Peter Van Doren argues that consumers correctly consider fuel costs when making vehicle‐buying decisions. However, CAFE standards cannot be justified as correcting some sort of consumer failure to appreciate fuel savings. The idea that CAFE reduces carbon emissions is slightly more reasonable, but it is a very indirect, inefficient and regressive method. For these reasons, it is difficult to not side with Trumps’ negative view of CAFE.
What is CAFE? How does regulation affect markets? How did Richard Nixon use price controls? Is Trump the great deregulator?
00:07 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus.
00:09 Aaron Ross Powell: And I’m Aaron Powell.
00:10 Trevor Burrus: Joining us today is Peter Van Doren, senior fellow at the Cato Institute and editor of the quarterly journal, Regulation. Welcome back to Free Thoughts, Peter.
00:20 Peter Van Doren: Thank you. It’s my home away from home.
00:22 Trevor Burrus: Exactly. And before we get into how Regulation has changed in the Trump administration, let’s step back and take a broader view of how Regulation, the theory of regulation, the practice of it has changed since the 1970’s or so.
00:37 Peter Van Doren: What I wanna do today is give a little pushback to the current kind of cable news, right of center notion that the regulatory state is out of control, and I wanna put it in some historical perspective. I’m old enough to remember personally, and have done research on, a regulatory state that was out of control, and it’s the old one, but it’s no longer here, so I briefly wanna talk about that.
01:03 Peter Van Doren: Historically, regulation meant a price and entry regulation, and it comes out of the National Industrial Recovery Act, enacted in the New Deal and then ruled unconstitutional. Businesses in World War I, they loved planning. There’s always been this interesting relations20hip between libertarian and/or conservative thought and real businesses and the state in the sense that the notion that incumbent firms don’t like the state is a academic notion, but not a real world notion. Many firms like the state, particularly if it does them favors, and this comes out of World War I. Planning and managing markets started World War I. The Depression was based on… Or, well, people had theories during the Depression that there was too much competition because there was deflation like prices were falling. We had primitive understanding of monetary policy, and thus the many, many prominent people in the Depression believed that the problem was too much competition.
02:12 Peter Van Doren: The National Industrial Recovery Act was passed in the ‘30s, and it was to corporatized and syndicalized all major markets in the United States, where in effect to run a business and to enter a business and the prices you charge, you would need permission of the government to enter, and the government controlled the prices that you would charge. And they ought to be higher than competition would permit because in the day, competition and declining prices were seen as a problem, not as a good thing. So NIRA is ruled unconstitutional by the Supreme Court, but Congress reenacts this notion in telecom, in oil, in…
02:54 Trevor Burrus: Agriculture.
02:55 Peter Van Doren: Energy, ag, airlines, so we… Even though the court got away or got rid of the Act, in effect we piecemeal put it back together one by one. So circa 1975, in a class like I took on regulation at the time, you would use Alfred Kahn’s sort of notions, and it was all about telecom, energy, airlines, and that the prices were above market levels, and those were… Often the term was natural monopoly would be invoked, even though it was incorrect, and things like that. That’s what regulation meant at that time, and then we deregulated all those things.
03:35 Aaron Ross Powell: Quickly, what’s the thinking behind the believing that declining prices due to competition is a problem? I can imagine if declining…
03:46 Peter Van Doren: Well, in the Depression…
03:47 Aaron Ross Powell: Sure, but even that… If you see declining, say, wages, that you could say, “That’s a problem,” if you think that competition is causing that. But how do you get to declining prices being a problem? ‘Cause declining prices seem, on their face…
04:03 Peter Van Doren: Well, we have…
04:04 Aaron Ross Powell: Great, especially if people don’t have much money.
04:05 Peter Van Doren: True. In the Depression, wage… We had deflation, so prices and wages were declining. And labor was organized, but so were firms because, as I said, the World War I context. Many, many intellectuals, combined with firms, generated notions that price competition was a problem.
04:32 Trevor Burrus: Well I think the wages were a big part of it. The National Industrial Recovery Act, you had the cartelization of very mundane local industries, like laundry in Harrisburg, Pennsylvania or something like that. And they would set the price for how much to press a pair of trousers or something like that, and it was meant to keep the wages up. It [04:54] ____ the minimum wage in there. You can’t have good wages without good prices. And I think that then some sort of stimulus idea, although not very Keynesian in that way, but at least getting people with higher wages to purchase more, and so, you would have more of this…
05:07 Peter Van Doren: In fact…
05:08 Trevor Burrus: Demand side theory of economics.
05:10 Peter Van Doren: You see some of the remnant of that kind of thinking today in the $15 minimum wage discussion about fast food workers and things like that, again, sort of give them more and they’ll spend more and somehow it all works out, I.e. The fact that prices rise and demand falls somehow gets left out of conversation, [chuckle] but…
05:30 Trevor Burrus: What happened in the ‘70s? Was it Intellectual Revolution combined with an observation of stagnation in certain industries?
