No matter how hard the government tries, it just won’t ever be as effective as the free market is in satisfying consumer demand. Want proof? Take a look at what the federal government is doing to lure people into buying more expensive, less convenient plug-in electric cars.
Since little demand currently exists in the market for electric cars, the government offers a tax credit of $7,500 to those who purchase vehicles like the Chevy Volt and the Nissan Leaf. And even with the tax credit, electric cars aren’t flying off the lots. So while the government continues to waste taxpayer dollars in its attempt to commercialize an industry, the free market is meeting consumers’ needs by improving existing technology and doing so without government-funded incentives.
Unlike the government, a few car manufacturers actually learned something from the spike in oil prices in 2008. When gas prices soared, car dealerships watched SUV purchases plummet as consumers became far more interested in buying smaller, more fuel-efficient cars. So how did the car producers learn from this lesson and respond to consumers’ wants? The solution didn’t entail reinventing the wheel. Instead, they found ways to revamp gas-powered cars – by developing existing technologies and resources – that use less gas and get more miles per gallon than hybrids.
A recent article in The Washington Post offers a great example of how Ford, Hyundai and Chevrolet – manufacturers that are not receiving subsidies to produce new gas-powered cars – more effectively meet consumers’ needs than highly subsidized electric cars do. As the article explains, “…the best immediate hope for restraining the nation’s fuel consumption might be some new vehicles that, although powered by conventional engines, run efficiently because they have been stripped of unnecessary weight, streamlined to move smoothly and equipped with gas-sipping engines.” The article continues to note that that some of these cars, like the Chevrolet Cruze “can reach eye-popping fuel economy levels of more than 50 miles per gallon on the highway…”
Not only do these new “super fuel economy” cars use less gas, they also have a far lower sticker price in comparison to the electric cars currently on the market. This really shouldn’t be a huge shock given the outrageously high cost of electric cars. As Heritage’s David Kreutzer and Nick Loris explained in a recent paper on electric cars, despite any savings the electric car owner may receive because of not purchasing gas, over the long haul that savings is not enough to compensate for the higher sticker price – even when factoring in the generous tax credit.
As Kreutzer and Loris also note, even with all the money the government has given to foster electric car growth, the market still is reluctant to respond. If the idea is a good one and a company has the opportunity to profit from the product’s development, then no subsidy is needed to prompt investment. The free market works just fine and succeeds where subsidies fail.
Not only does this article demonstrate that the market works, it also implicitly demonstrates that government’s attempts to commercialize an industry by flooding it with handouts doesn’t. A subsidy’s success is rarely – if ever – seen in marketplace, rather in most cases the only form of success subsidy recipients secure is dependence on the government’s dime. And despite all this, some in Congress still haven’t learned the lesson. Senator Debbie Stabenow (MI-D) and the Obama administration are seeking to change the existing $7,500 tax credit for electric vehicles into a rebate offered to consumers at the time of purchase. Although this “Cash for Clunkers Part 2” has many problems, one of the worst ones is that this “rebate” benefits GM, which just so happens to be in Stabenow’s home state of Michigan. This example demonstrates that when the government chooses winners and losers in the market, the winners are usually pet projects, and the losers are the taxpayers as well as the market.
