To: TimF who wrote (222 ) 6/20/2005 5:05:51 PM From: Road Walker Read Replies (1) | Respond to re: I don't think government intervention to raise or lowers the price for some goods over some other goods, frees up capital for productive uses. In fact to the extent it causes people to have goods that they wouldn't want as much without the intervention it reduces the productivity on the capital. Giving people what they don't want isn't productive, giving people what they don't want as much isn't an increase in productivity. So I would count this part as a downside not a cost. I think it would put downward pressure on the price of oil, but I'm not sure it would result in any great decrease of the prices for oil and gasoline. American oil consumption is only part of the world market, and while out share of consumption is fairly large, it is also shrinking. So while there is a benefit here, I think it is smaller then you apparently think it is. without a decrease in demand. Through the roof?I don't think there would be any great increase in new industries or high paying jobs for the middle class. There is also the direct pain/punishment inflicted on those who buy cars with less than the average fuel efficiency. If you avoided this by only pushing the subsidies and not the taxes, you would just be dispersing the pain through the whole population of taxpayers. It also hits large families, church groups, car pools and van services that use vehicles that get good passenger miles per gallon, even while they have poor official gas mileage figures. If it applies to trucks then it also hurts those who transport goods, if it doesn't then you may be surprised with how many people buy trucks to avoid the tax. Another possible downside is that this move would probably hurt domestic auto manufactures who compete better with large cars and SUVs then they do with smaller vehicles. To the extent your plan does increase demand for smaller vehicles and reduce demand for larger vehicles there may be a decrease in safety. Also to the extent that you get such a demand shift you put some upward pressure on the price of the small vehicles and some downward pressure on the large, not enough to cancel out the effect of the tax credits and increases but enough to reduce the effects that you are looking to get.
