Loyal UP reader Dink sends me this article that I sent him a couple days ago about a new law from the US Department of Transportation mandating rear-visibility cameras in new cars in 2018. A few things to mention, based on this article entirely:

  • This law will cost more than its benefits, according to the government’s own calculations.
  • This could give people a fall sense of security and be even more reckless in that they are now assuming they will see anything behind them. Because of this, estimates of lives saved could be overstating the benefits.
  • It’s hard to put a $ value on personal liberty when thinking about a cost-benefit analysis like this. For something like airport security, in a hypothetical world where we had perfect information, we could weigh the costs of the extra time and staffing extra security takes and weigh it against the (alleged) lives saved and see if it’s worth it. But of course the analysis shouldn’t stop there. We value personal liberty, and we can’t put a dollar value on it.
Take this hypothetical: I have this new law up my sleeve that will a) reduce our dependency on foreign oil, b) reduce greenhouse gases by making cars perform at a more fuel-efficient level and c) save possibly thousands of lives per year. Sounds good, right? Well this law is mandating a national speed limit of 40 miles an hour. When evaluating the cost-benefit of this law, we don’t stop at the benefits of a, b, and c and weigh it against the value of the extra time spent under this new speed limit. We place value on the ability to go a speed limit that might be inefficient by fuel standards, dangerous, and decrease our energy security. Similarly, if the NSA actually saved lives through its monitoring, we wouldn’t just analyze the cost of the NSA vs the lives saved.
The point is that we value personal liberty, everyone values it in different magnitudes, and not including it in an analysis like this is misleading. The explicit cost of this law might only be between $44 and $142 per car, but the mandate in itself is not an insignificant cost.

When an individual/firm’s actions affect people other than those immediately involved in a transaction, economists call this an “externality.” To correct a negative externality, in theory, a government is to impose a tax in order to shift the supply curve as shown (vaguely) below:

This way, the actual social cost of the action will be taken account of. When there is a positive externality, there will be underproduction of the good/service and governments should subsidize the good.

Well take the case of the negative externality of a driver going faster than the speed limit. In this situation, the driver is endangering others on the road that have no control over how fast the driver goes. To correct this externality, we impose fines – speeding tickets. This is meant to at least bring the level of speeders closer to the “socially optimum,” since drivers will now face a higher cost – the possibility of a speeding ticket – and be less likely to speed. The ticket is meant to deter the speeder.

Would a $50 dollar ticket deter a billionaire? Similarly, would a $50 fine for anything really deter a billionaire? As such, is it more appropriate to base fines like these off of personal income of the individual? Otherwise, the intention of deterring negative behavior will be very weak (or overly strong for poor people). This could lead to dangerous policies and I’m not sure the government as the competence to correctly enact such a system. But I still think it’s an interesting idea.

I’m so glad our government made sure that this company stayed in business.

As queen of the progressive blogosphere Arianna Huffington reflects on President’s Obama’s term one year after election, Greg Mankiw reflects on the contradictions between Obama’s attitude towards the auto bailouts in June and what’s happening now.

Obama, in a speech June 1st:

What we are not doing — what I have no interest in doing — is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They — and not the government — will call the shots and make the decisions about how to turn this company around.

Compare this with what is going on now:

In May, even before the government’s ownership became official, lawmakers erupted when GM disclosed it planned to produce a new subcompact car at its factories in China. Under congressional pressure, GM dropped those plans and promised instead to retool an existing U.S. facility in Michigan, Wisconsin or Tennessee for the new model.

Lawmakers from those states demanded and received high-level meetings in Washington to quiz GM on the criteria for site selection and to tout their states. GM in the end picked a site in Michigan.

That same month, GM dealer Pete Lopez in Spencer, W.Va., received notice that GM was giving him just over a year to shut down his Chevy, Pontiac and Buick dealership, which he’d acquired two years earlier. GM’s move to shutter more than 1,300 dealerships — about one-quarter of its network — was central to its restructuring because it cleared out underperforming showrooms and brought the network more in line with its shrunken sales.

With an assist from his mayor, Mr. Lopez took his complaint straight to one of his state’s senators, Jay Rockefeller, the Democratic chairman of the powerful Commerce
Committee.

Sen. Rockefeller sent a letter to GM headquarters on Mr. Lopez’s behalf, according to a staff aide. He arranged for Mr. Lopez to come testify before a Senate panel in early June, alongside GM Chief Executive Frederick “Fritz” Henderson. The senator introduced the two men, giving Mr. Lopez a chance to make a personal pitch.

“He couldn’t have been nicer,” Mr. Lopez said of the GM CEO. “He said to me, ‘We’ve made some quick decisions and now we’re going to look it all over again.’ ”

The GM chief executive put Mr. Lopez in touch with Mark LaNeve, then the company’s top official for North American sales. The dealer received a response on the last Saturday in June while fishing on a lake near his house.

“Mr. LaNeve called and said, ‘I’ve got some good news for you. We’re going to save your dealership,’ ” Mr. Lopez recalls. He says he owes it all to Sen. Rockefeller.

Joseph Stiglitz, in Globalization and Its Discontents, was definitely on to something when he criticized developed countries for preaching liberalization of trade and then hypocritically sheltering themselves behinds walls of protectionism. Developed countries subsidize certain goods – think of agricultural subsidies in America – to crowd out foreign competition, or they can enact tariffs that make foreign goods more expensive and have the foreign goods effectively lose their comparative advantage.

President Obama recently practiced such hypocrisy by enacting a 35% tariff on low-grade Chinese car tires. As The Economist points out,

The number of jobs affected is barely a rounding error in measurements of the mighty American workforce…But in geopolitical terms, it is a whopper.

I shant go into much obvious detail about the actual net job gains from free trade, so I’ll elaborate on the second point of The Economist’s point: the political consequences.

The infamous Smoot-Hawley Tariff Act was passed in the midst of the Great Depression in an attempt to revive the American workforce. Accepted economic wisdom regarding Smoot is that it not only didn’t solve unemployment, it made it worse. The same situation could occur with this tariff on tires. China could start a trade war and impose tariffs on American goods. Suddenly, one retaliation leads to another and the walls of inefficient protectionism begin to grow larger.

The possible trade war is also accompanied by the increasingly hypocritical reputation of America in terms of trade liberalization. Why would anyone listen to American recommendations for free trade when they don’t practice it themselves? Whatever happened to Obama’s cry of restoring America’s credibility around the world?

Several news sources have pointed to political pressure from the United Steelworkers Union in order to get support for healthcare reform, but I haven’t seen any concrete evidence for that so I won’t believe it just yet.

Obama should be calling on all countries to lower trade barriers. But he’s got to practice what he preaches.

They made cars people thought were inferior, but we kept them artificially viable for decades. Then we bailed them out because they hired so many people. I wonder if the environmentalists will criticize Obama for giving GM “bridge loans” and second and third chances after this.