After having joined the chorus lambasting GM for making cars ‘no one wants to buy’, Friedman this week quotes Bob Lutz to make his point that we can’t have green products without a price on carbon.  Oh, the irony:

Bob Lutz, a vice chairman at General Motors, offers a useful example of why price matters. When Congress demands that Detroit make smaller, lighter, better mileage vehicles, but then refuses to put a higher price on carbon — like with a gasoline tax — so more consumers will want to buy these smaller cars, said Lutz, it is the equivalent of ordering all American shirtmakers to make only size smalls while never asking the American people to go on a diet. You’re not going to sell a lot of size smalls.

It is the ultimate injustice that we deride our auto industry for not making fuel-eficient cars, when it is our government’s failure to have a consistent, long-term energy policy that creates havoc.

Detroit is stuck redesigning and retooling for the fickle U.S. consumer, while Toyota and BMW can count on consistently high gas prices at home, which creates consistent demand for their hybrids, diesels and turbos, whether oil is at $40 or $140 a gallon.

And keep in mind that it takes 3-4 years and hundreds of millions to bring a new model to market.

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Stimulating a new economy

January 19, 2009

Feldstein and Stiglitz both warn ‘what after the stimulus money is gone?’.  We have been propped up by two bubbles the last decade.  What will prop us up after we’ve used our borrowed money in two years?

Friedman puts it nicely: “If we spend $1 trillion on a stimulus and just get better highways and bridges — and not a new Google, Apple, Intel or Microsoft — your kids will thank you for making it so much easier for them to commute to the unemployment office or mediocre jobs.”

Fortunately I do see the foundation for a new economy in two specific elements of the emerging package:

A third element of the package is a wildcard: Healthcare reform.  Universal healthcare is a moral imperative, but the real value of reform is in increasing efficiency.  The current system is so expensive it is a real drag on the economy.  We must reduce costs and optimize delivery using technology, standardization, regulation and reorganization to a point where cost per insured is cut in half, otherwise we will still be at a disadvantage.  Most of this change will depend on Obama and Dashle’s reform skills, and not on how much we spend via stimulus package.

A fourth one is necessary for a world-wide recovery: Chinese people must start spending and enjoying the fruits of their labor.  The China-lends-us-money-so-we-can-buy-their-products dynamic is over.  This is obviously beyond our control, but well within the command of the central party committee.  Credit cards anyone?