05:39 Peter Van Doren: Well, as someone who practices the ‘I’ word, I would… We probably give intellectual thought too much credit, but it played some role. We’ve talked before in these podcasts about the movement at the University of Chicago, the foundation of the journal, The Law of Journal of Law and Economics in the late ‘50s where a Chicago economist, basically said, “Well, let’s look at all these regulated markets, and see what the effects are on producer and consumer welfare.” And they found that these markets could be competitive. They weren’t really monopolistic that consumers paid way too high prices, and we had reduced GDP as a result. This was an inefficient but stable equilibrium politically. What changed was it… Politics was inflation. I’m, again, old enough to remember the buttons, the WIN buttons of Gerald Ford, Whip Inflation Now, and Ted Kennedy actually running thinking he was gonna run… Well, he did run for President in 1980. Ted Kennedy organized hearings to show that prices within states were lowered for flying than between states because airlines were regulated only at the interstate level, and things like that. We had airline deregulation, freight deregulation, ’cause freight railroads were going bankrupt. Then trucking deregulation follows.
07:10 Peter Van Doren: Anyway, the price and entry regulation in energy and transportation and telecom, all occurred in my young adulthood and we all breathed the sigh of relief and said, “Oh my goodness. Now it’s over.” Well, it wasn’t over. And we now then can drift into a discussion of the regulation that people talk about now is about health and safety and the environment, and that, depending on your point of view, that oppressive or purposeful regulatory state is now what people are actually talking about when they mean regulation. But the old regulation that really was very destructive has gone and has not come back. And I think our listeners need to be reminded that we, over a long period of time, we really did make progress on that front and that’s good.
08:05 Trevor Burrus: It’s kind of interesting because Richard Nixon, at the beginning of the 70s, and then at the end or beginning of the ‘80s, Ronald Reagan in that transition… Because Richard Nixon both put price controls on things.
08:19 Peter Van Doren: His inflation was 5%. He put the whole economy on wage and price controls for 90 days.
08:25 Trevor Burrus: Which seems like the old style of regulation.
08:28 Peter Van Doren: Yeah.
08:28 Trevor Burrus: And he was a Republican, and then… But he also signed… I think he signed the Clean Air Act or the Clean Water Act. The Endangered Species Act, definitely created the EPA.
08:36 Peter Van Doren: Yes.
08:37 Trevor Burrus: These things which were the new regulatory state…
08:40 Peter Van Doren: Well…
08:40 Trevor Burrus: And then, price controls.
08:41 Peter Van Doren: It’s still… The struggle today which is Ed Muskie was gonna run for President in ’72, and he was in the Senate, and Earth Day happened in ’69. And so, environmentalism becomes… The Republican fear was that they need to do something about this so that this goes away as a political problem. And Nixon’s answer was the EPA, and then… There’s a political science literature about what’s called, policy beyond capability or speculative augmentation in a bidding war between parties. And so, Muskie and Nixon competed over who was going to do the most. Ironically, political competition is good, but political competition can also drift us into the never‐never land in this kind of policy context. I’ll give you a sense that the new regulation, unlike the old, was unrealistic, ambitious goals to cleanse, to purify the environment, followed by lots of missed deadlines and lawsuits, and give the listeners a sense of how different the Clean Air and Clean Water Acts are than the old regulation. By 2005, only 338 deadlines in the Clean Air Act. Of the 338 deadlines in the Clean Air Act, only 37 had been met.
10:22 Trevor Burrus: I think the Clean Air Act is 1990 or around there. Is that correct?
10:26 Peter Van Doren: Well, that’s the amendments.
10:28 Trevor Burrus: The amendments.
10:28 Peter Van Doren: The first was ’70.
10:30 Trevor Burrus: Okay.
10:30 Peter Van Doren: And then the Clean Air Act Amendments of ’77 and then the Clean Air Act Amendments of 1990, which set up the Sulphur Dioxide Emissions Trading Program among other things. But what I’m talking about is the…
10:43 Trevor Burrus: Going back…
10:43 Peter Van Doren: Deadlines in the ’70 and ’77. Basically, none of them had been met, and still haven’t. And… [chuckle]
10:51 Aaron Ross Powell: Are they just too audacious of goals?
10:54 Peter Van Doren: They’re ambitious, right. And again, the Congressional politics literature says, “No one gets unelected for being on the right side, but people get un‐elected for being on the wrong side, and no one cares about actual outcomes.” That’s the weird… See, good public policy, good policy implementation is, in an economist’s way of talking about it, a peer public good, which is, it’s hard for individual members to claim credit for this collective outcome ’cause it’s a collective outcome. And thus, we’re in this weird… In the second year of regulation, where in this weird world where we have statutes that have ambitions, very great ambitions that are not possible, that then leads to lobbying by industry basically for and/or other affected constituents for deals. Somehow to kind of make this go away. Congress complies with this, not by revising the statute, but by putting little riders in appropriation bills and language that no one understands that says, “This firm in this district with this latitude and longitude shall not have to do X and Y and Z and Q,” and those are private goods from a member of Congress’s point of view. They, in effect we’re buying and selling indulgences, like the old Catholic Church, and that leads to campaign contributions and electoral support, and that’s privatisable.
