With President Obama’s proposed upgrade of car fuel efficiency standards (government-mandated standards, of course), I have a few bold predictions to make:
1. The administration’s estimate of an average increase of $1,400 per vehicle is far too low. A more accurate estimate would be an extra $4,000 or $5,000, what one would pay extra (at least) for a hybrid car.
2. Materials in cars would move increasingly towards polymers (plastics) and aluminum and away from steel and cast iron. Conventional illumination systems will be increasingly replaced by high-end, expensive LED systems. This could be good news for some small companies in the South, West, and Northeast, but will probably hurt even more the rust belt, which still has a fair share of iron and steel plants which primarily serve the auto industry by producing low-cost, high-quality, ultra-reliable parts. They will be driven out in a hurry. Too swift a movement towards these lighter materials will likely mean a safety problem and almost certainly a quality compromise.
3. The value of some used cars will increase as their demand will as well. A reliable gas guzzling vehicle purchased in 2014 may depreciate lower than one purchased in 2002.
Let it always be remembered that, as Henry Hazlitt would say, a good economist looks for all effects of a certain policy, and a poor economist looks at a narrow window of scope, ignoring the complete picture. Sadly we have neglected wisdom and we continually look to our tunnel-vision minded political machine to set our course for us.