Category: Economics

Automobile Fuel Economy Standards

Recently, the US passed a new fuel economy standard of 35 MPG. In order to meet the standard, the average of all vehicles produced by a manufacturer for the US market must be at least 35 MPG by 2020. Many have criticized this number as being too small. Others lament the increased cost we’ll see when auto manufacturers must turn to more expensive technologies in order to meet the standard. According to a consumer reports blog posting, this amounts to something like a 70% increase over current real-world fuel economy averages, though it’s more likely that we’ll see closer to a 40% real-world increase because of the silly way that fuel economy is measured when it comes to regulatory compliance issues. This means that the real-world average is going to be about 28.6 mpg, up from the current 22.8 for cars.

An Ancient Conspiracy Unmasked

Many people are convinced that automobile manufacturers are in league with oil companies to keep fuel economy low. Some point to a perceived golden era of 20-year-old cars that were highly fuel efficient. Hearkening back to the glory days of the automotive industry, the first ever Honda Civic was unleashed in 1973 to an amazed American public. The 70cc inline four power plant put out 50 horsepower, propelling the 1500 pound Civic from 0 to 60 in a stunning 19.3 seconds. And it could do all this at 40 mpg on the highway. The 1986 Honda Civic CRX HF did even better, with an EPA rating of 57 MPG ((“57 mpg? That’s so 20 years ago,” Peter Valdes-Dapena, December 20 2007, Accessed Jan 3, 2008)).

Of course, in those days, cars were allowed to pollute a lot more, and they were a lot heavier. There’s the slight issue that those early Civics were death traps, and would never pass muster these days for safety-minded consumers.

“Without the benefit of modern crash structure and extensive use of high strength steel, cars from two decades ago couldn’t match the crash test performance of today’s Hondas,” said Honda spokesman Chris Naughton ((“57 mpg? That’s so 20 years ago,” Peter Valdes-Dapena, December 20 2007, Accessed Jan 3, 2008)).

In other words, the modern engines are much more efficient than the older engines. It’s the cars that have changed, along with catalytic converters which rob the engine of power and efficiency. There’s little chance we’ll go back to the tissue paper construction of those terrifying early Civics.

So if you’re still wondering if the car manufacturers are intent on keeping the little guy down, consider this: the automobile industry is a very competitive industry, with many players domestic and international. Offering an equivalent car with higher fuel efficiency as a competitor will result in higher sales. A conspiracy of this size, with such a huge advantage for defecting, is extremely unlikely. It’s much more likely to postulate a simpler explanation: Genuine engineering trade-offs affect greatly the fuel efficiency that’s possible, and modern emission, safety, manufacturing, environmental, and other standards negatively impact the fuel economy.

High Efficiency in the Modern Era

How are modern automobile manufacturers going to meet the new government demands for higher efficiency? There are several likely technologies that will be pursued, and we’ll probably see a combination of many of them.

First, the most obvious: gasoline/electric hybrid engines. We already see a lot of these today, such as the Toyota Prius, which recently celebrated the 10th year since its introduction. Such cars are much more expensive then equivalent gasoline-only engines, and the extra cost is generally not enough to offset the smaller amount of money spent on gas, even at today’s high gas prices ((The costly secrets of hybrid cars, Liz Pulliam Weston, Accessed Jan 3, 2008)). Still, especially with those average standards looming and with consumers clamoring for these chic accessories, we’ll likely see a lot of hybrids sold before 2020, including likely a new breed of plug-in hybrids which are further along the road to pure-electric.

Second, we’ll likely see the introduction in the US of clean turbodiesel engines, which are both very powerful and very efficient. Diesel has a bad reputation in the US based on the dirty, smelly diesels of the past but modern diesel engines running on ultra-low sulfur fuel are at least as clean as equivalent engines running on gasoline. This is likely to be the choice of a number of higher-end cars especially, as hybrid cars tend to be low on power to achieve high efficiency. Europe already runs about half its new cars on diesel ((“The axis of diesel“, Lawrence Ulrich, Oct 19 2006, Accessed Jan 3, 2008)) to take advantage of about 25 to 40% improved fuel efficiency ((“The axis of diesel“, Lawrence Ulrich, Oct 19 2006, Accessed Jan 3, 2008)). And even better, the extra cost of diesel engines is about a quarter of the premium for a hybrid engine ((“The axis of diesel“, Lawrence Ulrich, Oct 19 2006, Accessed Jan 3, 2008)).