12:31 Peter Van Doren: The member can say, “I did this.” And so, ironically from a libertarian rule of law perspective, is that, this horrible statute, you couldn’t implement if you were God. No one wants to actually make it realistic because the unrealism is actually part of the new game, which is buying and selling indulgences and that’s… I think it’s a very powerful equilibrium even though it’s a sad one from our perspective.
12:58 Trevor Burrus: Do you think that was intended? Or did they have lofty goals, and then solely realized that it was probably unmeetable? Or that they said, “Hey, we can pass lofty goals, get credit for the lofty goals. Congress gets credit for having at least goals, and then we can give exemptions, grandfather people in, exempt different types of pollution, and things like that, and it will all be fine and no one will notice the exemptions.”
13:24 Peter Van Doren: I think gradually members learned, what Trevor is describing, that is… We shouldn’t read too much intentionality into all this. But I think you have described what happened, and the fact that it’s so… We don’t amend statutes anymore, that’s what… This whole Trump revolution, right? They talk about deregulation. It’s all a kind of Gene Healy nightmare, to use my colleague as an adjective, which is, the executive as God who can do this. Well, if you don’t like what the Clean Air Act does and think it’s onerous then let’s change what’s in it. But I have not heard or read anybody of any persuasion on any political dimension actually argue that, “Gee, we ought to revisit the Clean Air Act.” Except maybe me. [laughter] But I’m saying, “No.” It’s remarkable how little constituency there is for changing statues.
14:26 Aaron Ross Powell: This lack though of movement towards the goals or lack of achievement of the goals, is it not for want of trying? How quickly did companies kind of figure out that they have this alternative method which was to just lobby for carve outs?
14:45 Peter Van Doren: Quickly. I’ve… I was… We’ve talked about Alan Altshuler’s book before in our podcast, and I was a senior at MIT. Alan Altshuler was a professor of urban politics and policy and was commissioned by the DOT to write a book on the urban transportation system. And I was a research assistant and that’s where I started learning and reading about energy and energy markets. And in the book, which is 1979, already we were writing about how the Clean Air Act of ’70 and ’77 were not possible and they stated by 1980, whatever, the air would be clean and immediately the ambient air quality control plans that each state had to submit to the EPA. Well, what they did is, “Well the hmm, if we really need to crack down here’s what we need. We need emission charges. We need gasoline taxes. We need surcharges on parking. We need to restrict people from downtown.” Well, my goodness, the you know what hit the fan, and businesses and constituents said, “What? I can’t… I want the environment cleaned, but I don’t really wanna change anything in my life that actually I care about or raise prices or stop driving or whatever. But I want somebody somehow to figure out an invisible way to make the world better without changing anything in my life.”
16:19 Peter Van Doren: Immediately, the appropriations bills for the EPA said, “No federal money shall be used to enforce the state, Ambient Air Quality Control Plan, which has the following in it. Restrictions on parking. Restrictions on parking garages. Gasoline surcharges. Gasoline to… Etcetera, etcetera, etcetera.” And there was all the things economists would recommend as a way to alter behavior to result in fewer emissions. All those things were banned by these little riders in appropriations bills, pretty much from the start. And then everyone runs for the environment and then quietly kind of says, “Jeez, if we really do this, you’ll go out of business or you can’t get to work or it’ll be expensive and you’ll notice, and you un‐elect me, and therefore we’ll eliminate all these as possibilities. Instead, we’ll just gang up on businesses as bad, or… But we never say drivers are bad, ’cause they vote.” [chuckle] And so, this game has been going on all my scholarly adult lifetime.
17:26 Trevor Burrus: One of the things that happened under the Obama administration that’s related to the Clean Air Act, at least or at least you had this problem of emissions, is the Clean Power Plan that has been altered a little bit under the Trump administration. We can get into some of what’s happening now, but on this air quality kind of level. What was the Clean Power Plan under the Obama administration?
17:49 Peter Van Doren: Clean Power Plan was A, a big deal in some sense, and yet not that big a deal in some substantive sense. Because of fracking the price of natural gas has plummeted, and the efficiencies and learning that have taken place in the electricity production mean that natural gas combined cycle, which is a fancy word for a natural gas turbine, like a jet engine put on its side and then waste heat is used to heat steam, so that’s not just exhausted into the… The heat is kept and used to make steam, and that’s used to produce electricity in a standard way. And the jet turbine also produces electricity.
