Who’s to blame for the crisis in the auto industry?
Detroit is in a free fall.
Some say it’s their own doing by deciding to push big gas guzzlers rather fuel efficient cars. With that choice, the Big Three maximized their short-term profits but conceded the auto market of the future to foreign companies.
There is plenty of blame to pass around. Executives made exceedingly poor investment decisions. Union officials were blinded by the good times and failed to protect their members’ future. An army of lobbyists was hired to protect the industry from tighter laws.
The most recent casualty: Congressman Dingell made one too many concessions to the auto industry, and lost the chairmanship of the Energy Committee in the process.
In addition to these higher profile actors that have over-protected auto makers to the edge of death, there are quieter, but no less important, reasons why new fuel efficiency standards were never adopted.
Deep in the bowels of the federal bureaucracy, there is another subtle source of the current crisis. For years, the economic analysis of stricter fuel-efficiency standards has been severely biased. In successive analyses, the National Highway Traffic Safety Administration refused to properly count the costs and benefits of greater fuel-efficiency. These faulty cost-benefit analyses were then used to justify the weak standards that have caused Detroit so much pain. If they had properly counted those costs and benefits, stricter standards would have been called for, potentially pulling Detroit back from the edge.
The most glaring error was the refusal to look at climate change benefits of reducing tail-pipe emissions of greenhouse gases. Until a court order in 2007, NHTSA valued the greenhouse gas benefits of better fuel efficiency at zero. Even after that first rebuke, the agency continues to laughably undercount the actual benefits of mitigating climate change risks.
This is no isolated incident.
A new report [PDF] from the Institute for Policy Integrity at New York University School of Law, “The Price of Neglect: The Hidden Environmental and Public Health Costs of Bad Economics,” documents several similar failures that have plagued the Bush administration. The vehicle emissions rule is just one of many examples of how they imposed billions of dollars of costs on the American economy and threatened tens of thousands of lives.
The pattern for the Bush administration has been to ignore science and economics to pursue an ideologically driven antiregulatory agenda. The result is an auto industry in collapse, a financial system in near ruin, irreversible delay on climate change, and a host of small risks that have been swept under the rug.
It is important to learn the right lessons for the Bush administrations’ failures. It was not too much economics or regulation that brough the auto industry to its knees, but too little. When properly counted, the benefits of a clean environment, healthy workplaces, and well-regulated financial markets massively outweigh whatever compliance costs are needed.
Only when we ignore the true benefits of regulation, and over-count the costs, do we see the biases and bad judgments of the past eight years.