent today to the Wall Street Journal, exposing (or so I fancy) an especially egregious instance of this misunderstanding:

25 May 2006

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

Dear Editor:

AFL-CIO Secretary-Treasurer Richard Trumka says that an undervalued yuan increases both America’s current-account deficit with China AND “the flood of investments by U.S and other multinational companies” into China (Letters, May 25).

This allegation reveals Mr. Trumka’s colossal misunderstanding of international-trade concepts. America’s current-account deficit with China grows as the volume of Chinese investments in America increases relative to the volume of American investments in China. How can the price of the yuan (or anything else!) cause Americans to invest less in China and more in China simultaneously?

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Were Gasoline Prices Too Low in 2002?

I’m delighted, and honored, that Wally Olson has invited me to guest blog at Overlawyered.
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I’ll write a few posts on the recent rise in gasoline prices. I begin, though, with a remembrance.

In early 2002 I testified twice before two committees of the Virginia legislature. The solons of this Great State were considering legislation aimed at keeping the price of gasoline from being too low.

The specific concern was that two regional convenience-store chains (Sheetz, and Wawa) charged prices at their pumps that were unfairly low – so low that mom and pop gasoline retailers of brands such as Exxon, Texaco, and Shell were on the verge of being put out of business.

Of course, the argument included the prediction that once the helpless likes of ExxonMobil, Texaco, and Shell were run from the State, Sheetz and Wawa would share monopoly power over gasoline retailing in Virginia. The only way to avoid this awful outcome, said the mom’n’pops, was for the legislature to prohibit unfair price cutting by gasoline retailers.

Fortunately, sanity prevailed. Virginia’s legislature refused to outlaw gasoline price-cutting. But they did seriously consider doing so.

I relate this story to put the current gasoline-price hysteria in perspective. For most of the past 20 years, whenever Uncle Sam wasn’t at war in the Persian Gulf, the price of gasoline hasn’t been terribly high. A mere four years ago Virginia and several other east-coast states actually took seriously the argument that these prices might be too low.

Things have changed…. and in ways that provide abundant fuel for future blog-posts!