18:35 Peter Van Doren: Those plants are now much smaller in the cost of capital than a traditional coal or a nuclear plant, and yet, cost‐effective on a fuel basis because of the tremendous decrease in the price of natural gas. And so, coal plants have been declining because of this price revolution, and at the margin, we’re not basically building any new coal plants, so coal is declining. Then there is the old coal plants. Well, they’re in place because of grandfathering, and that’s part of the Clean Air Act game that I’ve described. You’ve got these very old hunks of capital. A third of them sort of don’t have any emission controls at all because they were grandfathered in, they existed before 1970, and that’s a valuable right. If you can burn and not have to do anything about it, that’s very valuable.
19:32 Peter Van Doren: So, the Clean Power Plan went after, in affect, these old power plants with no emission controls at all. And then Trump has retreated a bit, and ironically… But let me give you some of the data. With no rules at all, coal electricity would experience a 23% drop in production by 2030. Under the Obama plan, they would have dropped 29%, I.e. 6% more than the business as usual. The Trump plan, in effect, is better than what would have occurred with no rules at all under the old, because the Trump plan re‐visits some of the so‐called old source/new source business in coal fired power plants and allows these dinosaurs to kind of keep cranking it out for as long as they can. But again, the number of states that would have not been… In other words, the difference in who would or would not be in compliance under the Obama plan versus the Trump plan. It only affects 12 states and they’re all basically in the middle of the US, coal fire dependent.
20:50 Peter Van Doren: And with one exception, New Jersey. And I’ve inquired around New Jersey is… Well, sorry. New Jersey is the only Eastern state and is the only blue state that would have been negatively affected by the Obama Clean Power Plan. And so to partisans, the Clean Power Plan looked like an attack on red states and not on blue. And blue states, basically we have already gotten rid on coal, which is why is easy for them to beat up on other states. So there is a partisan element to this, with the exception of New Jersey. And I’ve been digging around and I’ve gotten nowhere trying to figure out…
21:27 Trevor Burrus: Why New Jersey?
21:28 Peter Van Doren: Why New Jersey? What’s the story? Anyone care about it? I’ve talked to some journalists and they’re gonna actually… They said, “That’s a good idea for a story. So maybe we’ll find out what’s going on in New Jersey.”
21:39 Trevor Burrus: So it’s at… We wouldn’t call this deep some massive deregulatory effort by the Trump administration. It’s a modification on the margins.
21:47 Peter Van Doren: It’s this game, the game we’ve been playing with the very old coal plants which have no emission controls at all, which has been going on ever since ’77. That game, everyone thought it was over. That the Supreme Court rulings, and then the new source performance standards and during the Bush years, we had this game of how much could you maintain an old plant for how many years before it was declared to be a new source? And there’s just endless litigation over this and most of us thought that that was going away. And then in effect, Trump is… The patient was in the last stages of death, but there’s been a little revival here, and… But it’s all gonna be litigated. So we don’t, I mean again, we don’t know how…
22:33 Aaron Ross Powell: So given that we assume some pollution… That these are motivated by believing pollution has costs, plus all this litigation has costs, plus… There’s a lot of cost involved in this. Why don’t… Do people just like, “You could just buy scrubbers for all these plants.” Like why do it on the direction of… What’s the motivation of doing it on the direction of saying like, “We’re gonna restrict these old plants, shut them down or whatever else,” versus “We’re going to subsidize them to bring them up to code.” And that way you don’t have these kind of political…
23:10 Peter Van Doren: You’re asking politically why no one has proposed drawing…
23:14 Aaron Ross Powell: Yeah or the other question is, it might just be prohibitively expensive or impossible.
23:20 Peter Van Doren: It’s not impossible. Again, the third of the plants have nothing on them and then the rest of the coal plants do have scrubbers and they put them on. And they actually… Believe it or not, there’s… Well, you shouldn’t be surprised, there are divisions within the utility community over. They said, “Look at the margin, many of these plants did put on scrubbers. And now you’re saying, you’re gonna help the guys who didn’t hang on when we did?” And so there are divisions within the utility community over whether this was or wasn’t a done deal or not. And then again, if regulations can change with the coming and going of presidents, then investment certainties we’re acting… We’re not a third world country, but corporations really would like to have long‐term certainty about things ’cause these isn’t… I mean, electricity investments are very long‐lived. And thus, all the plants that put in the scrubbers that are now undermined by this kind of, let’s call it the West Virginia revival strategy. So there have been some corporate scent actually. So business is not unified about this Trump going backward strategy.
24:36 Trevor Burrus: On a broader level, with Trump in general even aside from just clean air and environmental questions, what are we seeing in terms of regulatory behavior under the Trump administration as a general?