Finally, for all cars, we’ll see more widespread use of turbochargers on gasoline engines, as well as gasoline-direct injection technology. This is a likely way forward for small, relatively underpowered cars at the lower end of the market to be able to meet the standards.

What are we not likely to see by 2020? Hydrogen-powered cars for one. This might make sense in the very long run, especially if we move to nuclear electricity generation in a big way, but this technology just isn’t ready for prime time and auto manufacturers aren’t going to take the risk moving in this direction without the needed fueling infrastructure in place. No, expect good old gasoline and diesel to stay around for a good while yet.

And stop it with the conspiracy theories please?

Does Globalization Exploit the Poor?

I recently had a discussion with my brother’s girlfriend about the benefits (or lack thereof) of globalization, especially with regard to the world’s poor. The argument is often made against globalization that it hurts either US workers losing jobs to lower-wage workers abroad, or that those workers gaining those jobs are being exploited by the companies involved.

First, the second argument. We’ll assume the absence of some sort of totalitarian command economy whereby citizens are ordered to work (possibly at gunpoint) making sneakers or cheap plastic merchandise for export to the west. If someone is working at such a factory, then, it is because they’ve chosen to do so. So why, if the exploitation of these workers is so extreme, do they choose to work in these factories? Well the answer is, as it turns out, really quite simple: the combination of pay and conditions in those factories is better than what they had available before. In fact, it’s typically much better. Take one particularly infamous example, Nike shoe factories. In Vietnam, the “average pay at a Nike factory close to Ho Chi Minh is $54 a month, almost three times the minimum wage for a state-owned enterprise.” ((“The Noble Feat of Nike,” The Spectator, June, 7, 2003, Accessed July 2, 2007)). So are these people being exploited? No! This is the best thing that ever happened to them.

Globalization is like a targeted cruise missile. It will seek out with great precision the poorest, most destitute people on the planet. But instead of killing them, it will give them jobs. If you were to design a program for eliminating poverty, you could hardly do better than a vast, self-sustaining, profitable system whereby the poorest people in the world are provided with jobs.

At this point in the discussion, my brother’s girlfriend changed to a new, rather unusual position. Not only were the workers being exploited, but eventually, the local economy would improve to the point where the western company could now get cheaper wages in another, poorer country. At this point, apparently, the factories would all close and the local people would again be plunged into abject poverty. First, even if this were true, those people would still be better off than they were before because all the abandoned infrastructure built by the western companies would then be applied to new industry. And second, of course this is nonsense; if all the foreign companies decided to all leave at once, the best place in the world to build a factory would suddenly be the place they’d just abandoned. ((I imagine she was picturing a rapidly moving oscillation of western investment, leaving a trail of destruction in its wake))

Certainly there are losers here: in the short run, unskilled labor in rich countries takes it in the pants, though the landing is typically pretty soft compared to the “normal” condition of the poor outside the western economies. This argument seems to be mostly an invocation of the anti-foreign bias. I don’t see why I should be more concerned about US unskilled laborers and those in the third world. Does the fact that a worker does not live in the US make that worker less entitled to those basic needs taken for granted in the US? And the investment of large western firms into these poor economies absolutely, unequivocally makes these workers better off. And the US economy is better off as a whole and on the average as a direct result of this policy as well.

As a whole, the people in western countries need to stop thinking with nationalistic, “us versus them,” mentalities, and start thinking about the world as a global economy. Recently, McDonald’s has launched a program whereby your order in the drive-thru window will be taken not by a worker in the store you’re visiting, but by a worker in a call center located in Illinois. ((“Outsourcing Drive Thru?,” CBS News, March 11, 2005, Accessed July 2, 2007)) Why has there not been a furor over those ungrateful, unwashed Illinois ingrates who are stealing the jobs of fast food workers in other states. The difference seems to be only the color of the skin or the national origin of the people involved. There are not Mexican stealing our jobs, just as there are not Illinois residents stealing our jobs. There are only people in global competition to market their labor services.

There is no greater force for improving the lives of real people in real ways than that of economic development. Foreign aid is a drop in the bucket (and there are reasons to believe it does more harm than good). You can try to rely on a local economic revolution, but this is a slow process and may never occur at all (and may be hindered by local corruption). At stake here is no less than the entire future of the human race. This is too important an opportunity to miss.