Tuesday, May 30, 2006

Asking the Wrong Question

Sony is releasing a documentary entitled "Who Killed the Electric Car?" You can view a trailer here:
http://www.sonyclassics.com/whokilledtheelectriccar/

I'm not very optimistic about the movie, based on the trailer, but more on that in a moment. First I want to point out that "who killed the electric car" is the wrong question. Or at least, it's not the important question. The important question is "should the electric car have been killed", or more precisely "do the benefits of the electric car exceed the costs".

It's not clear that the benefits exceed the costs. Electric cars may be very expensive to produce. GM's EV1 was certainly expensive. It also didn't meet the safety regulations of the late 1990s, which apparently helped end the program. (EDIT: The safety bit has since been removed from the Wikipedia entry.) It is likely the case that electric cars are associated with positive externalities, since they reduce air pollution. A complete cost-benefit analysis would require calculating the externality costs of a mile driven with a conventional vehicle, compared to the externality costs of a mile driven with an electric car. Perhaps it is the case that the benefits of eliminating that pollution justify the production of electric cars. The wikipedia link above says that there were a great many people interested in buying the EV1 when GM ended the program, but I suspect that the number would be smaller now, as many of the potential buyers have likely bought hybrid vehicles, which may be substitute goods.

Let's pick a big number for the externality. Say, $5,000. Suppose the federal government gave every buyer of an electric car $5,000 in order to encourage purchases. Using the EV1's lowest price of $34,000 (The wikipedia article doesn't say what year that price comes from, or I'd adjust it for inflation), that would make the price to a consumer $29,000, plus tax and other fees. You can buy a new Toyota Prius for $23,000. Is the all-electric car worth an extra $6,000? Surely not. By my calculation, $6,000 would buy about 1,700 gallons of $3.50 gasoline. If you're not very good at getting good gas mileage from your Prius, you might get 40 mpg (my wife averages 44 to 48 mpg). So 1700 gallons could take you 68,571 miles in your Prius. That's quite a bit of driving. If you average 12,000 miles a year, you could drive almost six years on the savings from buying the Prius instead of the electric car. Not to mention you don't have to wait for the Prius to charge; you can refill it quickly whenever you want. On the other hand, after six years the electric car might start to pay for itself.

The trailer for "Who Killed the Electric Car?" hints that maybe oil companies had something to do with it. That doesn't make sense. Car companies get revenue from selling cars, not gasoline. If people want cars that don't use gasoline, car companies will sell them, if they can make a profit. If oil companies really had such control over car production, hybrid cars also wouldn't succeed. Yet they have. As much as oil companies may not like competition from other energy sources, there isn't really much they can do about them. Perhaps the full movie is much more sophisticated than the trailer and discusses these problems, but I'm not optimistic.

Some day we may have electric cars. It may even be some day soon. Many people are experimenting with converting their hybrid cars to work as plug-in hybrids. This allows them to spend more time running off their batteries, and less time using their internal combustion engines. Calcars says that their current conversion of a Prius to a plug-in hybrid costs $10,000, but they hope to get it down to $5,000.

I'll wager that in forty to fifty years we'll all be driving electric cars, charged using energy generated from solar power plants and other clean energy sources.

Monday, May 29, 2006

Alternative Engine Technologies

Everyone is talking about alternative energy, hybrid cars, and other technological developments that can help reduce gasoline consumption. What are the technologies available? Let's make a list. I'll provide some of them below. I hope that some of you will add some additional technologies I'm missing in the comments.

Biodiesel (probably not able to scale large enough to replace much gasoline)

Ethanol (definitely not able to scale large enough to replace much gasoline)

Hydrogen (too expensive to produce and store at the moment)

Hybrid gas/electric (currently in use; price premium makes it unclear if they're a good deal, but that will improve)

Quasiturbine engines (not available yet, but R&D is ongoing: http://www.quasiturbine.com/ )

Camless engines (also not available, but Honda and other companies hope to release models without cams within four or five years.)

Rotary/Wankel engines (only Mazda uses them, and mostly for power/weight ratio. They're very efficient overall, but the focus has not been fuel efficiency. That could change! Mazda does have RX-8 hybrid rotary/hydrogen cars in Japan, but don't expect to see this in widespread production any time soon.)

Pure electric (Recharges from the grid. GM tried this, but gave up on it. It may not be practical, although it is probably a bit cleaner to generate power on a large scale and distribute it.)

So, what am I missing? What engine technologies are on the horizon, offering fuel efficiency and power gains? I could have listed small engines with turbochargers, or turbo diesels, but since those are not really new technologies, I'll leave them out.

Tuesday, May 23, 2006

I found this article interesting (thanks Autoblog). It says that Korean automakers are delaying introduction of their own hybrids because they're not sure they can make money off of them without government subsidies--and if they get government subsidies and lower their prices, they may be subject to international trade restrictions.

They might sell them without subsidies, but then they could be subject to anti-dumping laws if they took losses. If they charge prices high enough to make a profit on each car, they might go unsold. What a mess.

If someone offers you something for a low price, you should buy it. You need not ask "did someone else subsidize you to make the price this low?" The answer to the question is irrelevant. If Koreans want to pay taxes to their government so that we can have cheaper Korean hybrid cars, then I am mighty appreciative. I don't think the Koreans are doing themselves a favor, of course.