24:50 Peter Van Doren: Well, new regulations have slowed to a trickle. So he promised that he would put a stop to stuff and that has happened. He really has. An article in my journal regulation said… Let’s see. “Post 1996 new regs cost about 30 billion on average in the first seven months of an administration and the Trump administration’s total for the first seven months was just 590 million.” So we really… So you mean you can bring a stop to things and they’ve done that. Eventually, they’re lawsuits and then the court’s rule, you can’t just stop, you have to do something. So…
25:33 Aaron Ross Powell: Are there examples of regulations that looked like they were going to go into effect that didn’t? What kind of stuff are we not getting as a result of this slow to trickle?
25:45 Peter Van Doren: Good question [chuckle] and let’s see. Do I have any…
25:51 Trevor Burrus: Were there are some other ones that are not necessarily in the energy or environmental realm such as the Obama Transgender Bathroom rule for schools? That was interpretive rule that the Trump administration just said, “We’re not gonna do that anymore.” So some of those things when they have the freedom to do that.
26:10 Peter Van Doren: Well, that’s overturning on it. Aaron’s asking a different question, which is what did we know was in the pipeline or we speculated was in the pipeline that it hasn’t…
26:19 Aaron Ross Powell: Yeah, like what… By this time, if we had President Hillary, what kinds of things might we have seen that we’re not seeing now?
26:27 Peter Van Doren: Very good question, and I can’t, nothing comes to mind. I can do some homework.
26:35 Trevor Burrus: I would imagine cracking down further on power. Would be one of the things, or at least enforcing the Obama plan and making it more rigid possibly.
26:44 Peter Van Doren: Maybe, but no, Aaron’s asking a very good question, which is, what’s the counterfactual that would have occurred under the alternative administration? And I’ve been keeping track of other what’s interesting though is, given all the things I read no one else seems to have been writing much about that either. So nothing comes to mind standing out. I can list instead what they are were many, many articles and I wrote my own list actually of rules that were in place that I thought the administration would probably try to undo and that I have a list of. But even then, and you’re both lawyers and I’m not, my sense as a non‐lawyer, is that the races for President now over‐emphasize how much the ship of state can be changed by just a simple change in executive that the rule of law and the administrative law in particular were designed to not allow that. In other words, you can’t just undo rules and say in your answer why we won the election, that is not sufficient under administrative law.
28:02 Peter Van Doren: You have to develop a factual record is my understanding, which says that the factual record that supported the earlier rules of the previous administration. The world has now changed and we’re gonna tell you why and thus we’re gonna implement this same law, but in a different way because the facts have changed. Well, for most of the discussion we’ve had today the facts haven’t changed. And so, my sense is, and there already have been court rulings that say, “Dear President Trump, you and your administration, cannot simply just change what we do because you won the election.” That’s not sufficient.
28:43 Aaron Ross Powell: That brings up, there’s this narrative that I’ve heard that Trump came in as there was expected by kind of the great de‐regulator and he still gets the story of his first two years, he’s among all the other things he’s done at least he’s been a kind of people looking for a silver lining people on our side looking for a silver lining at least he’s deregulated but I’ve heard kind of this counter‐narrative from people that in fact he’s been attempting to do a fair amount of deregulation. But because of the lack of expertise that he surrounded himself with the people in the administration, the way they’ve gone about it, they’ve done a bad job procedurally. They haven’t been very good at it in the way they’ve gone about it and so as a result they’ve been far less effective in deregulating than they or we might have hoped. Is there any truth to that narrative?
29:39 Peter Van Doren: I might change it slightly, which is that all administrations now over claim and over‐emphasize what they can do because it’s not that the Trump administration, if it were fully staffed, and totally functional, could withstand court challenges, is that the facts really haven’t changed enough so that the previous rule can be thrown out. I’ll give you and it affected Obama as well Obama over… Presidents because Congress doesn’t revise statues and because of what we described earlier. You whip up people to think the president matters a lot in Obama. I mean both the right and the left, do this. So, The Obama overtime rule, right changing that the salary at which over time rules no longer apply was $23,000. So, basically over time just didn’t matter for anybody who called themselves managers in the retail setting. Yes, they’re in charge, but they’re not paid that much. So Obama said, “Let’s make it $43,000.00.” Or something like that. And whoa, business they said, “Oh my goodness, this is gonna, this is big deal.” Well…
30:53 Aaron Ross Powell: I remember all the meetings at CATO about when our HR team was trying to figure out what this would mean for there’s people in the building who make less than that. There’s people in the building who make more than that. People are gonna have to start punching time cards now. You might have to tell your research assistant they can’t come in.
31:10 Trevor Burrus: They can’t work on the weekends.
31:11 Aaron Ross Powell: It was insane what it would have, the effects that would have had.
31:14 Peter Van Doren: Probably we’re all breathing a sigh of relief. That the courts threw out the over time rule, right? So the courts threw out the Fiduciary rule, which was also Obama. And should we talk about the… I mean for our listeners?
