House drops tougher auto fuel economy

[Bono]

Ridiculous.

Any hope I had of this Congress accomplishing anything at all is gone.

BTW, in case I missed something, has Congress passed (bill to the President, signed into law) anything regarding the environment, minimum wage, health care, or education? Anything at all?

[Bono]

Sounds like a modest victory for consumers. And a just one.

Because if there's one thing that's good for consumers, automakers, their employees, and the environment, it's the right to put out ridiculous vehicles with sh**tty mileage that almost no one will buy due to high gas prices. If consumers didn't have that choice then they might end up buying an American made car instead of a Japanese one. Hurray!

Why do you think such cars are produced? Firms are always looking to maximize their profits. They don't do that by placing products on the market no one is interested in.

Of course, at a certain price, someone will buy virtually anything. Without getting too abstract and artificial, profit is maximized by producing up to the point where marginal revenue equals marginal cost. Marginal revenue is basically (though not really, I know, due to imperfect competition--it's beside the point) equal to price. The price follows supply and demand. Demand takes into account consumer preferences, which are dependent in part on such things as the price of fuel.

Of course, it does not follow that the proposal at issue was a bad one--though I believe it is. But to pretend "consumers" (admittedly an abstract class) have nothing to lose here is, to be frank, absurd.

Consumers have something to lose: their money, or, in the case of an unsafe car, their life. However, consumers are also supremely ignorant of which cars actually present good dollar value, and which cars are safe, from an accident standpoint, an environmental standpoint, etc. For example, most consumers still rate SUVs as the safest vehicles from the standpoint of survival in an accident, but, due to high rollovers rates in even the most stable SUVs compared to more compact cars, they are actually the least safe.

Consumers will also make irrational choices that are to their disadvantage. A suburban couple with no children clearly has no need for a Ford Explorer and is wasting considerable amounts of money on one, but many of them own one, even today. Other irrational choices include brand loyalty, which is particularly strong in the automobile industry, and national loyalty (i.e., only buying American-made cars for ignorantly nationalist reasons, or, in some instances of sheer snobbery, only buying Japanese or German-made cars simply because they are Japanese or German).

The argument that the consumer knows best and will successfully drive the market towards the most effective products is sorely lacking.

Actually, that's not the argument at all. The argument is that consumers will drive t eh market towards what they prefer. These preferences aren't suitable for interpersonal comparisons.