What of the cost in lost American jobs? Again, suppose someone offers you a cheap car. Do you say "but I wanted to work the extra hours to pay more for that car"? Of course not. Some of the labor income that would have gone to pay for that higher price can now be used to buy something else. So it is with jobs. We would have used resources to produce more hybrid cars without the Korean subsidy (or we might have purchased more expensive Japanese hybrids instead). Thanks to the generosity of Koreans, our workers can build other things instead. We're better off.

As an extreme example, suppose aliens from another planet stopped by to say hello, and gave every American a free car as a gesture of interstellar friendship. Assuming that the cars are not in fact booby-trapped in order to wipe us out and take control of our precious supply of jelly beans, we would be fools to turn them down. Free cars are the best. But cheap cars are pretty good, too.

Sunday, May 21, 2006

Another bad argument I hear frequently (and which is related to the one in my previous blog entry) is the argument that immigrants who come to the U.S., earn income, and then send dollars home to their families are harming the U.S. economy.

There are several problems with this claim, related to the two uses of dollars in foreign countries:
1) The first use of dollars overseas is as a stable currency. Many countries have irresponsible central banks that grow their money supplies rapidly, resulting in high and unpredictable inflation. People living in such countries would prefer a more stable currency. Sometimes they prefer to carry out exchanges in dollars (or gold, or use barter) instead.

Does this make us worse off? This argument is going to seem counterintuitive, but no, it doesn't. The immigrants come to the U.S. and produce goods and services for us. In exchange we give them pieces of paper. Clearly employers and consumers are benefitting from this transaction. Some workers may be harmed by the competition, but it's generally thought that the gains largely outweight the costs.

But what about the dollars sitting in Mexico (or wherever)? Doesn't the loss of dollars from the U.S. economy hurt us? No, it doesn't. The foreigners have basically decreased the U.S. money supply, giving each dollar remaining in the U.S. economy increased purchasing power. It's as though the Federal Reserve had decreased the money supply.

That brings us to yet another reason this absent money doesn't matter: The Fed can easily counteract any money that leaves the economy and stays out by pumping more money into the economy, if necessary. Controlling the money supply is its job.

2) The second use of dollars overseas is to buy U.S. goods or services, and to invest in the U.S. Clearly this isn't doing us any harm; we're willing to part with the goods, services, and investments for the price the foreigners offer, so we must be better off.

Now, Paul Krugman has made an argument about dollars sitting overseas here (He's specifically debunking the "petrodollar" conspiracy theory about Iraq). He's essentially making the first argument I made in response to 1) above: foreigners are giving us labor, goods, services, and so on in exchange for pieces of paper, which they're holding onto, and for which we're paying no interest. That's like a free loan.

So people who want to oppose immigration, legal or illegal, need to come up with another argument. I think the best argument one can make against illegal immigrants is that they're not paying the same taxes everyone else is compelled to pay, yet they are consuming government services. But then, that's an argument for making them legal, not an argument for keeping them illegal.

Friday, May 12, 2006

Automotive Jingoism

I like to follow automotive technology. Partly this is for professional reasons--technological progress has important economic implications, and automotive technology can specifically affect my field of interest, environmental economics. I'm also a bit of a gadget geek, even if I can't afford many gadgets myself.

For this reason I tend to check autoblog.com. Today I saw this entry:
http://www.autoblog.com/2006/05/12/new-ad-campaign-for-the-big-3-plays-the-buy-american-card/
And I found it disturbing. Specifically, this line:
"While we fully support the concept of buying domestically-produced consumer products..."

I have a really hard time understanding this idea. Why would one buy domestically produced products for any reason other than the fact that they happen to be a good deal? That is, why would one buy them just because they're American? I don't understand why I should be more willing to buy a product made by strangers who happen to live in the U.S.A. than I should be to buy a product made by strangers who happen to live in another country.

What makes Americans more deserving of my money? To put it another way, what makes Americans so deserving of my money that I should forego buying a superior car and buy one made by Americans instead? How much superior must the foreign car be before I can be justified in buying it?

That's a moral argument against this kind of jingoism (it could be racism, but I think it's likely just a fear or hatred of foreigners). There are good economic arguments against buying American cars just because they're American. For example:
1) It relaxes the competitive pressure on American car companies, encouraging them to build inferior cars.
2) It doesn't "save jobs" on net. The dollars that go to Japan come back to the U.S. in the form of purchases of U.S. goods and investment in the U.S. (including the purchase of government debt--and if foreigners weren't buying it, we'd be paying for it now with taxes, rather than paying for it later with taxes).
3) (This argument is pretty weak.) It delays the ongoing and inevitable transition of the U.S. away from manufacturing. The sooner we realize that low-skill manufacturing should take place in low-skill countries, the sooner we can get focused on reforming our education system to turn out the high-skill workers we need. Okay, this is probably excessively optimistic. We're not likely to get any useful education reform any time soon.

But all these practical points should not obscure the simple fact that buying something from someone just because it was made by a particular group of strangers who happen to live in a particular area is not really all that different from, say, buying something from a group of strangers just because they're white.

Only individuals matter, and all individuals matter equally.