31:33 Trevor Burrus: Yeah, sure.
31:33 Peter Van Doren: I mean this notion that mutual funds that are managed or if you have a financial advisor that there’s this language that there’s been a scrum over for as best I can tell something like 60 or 70 years in which the financial managers that sell you funds for which they make a commission or from which they make a commission. Many, many have always said, “That’s a conflict of interest and we oughta get rid of that.” And then others have said, “No, that’s the way money management advice works.” And so Dems put in this saying basically ruling that out as a possibility. Well, anyway…
32:16 Trevor Burrus: That one was gone too.
32:17 Peter Van Doren: That one’s gone, too. The court saying you can’t use a department of labor and if the law they tried to introduce this rule through really wouldn’t allow that. So anyway, yes Trump has tried to do everything he said he would do, but we’re gonna have to wait a while to see whether the courts allow all of that to happen or not.
32:45 Trevor Burrus: If we look at the sort of slow down of at least regulatory activity and some changes to some things like the Clean power plan. I think people in the administration and definitely Trump himself would say we have this great economy that we have at least on some metrics, the stock market is a little volatile, but we have super low unemployment and growing an economy. And he would say that my deregulatory efforts are the cause of that. That we put more energy into the economy ’cause we took away red tape. Is that a defensible position?
33:19 Peter Van Doren: Probably not. The corporate tax cut probably matters a whole lot more for the valuation of equities than regulation. Regulation matters in the long run, but what’s interesting is certainly when Jeff Myard and I talk about this, we have well, the kind of normal right of center argument that the regulatory state is somehow killing the economy etcetera, etcetera, etcetera. Well if anything the regulatory state was as I started this discussion about, right? I said it as much bigger and more pronounced in the 70’s. And we had higher productivity growth in the 70’s than we do now. So when you do kind of a simple regression of something called how big a deal regulation was and again it’s very hard to measure. But sort of the dead weight loss is created by things, they were larger then than they are now. But our fights over regulation now are more intense and they’re much more parted. So the Dem’s are claiming everything could be solved with more regulation. The Republicans say everything you want could be solved with less regulation. And I think it’s not really regulation they’re talking about. They’re talking about whether you’re Democratic or Republican.
34:39 Peter Van Doren: It’s almost become a surrogate word for which side you are rather than the name of something independent which we could investigate and actually figure out. But, regulation does matter. But even some of the Clean Air Act stuff there are articles in the literature that say what basically happened is that industry rearranged its location from say dense places in New Jersey and it went to other places in another words, so counties which were not in compliance with the Clean Air Act and thus under let’s call it I hope I’m not using the legal term, strict scrutiny under the Clean Air Act. Those places you couldn’t really expand your plant and so where did the plants go? They went else they went across borders which were cleaner and thus what we did is kind of redistribute pollution across space rather than change. And at the same time, ambient admissions have been going, have been trending down. But we also did a lot of rearranging across space.
35:49 Aaron Ross Powell: Does this mean then that when we’re measuring the National affects, say of regulation over time, that we somewhat miss some of that localized effect? So the new regulation comes in, there’s a time when I mean moving your business to another state is expensive, both in monetary and in efficiency and time wasted and all that. It’s also damaging to you’re moving your business out of that state that’s damaging to that state.
36:14 Peter Van Doren: You may not actually move what you do is you expand… In other words, if you have multiple plants, what you do is you don’t expand some and you expand others. The process of literally shutting down a whole operation and then physically starting up somewhere is probably not what I’m describing. It’s more like at the margin are you gonna grow in Newark are you gonna grow in Indiana?
36:39 Trevor Burrus: I think that’s a good I think good way to segue into, it’s sort of like regulatory arbitrage or practicing. And one of the things that we’ve talked about that does feature a lot of regulatory arbitrage and has changed in the Trump administration are CAFE standards. What are the CAFE standards? How do those work? And what’s going on with that now?
37:00 Peter Van Doren: Well CAFE is an acronym that stands for corporate average fuel economy. And this law and regulations were first enacted in 1975 during the first so called oil crisis. And again the sense was ironically. The belief was that consumers when faced with choices between gas guzzlers that were cheaper to buy, but more expensive to operate relative to a car that costs more to buy but would be cheaper to operate in the long run, because it consumed less fuel per mile, that consumers wouldn’t get that calculation right, and with us by the misguidedly, by the cheaper capital stock that would lead to higher energy use. And…
37:58 Trevor Burrus: Seems kind of weird. It’s like consumers buy new windows for their house because it will save on their heating bill in like a 10 year period right?
38:06 Aaron Ross Powell: But isn’t it…
38:06 Peter Van Doren: The claim is consumers won’t.
38:10 Aaron Ross Powell: But isn’t it…
38:10 Trevor Burrus: But they do.
