Getting it right

Does an informed public make the right choices? Well, it all depends. That is, it depends on whether the choice makes you a winner or a loser.

Does an informed public make the right choices? Well, it all depends. That is, it depends on whether the choice makes you a winner or a loser. Recently, the public made three choices that created both winners and losers:

  • They prefer less fuel-efficient cars, but for reasons unrelated to fuel efficiency.

  • They want cheap capital, regardless of the fine print in the contracts they have to sign.

  • They want alternative fuels, but not those that are most efficient.

I think we need to establish “Labbe's Law of Public Choice.” (No one else would go near this.) Here's how it works: The public will make the right choices for the wrong reasons and the wrong choices for the right reasons.

Most Americans have chosen not to purchase the most fuel-efficient cars. This is the wrong choice, not only for the environment, but also for the economy. The vehicles they're buying consume more fuel, which leads to higher fuel prices, as well as higher prices for everything else. That's right, everything. Costs will increase at every step in the distribution process because of the higher cost of fuel. Eventually, these increases are passed on to the consumer.

However, the choice of a less fuel-efficient vehicle makes sense in terms of safety, comfort and carrying capacity. If someone drives 20,000 miles a year, they'll use 533 more gallons of fuel if they have a car that gets 15 mpg rather than one that gets 25 mpg. At $3/gal., that's an additional $1,600 a year, or $30.76 a week. So that's the value of better safety, more comfort and more carrying capacity — plus any other illogical reason for buying the vehicles we do.

Now let's look at the public's decision to get their hands on as much capital as possible when they were offered financing terms that were too good to be true. Banks loosened their criteria considerably, giving more people the opportunity to borrow money.

This turned out to be a mistake for all involved — lenders, borrowers and the public in general. Lenders will eventually have to deal with a higher rate of delinquencies and foreclosures, while borrowers will be saddled with poor credit histories. The general public will eventually end up paying for the economic consequences of all this because interest rates will go up and banks will make it more difficult for people to qualify for loans.

In the case of greater use of alternative fuels, the public has made the right choice. What's not right, however, is that they are focusing primarily on transportation. Granted, trucking uses a lot of fuel. But it is still a very small percentage of society's overall energy use.

The current economy uses less energy per dollar of GDP than it did just a decade ago. Appliances are more efficient, homes are more efficient in their use of fuel for heating and cooling, and cars are even more fuel-efficient.

In addition, our choice of alternative fuel may be the wrong one. By using cropland to grow the corn necessary for ethanol production, we'll drive up the prices of many food products, use more fertilizer and pesticides, and create more waste.

A better choice would be to improve the transmission of electricity to the point where we could generate the power at the mine mouth. And in my opinion, the use of nuclear power — as it is in Europe — would be more environmentally sound. So while the move to greater use of alternative fuels is a good one, we seem to be doing it for the wrong reasons.

We've made many of these types of choices over time — and we always seem to find a way to work things out. I'm sure we will this time as well.

TAGS: News
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