Caught Between a Growth Myth and a Price Doctrine

By Warren Brown
Sunday, December 9, 2007

Dear American Consumers:

We are being taken for a ride, the conclusion of which will leave us in an unhappy place if we allow Congress to continue treating us as children.

I am referring to current congressional thinking on national energy policy, which is based on the Myth of Endless Growth and the Doctrine of Uninterrupted Joy.

The myth assumes we can continue producing and consuming at eternally increasing rates without exhausting materials needed for production and consumption. It is based on the idea that there always is more of something from somewhere to be had in support of our greed.

The Doctrine of Uninterrupted Joy says we have a right to whatever resources are available wherever they are available at affordable prices -- best defined as prices lower than those paid by anyone else.

That thinking is reflected in the latest House energy bill, which would require automobile manufacturers to increase their new-fleet corporate average fuel economy (CAFE) to 35 miles per gallon by 2020 -- a 40 percent increase over current CAFE standards.

It is feel-good legislation. Democrats and Republicans like it. The car companies and the United Auto Workers union accept it. Environmental groups applaud it as a potential breakthrough -- the first increase in federal fuel economy standards in more than two decades if approved by the Senate and signed into law by the White House.

We consumers like the legislation because, as was the case with the first CAFE law in 1975, the House bill requires us to do nothing for fuel conservation -- zip, zilch, nada.

Thus, the bill passed Thursday by the House effectively reinforces the tenet of original CAFE law. To wit: We can have our oil and guzzle it, too. And we can do both at the lowest fossil fuel prices in the developed world while pretending to be acting in defense of the environment.

Therein, brothers and sisters, is the grand fraud for which we all will pay dearly if we swallow this proposed new serving of CAFE as eagerly as we gulped the old mixture.

The problem is that endless growth is a myth. History shows us as much. Empires rise. Empires fall. Observe the debris of our real estate market, the sad legacy of an empire built on property-flipping supported in large measure by bogus subprime loans. Has it not been proved that any market built on flipping is destined to flop -- that the unsustainable is in fact unsustainable?

Likewise, do any of you believe that oil is inexhaustible, that we can replace it easily and cheaply with alternative and renewable fuels, that we can develop easily and cheaply a safe and effective infrastructure for delivering those new fuels, that we can save petroleum by making car companies produce more fuel-efficient cars and trucks, or that we can increase oil production by stripping federal tax supports from petroleum companies while we, the American consumers, content ourselves with doing nothing, or not paying anything extra for improved fuel efficiency and energy conservation?

Put another way: Can we really solve a two-part equation involving industry and consumers by working only the industrial side?

Did we not make the same error in 1975? Was not the result an example of Jevons's Paradox, the theory proffered by 19th-century British economist William Stanley Jevons, which argues, in part, that as technological improvements increase the efficiency with which a resource is used, the total consumption of that resource may increase, rather than decrease?

Consider: The 1975 CAFE law increased the technical fuel efficiency of cars and trucks sold in the United States by 25 percent or more, based on the average real-world fuel efficiency of today's cars and trucks compared with the fuel efficiency of those manufactured and sold in this country in 1975.

But consumer behavior eliminated all of those gains. Increased technical fuel efficiency lowered driving costs. Lower driving costs, augmented by the cheapest gasoline in the developed world, led to increased vehicle miles traveled. Increased vehicle miles traveled prompted consumer demand for safer, more comfortable, larger and more feature-laden vehicles. Accompanying those developments was increased consumer demand for more horsepower to drive all of those extra miles at a faster pace.

What has been the result? The United States represents only 5 percent of the world's population. Yet we Americans consume 25 percent of the world's energy, more than any other country, including all of those developed countries that have nothing called CAFE.

What is the difference between them and us? It's simple. Countries in Europe and Asia, for example, require that their consumers share a big part of the burden for better energy efficiency and fuel conservation. They heavily tax less efficient fuels, such as gasoline. They place lower taxes on more efficient fuels, such as diesel. They tax excess horsepower and excess vehicle size. Congestion pricing is used to reduce the massive petroleum waste caused by needless engine idling in traffic jams.

Consumers in Europe and Asia demand fuel-efficient, right-sized cars and trucks and are willing to pay premiums to get them. Manufacturers, as a result, are willing to provide what the consumers demand, largely because there is a regulatory infrastructure in place to help them profit from developing, designing, manufacturing and selling green. There is a general understanding that coming up with alternatives, possibly including changing our lifestyles, means that everyone involved -- business, politicians and consumers -- will suffer some pain, pay something extra.

Unfortunately, none of that thinking is reflected in the grab-bag of compromises in the energy bill. The car companies and the UAW get a break because the new bill would assign different fuel-economy targets to cars and trucks. The politicians get a break by appearing to do the right thing for the environment. The environmentalists get bragging rights for forcing through the House what could become the first increase in federal fuel economy standards in decades. The oil companies, publicly miffed over a provision in the House bill to give up $16 billion in federal tax breaks, privately are celebrating over another proposal that they and other energy companies produce 36 billion gallons of alternative fuels annually by 2022.

And we, the consumers, for the moment at least, get to wipe our brows in thankful relief for having gotten another piece of energy legislation that requires no expenditure of energy on our part. Hooray!

Absent a veto, I suggest we enjoy the respite while we can. It is likely to be short-lived. Oil consumption is increasing in Asia, South America, Africa and Eastern Europe. Oil isn't getting any easier to find. Our Congress, in its dubious wisdom, has done little to put into place anything that faintly resembles an alternative fuels/renewable fuels infrastructure.

You think the subprime-lending real estate flop is painful? Just wait until our beliefs in the Myth of Endless Growth and the Doctrine of Uninterrupted Joy collide with global reality at the gas pump. The pain is just beginning. Here's to CAFE!