38:10 Aaron Ross Powell: Well, look at like cell phone subsidization. It used to be, it’s not really the case anymore, but it used to be that you got your cell phone for free, or at “for free”.
38:22 Peter Van Doren: Even though the total cost.
38:23 Aaron Ross Powell: The total cost is much higher because your monthly bill, and that everyone…
38:28 Peter Van Doren: No one would figure that out.
38:29 Aaron Ross Powell: No one figured… And when companies started switching it was, “I’m not gonna spend $700 for a cell phone.” Even though it was over the course of ownership turned out to be a lot cheaper, so that seems like an example of consumers behaving in exactly the way the people feared.
38:45 Peter Van Doren: The left has always thought consumers wouldn’t figure this out. Economists have always been more optimistic. The literature supports the economist view. So the original rationale for CAFE was the inability of consumers to… Detroit thought… Well, there was this belief that unless consumer were, sorry firms were forced to make gas‐efficient vehicles, they would not because consumers wouldn’t buy them. And it was like, “What?” We’ll just… And firms didn’t want competition that’s the other thing. If we all have to supply fuel efficient vehicles, then none of us will compete on fuel economy. Well, again, regulation dulls competition, that’s why we don’t want regulation. So CAFE, the origins of CAFE are all basically very misguided economics. The literature has been very supportive of consumers, and there we can post some articles and links on the data for this podcast that people can read about that. Now later CAFE has been hijacked to deal with global warming, to reduce CO2 emissions rather than gasoline efficiency per se. Along the way Obama in this transformation of the Clean Air Act from normal pollution to a CO2 pollution. Obama…
40:10 Trevor Burrus: By normal pollution you mean like the…
40:11 Peter Van Doren: Traditional…
40:12 Trevor Burrus: Hazy smog over a city versus CO2, yes.
40:15 Peter Van Doren: So called traditional fossil fuel nastiness. NOx, SO2, and particulate matter. In the transformation of the Clean Air Act is something to worry about that to something to worry about CO2, the Obama administration cut a deal with the auto manufacturers to transform CAFE, which is 27.5 miles per gallon, etcetera, etcetera, to a footprint standard which is the bigger the vehicle, the less fuel efficient it had to be. And this is a very… Again, what American firms are very good at building and selling in part because of the tariff on imported trucks, which we should talk about. They’re protected. So GM, Ford, can build and sell trucks, and they’re good at it, but trucks uses a lot of… They use more fuel. So, a footprint CAFE standard allowed in effect American firms to build trucks that are not as fuel efficient. So we don’t have a 27.5 anymore, we have a six footprint, and the footprint literally is the size… It’s a…
41:33 Trevor Burrus: The size of the chassis.
41:34 Peter Van Doren: Well it’s how long it is and how wide it is, and the longer and wider, the less fuel efficient.
41:44 Aaron Ross Powell: What’s the conceptual link between… So, we have a switch from a fixed mile per gallon standard to miles per gallon per square foot of space the vehicle takes up standard.
42:00 Peter Van Doren: Sort of, yes.
42:01 Aaron Ross Powell: And at the same time, this is presumably motivated by a switch from traditional pollution standard or goal to CO2. What is the conceptual relationship between… How is CO2 related to how big the car is? If you try to explain why this would make sense?
42:17 Peter Van Doren: It doesn’t. It’s not about… It was a deal. So, the deal that said in the newspapers was 54 miles per gallon is now the standard.
42:27 Trevor Burrus: And this that has to be the average of your whole fleet, right?
42:30 Peter Van Doren: Well that’s if sales waited, but it’s also a footprint… This is [chuckle] It’s so the press release that all the journalists brought and told us about was 54, and 54 is so much greater than what any of us are getting now. It sounds like Obama is wonderful. It sounds like the Dems have solved all their problems by making the companies do wonderful things for us.
42:54 Aaron Ross Powell: But that’s the standard for [42:55] ____ hovering work.
42:56 Peter Van Doren: Exactly, 54 is for things that sort of don’t exist.
43:02 Trevor Burrus: The smart car maybe.
43:03 Peter Van Doren: It’s also done as a test, it’s not real world. See, that’s the other thing. Then there’s a whole translation device that you can find online, which is the EPA dynamometer test. How do they translate into real world mileage? And the answer is, a lot less. So…
43:19 Trevor Burrus: It’s all a joke and one of the best examples of this…
43:22 Peter Van Doren: But if liberal, I mean talk to people at a suburban dinner party and they’ll go, 54 was in, the Trump guys ruined it. You see what I mean?
43:30 Trevor Burrus: Yeah.
43:30 Peter Van Doren: If, it, it’s, it’s, anyway.
43:33 Trevor Burrus: And I like by one of my favorite stories you’ve told me and cause we mentioned regulatory arbitrage with this footprint of the car size you had things like the PT Cruiser, correct?
