An E-mail response to my op-ed in The Boston Globe provided a link to this article in The New Yorker. It is absolutely fascinating. I prefer you read this even before you read my article. As the piece aptly summarizes: “Sometimes, they know, we need to save ourselves from ourselves”.
My proposed solution to this problem: Increase fuel prices to accurately reflect the true societal cost of burning hydrocarbon fuel, and the market forces will put the pressure on consumers to make more rational choices. That in turn will convince the automakers to change their product mix.
Fuel for Thought
by James Surowiecki
July 23, 2007
In the auto industry, there’s one thing you can always count on: if a new environmental or safety rule is proposed, executives will prophesy disaster. In the nineteen-twenties, Alfred Sloan, the president of General Motors, insisted that the company could not make windshields with safety glass because doing so would harm the bottom line. In the fifties, auto executives told Congress that making seat belts compulsory would slash industry profits. When air bags came along, Lee Iacocca told Richard Nixon that “safety has really killed all our business.” A few years later, when Congress was thinking about requiring fuel-economy standards, auto executives warned that instituting such standards would create “massive financial and unemployment problems.” And now, with Congress debating a bill to raise fuel-economy standards, for the first time in almost twenty years, the Chicken Littles are squawking again, forecasting doom for Detroit and asserting that making higher-mileage vehicles is technologically unfeasible and economically suicidal.
Of course, much of this is simply stonewalling by executives determined to keep meddlesome politicians out of their business. But sometimes the industry’s fears have been founded on real market research. In the case of safety glass, G.M. believed that consumers weren’t prepared to pay more for cars with safety glass, so Sloan worried that it would be hard to recoup the cost of installing it. Similarly, when, in the mid-nineteen-seventies, G.M. offered front-seat air bags as an option on Cadillacs, Buicks, and Oldsmobiles, they didn’t sell. Fuel-economy standards present the same difficulty: although there are plenty of affordable models that get good gas mileage, over the past two decades some of the most powerful and least fuel-efficient vehicles on the market—S.U.V.s and pickup trucks—have also been among the best-selling. Thirty years ago, so-called “light trucks” accounted for about a fifth of all auto sales. Today, even with a recent slowdown, they account for more than half.
Americans may want to buy the biggest and most environmentally damaging vehicles available, but polls show that, given an option, some three-quarters of them vote for dramatic increases in fuel-economy standards—increases that may well force automakers to sell fewer (or at least smaller) S.U.V.s. We buy gas guzzlers but vote for gas sipping. This isn’t because people are ignorant about how higher fuel-economy standards would affect them personally; polls that explicitly lay out the potential trade-offs involved still find support for tougher standards. And it isn’t as if voters and car buyers belong to two different groups; one recent survey of pickup owners found that seventy per cent strongly favored tougher requirements. The curious fact is that many people buying three-ton Suburbans for that arduous two-mile trip to the supermarket also want Congress to pass laws making it harder to buy Suburbans at all.
What’s happening here? Back in the nineteen-seventies, an economist named Thomas Schelling, who later won the Nobel Prize, noticed something peculiar about the N.H.L. At the time, players were allowed, but not required, to wear helmets, and most players chose to go helmet-less, despite the risk of severe head trauma. But when they were asked in secret ballots most players also said that the league should require them to wear helmets. The reason for this conflict, Schelling explained, was that not wearing a helmet conferred a slight advantage on the ice; crucially, it gave the player better peripheral vision, and it also made him look fearless. The players wanted to have their heads protected, but as individuals they couldn’t afford to jeopardize their effectiveness on the ice. Making helmets compulsory eliminated the dilemma: the players could protect their heads without suffering a competitive disadvantage. Without the rule, the players’ individually rational decisions added up to a collectively irrational result. With the rule, the outcome was closer to what players really wanted.
The same phenomenon is, to some extent, at work in the fuel-economy debate. People believe that bigger and heavier cars are safer in a crash (forgetting that, often, bigger cars are also more likely to crash). And people like the fact that driving a higher-horsepower car makes you look better at the stoplight. So our desires as individuals to protect ourselves and to outclass our neighbors encourage us to buy bigger and bigger vehicles with more and more horsepower. And the market doesn’t create counter-incentives that would push us in a responsible direction, since someone who drives a Hummer doesn’t suffer the effects of pollution and global warming any more than someone driving a Prius does, and isn’t charged more for the extra environmental damage.
The results of this size-and-power arms race are easy to see: between 1984 and 2002, the average vehicle got twenty per cent heavier and its zero-to-sixty acceleration improved by twenty-five per cent, while fuel efficiency stagnated. (By contrast, between 1975, when fuel-economy standards were first introduced, and 1984, average fuel economy improved by sixty-two per cent, without any decline in performance.) This is not because of technological difficulties or a conspiracy on the part of the auto industry. It’s because automakers have listened to car buyers, and put their energy into making vehicles bigger and faster, rather than more efficient. In calling for a law requiring better gas mileage in our cars, then, voters are really saying that they’re unhappy with the collective result of the choices they make as buyers. Sometimes, they know, we need to save ourselves from ourselves. ♦