Thursday, May 13, 2004

Fight Obesity with small clothes?

Mike says in response to a previous post:
Your stats still don't address Mr. Lutz's point. We ask car manufacturers to change their cars, because people won't change their consumption patterns. Yet if you do that for clothing, it just sounds ridiculous.

Sure it's a market failure. Mr. Lutz's point is that you are trying to solve it in a way that would be laughed at if applied to other problems.

As I say in the post, and I am begining to be a believer in it, this is not just a market failure. It is a market that happens to be screwed up. The standard response of getting the prices right would help, but not solve the problem. What I mean by it is this: Yes, gas prices will need to go up for consumers to start demanding more fuel efficient cars. At the same time, the more fuel efficient cars cost more, and it is not clear how high the gas prices need to be to stimulate the market, but my data shows that gas prices need to be about 3 dollars a gallon or above. Now, if you calculate the amount of externalities, the so called optimal level of taxation is around 1 dollar per gallon => a gas price of about 2-2.5 per gallon.

You would agree with me that Obesity is bad, and is a problem. As I said, the solution is not to get smaller clothes, but it is not to get fat in the first place.

Reducing the size of the cars and trucks is only one of the ways by which you can improve fuel consumption. However, it is by no means a wrong way of doing so. There is no doubt that cars and trucks in the US are heavier and bigger than anywhere in the world. The average occupancy is 1.3 or so. Do you really need to be surrounded by 5000 pounds of metal in order to feel safe? The correct answer is NO! SUVs are no safer than some of the large cars. Trucks are in fact less safe to drive.

There is a reason why Bob Lutz wants to sell bigger, heavier and powerful vehicles. If you look at where GM is making money, it is by selling there trucks and SUVs, where they are earning profits of up to 10,000 dollars per vehicle (YES, it is true!). On the other hand, they are actually subsidizing the sales of smaller cars like Cavalier by about 500 dollars or so.
No time right now to post links to all the supporting material.


Blogger Anup said...

Mike and John make some comments that I think bring up some technical and economic issues, which are as follows:

* Why regulate fuel economy of cars and light-trucks?
* Consumers are willing to pay things other than fuel economy.
* Much higher taxes or road pricing would reduce driving but they would never pass.
* How much weight can cars lose?
On a much broader level, I think that they are really asking the following question:
* What do we do with the conundrum of consumption?
I will answer these questions over the next few days and weeks once the May Madness® is officially over.
Briefly though, and I have said this before: Reducing the weight and size of the vehicles is only ONE OF MANY ways in which the car manufacturers can improve fuel economy. It is by no means a bad way of doing so. It is not occuring because lightweighting is expensive (Aluminum costs much more than steel). Toyota and Honda have consistently built vehicles which match the performance and amenities of the american vehicles, and deliver better fuel economy. The fact that GM and Ford have effectively lost out in the market for cars (and in many respects have given up on the cars market) proves it.
I will say this again:
Market for fuel economy (not vehicles) is screwed up due to a variety of reasons. It will not be straightened up by:
* Technology alone
* Regulations alone
* and by the curent market forces never.
More later.

10:56 AM  

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