It is a basic tenet of economics that regulations almost always have unintended consequences. While Adam Smith may have been one of the first to understand this, he could not have possibly foreseen the morass of expensive and unwanted consequences that could come from conflicting emission and fuel standards enacted by the state of California and federal programs, such as for greenhouse gases and Corporate Average Fuel Economy.
Both the state and federal regulations have worthy goals: to decrease greenhouse-gas emissions and lower petroleum consumption. Yet taken together, the federal standards effectively cancel out the California standard. Instead of promoting fuel reduction as intended, the California standard allows for the production of less-efficient vehicles, while facilitating a massive transfer of cash via credit trading. It also forms a de facto industrial policy that sends us down a path toward electric vehicles that may or may not be the best technological or environmental choice for the future.
Americans are spending more money at the pump than ever before. According to a recent estimate by the Energy Department, the average U.S. household spent nearly $3,000 on gasoline last year. Earlier this month, theU.S. Energy Information Administration forecast that the price for regular gasoline will average $3.63 a gallon this summer — a slight decline from last summer, not far from the record levels set in 2008. Why do oil prices remain so stubbornly high?
According to some in Washington, the blame lies with “speculators” — investors who buy and sell oil futures contracts to bet on the price of oil. As they see it, these scheming speculators — which may be individuals, but can also be mutual funds, hedge funds, or other investment institutions — inject billions of dollars into commodity exchanges in pursuit of a limited number of barrels, which in turn drives up the price of oil. Speculators, critics say, rake in piles of money at the expense of ordinary people who are going broke fueling their cars and heating their homes. Read More »
I have been a hunter and gun owner throughout my life; prior to moving to Massachusetts two years ago, I owned three guns, a shotgun, a rifle, and a semi-automatic 9mm pistol. I enjoy hunting and target shooting and believe there are legitimate uses for guns.
I am also an applied economics professor in the Sloan School of Management at the Massachusetts Institute of Technology whose research focuses on the costs, benefits, and effectiveness of policy. I have therefore followed the discussion of gun control with interest.
The United States has a long history of regulating firearms. Normal citizens cannot bear nuclear arms, they can’t bear rocket launchers, tanks, or a long list of other arms. There are also severe restrictions on owning fully-automatic guns. These restrictions effectively make them illegal for most of us. Given this history, policymakers should focus on how best to balance the enjoyment citizens get from owning and operating certain types of guns with the obvious real danger such weapons present.
Christopher Knittel is a Professor of applied economics, MIT Sloan School of Management