43:44 Peter Van Doren: Well that’s even under the old CAFE. There was one kind of arbitrage under the old pre‐footprint CAFE, which is we had two footprint. Well we had the statute separated light trucks from cars. Well, light truck was defined in a certain way. And it was defined as being so much off the ground. Well if you’ve ever wondered why the PT Cruiser, the Chrysler car was so bizarrely, why it looked weird, is because it is Chrysler’s light truck.
44:14 Trevor Burrus: And that helped it get better CAFE fleet average.
44:18 Peter Van Doren: It counted, because the standard for light trucks was always less stringent than for cars. That’s why station wagons went away. I mean the irony of… So when I grew up, right, everyone had big families and you had an Oldsmobile Vista Cruiser or a Ford Country Squire Station Wagon with the fake wood paneling. And you had the optional third rear seat and all that. Well where did station wagons go? The answer is CAFE. So what are minivans about? They’re light trucks. See, you can’t have a station wagon now and satisfy CAFE standards. Even the old ones. And so, but you can’t have a minivan ’cause it’s a light truck. So the PT Cruiser and then the SUV the Ford Explorer and then the arms race in that was cause they’re light trucks. And so we always treated light trucks differently. Now we have in effect a six footprint rather than just two. And the bigger your vehicle, the less stringent the standard under the new CAFE and it was done by a liberal democrat. That’s the irony. ‘Cause it’s a deal and the automakers went along, cause this helped them. It reduced competition and it allowed them to do what they do best which is to make big large trucks.
45:32 Trevor Burrus: For Americans.
45:33 Peter Van Doren: For American, Suburban families and they somehow don’t feel guilty about this.
45:40 Trevor Burrus: And you said there’s a large tariff, this is why Nissan or Toyota or people can’t really get in the truck market in America, because…
45:47 Peter Van Doren: The Ford F-150… The reason that there, I mean I just read yes right the automakers are stopping production of most sedans quote unquote because they can’t sell them. You know why they’re sellin light trucks? ‘Cause there’s a 20,25% you have to check with my trade colleagues. It’s some enormous tariff on light trucks that started under Reagan. And it protects American firms from world competition. And the profit, the mark ups on American light trucks, I’m stunned when I see… I mean, these people bought, paid $48,000 for something that doesn’t have roof. What the heck is… Anyway. So yeah, CAFE and trucks and protectionism and…
46:34 Trevor Burrus: And they’ll never take that away, it would be, if Trump wanted to actually make deals on trade you’d think that China or Japan or someone would say, “Well you need to take down your truck tariffs and maybe we’ll give you something in return.” But that would make the auto industry go bankrupt essentially.
46:50 Peter Van Doren: Well it’s been in place so long that the rest of the worlds firms don’t do, they don’t make those things.
46:58 Trevor Burrus: Yeah, that’s true, they don’t even try.
46:58 Peter Van Doren: They’d have to gear up and change their behavior.
47:01 Trevor Burrus: Interesting.
47:02 Peter Van Doren: And they don’t seem. I don’t know about you, but I haven’t read any articles hinting that Fiat wants to make a big, well Alfa Romeo sort of has a kind of SUV right, but they’re not selling well. And so, I don’t, well never predict about future markets, but I don’t see world even if we drop the tariff to zero eventually something would happen. But it would take a while, ’cause the rest of the world seems to have ceded that to American Manufacturers.
47:34 Trevor Burrus: So overall if we look at just the way this de‐regulation regulation story is told and it always is the case that Democrats complain about de‐regulation and the Republicans complain about regulation and the underlying reality ends in so many different ways as much more nuanced and interesting.
47:53 Peter Van Doren: And complicated. Each side yeah that it’s sad about political discourse. That it is, once something becomes politicized, the language used to discuss this thing becomes, conveys nothing. Other than that we’re fighting, we don’t like each other vote for the other, vote for us not the others etcetera. Sadly the term regulation, which has been my whole life is now nothing more than a politicized epithet used, hurled by everybody without regard to underlying content and it’s… For those who are interested though, my publication regulation we talk about the guts of things and we talk about it in these podcasts. But for Trump supporters, Trump is doing what he said he would do. He is not doing like many candidates which is, I said some things in the heat of political battle and now I’m really governing in a different way. Uh uh. He is trying to do what he said he was gonna do. The problem is, a lot of that is administratively not kosher unless the courts are I predict probably not gonna allow a lot of what he’s trying to do to actually stand. And there’s much more mischief by the Dems than in the same regard which is we talked about the over stretching things which then the courts throw out. And so both sides are electing people to try to do things that are not possible. That’s sad.
49:32 Trevor Burrus: Thanks for listening, Free Thoughts is produced by Tess Terrible. If you enjoy Free Thoughts, please subscribe to us on iTunes, or wherever you get your podcasts. If you like to learn more about Libertarianism, find us on the web at www.libertarianism.org.