European Keynesians recommend Anti-Business Policies to spur New Economic Activity

Posted by PITHOCRATES - March 23rd, 2013

Week in Review

In the U.S. some state governments are lamenting the fuel efficiencies of today’s cars.  They don’t like them.  Because unlike the gas-guzzlers of yesteryear fuel efficient cars don’t burn a lot of fuel.  And you’re probably thinking isn’t that the point of making cars more fuel efficient?  So they burn less fuel?  So this is a good thing, yes?  Well, if you’re thinking like that you’re obviously a selfish person.  For these states have expensive union pay and benefit packages they must for their government workers.  And their retired government workers.

Cars that are buying less gas are paying less state fuel taxes.  Which is forcing these states to spend less on maintaining roads.  As there just isn’t enough cash left over after paying pensions and health care costs.  It’s getting so bad that states want to tax drivers by the mile they drive and not by the gallon of gas they buy.  So these selfish people driving fuel efficient cars will pay the same taxes those driving gas-guzzlers pay.  So whenever anyone talks about the economic benefits of new governmental regulations they’re probably not telling the whole story (see European Car-Efficiency Rule Would Cut Fuel Bill by 25% by Alex Morales posted 3/17/2013 on Bloomberg)

A European Union plan to tighten emissions standards on cars would cut auto-fuel costs by almost a quarter in 2030, according to a report e-mailed by a group promoting policies to reduce carbon emissions in the region.

Fuel bills would fall 57 billion euros ($75 billion) from a projected cost of 245 billion euros in 2030, said the European Climate Foundation, which contributed to the report prepared by Cambridge Econometrics and Ricardo-AEA. Producing fuel-efficient vehicles would add 22 billion euros of capital costs, it said.

“The effect of reduced spending on fuel more than outweighs the impact of increased spending on vehicle technology to reduce carbon emissions,” according to the e-mailed report. “Most of the money spent on fuel leaves the European economy, while most additional money spent on fuel-saving technology remains in Europe as revenues for the technology suppliers…”

Today’s report for The Hague-based foundation, examines the effects excluding taxes in 2030 of meeting the proposed car and van standards for 2020, plus improved efficiency of less than 1 percent a year for the following decade. The policy would add 356,000 jobs to the EU economy by 2030, even after accounting for lost posts in refining, according to the report’s authors.

Gas prices are higher in Europe because they tax their gas more.  Europe is in the midst of a sovereign debt crisis.  As excessive budget deficits raise borrowing costs.  So Europeans are not going to see any savings with these more fuel efficient cars.  For countries running chronic deficits are just not going to allow a major source of tax revenue wither away.

Only a Keynesian could put together such a report.  For Keynesians don’t know the first thing about business.  All they know is tax, borrow, print and spend.  The very things that got Europe into their sovereign debt crisis.  Spending money they don’t have.  No.  Increasing the cost of business does NOT help a business.  It forces them to make cuts elsewhere.  Directing capital to where the government wants it.  Not the market.  So while the government forces them to spend money on tightening emissions standards they will spend less money on adding things people want in their cars.  If you add a few thousand in new emission systems they may have to eliminate the music system or some other creature comfort.  Unless people can afford to spend a few thousand more on their cars.

They won’t be able to afford these higher priced cars.  So they, instead, will buy less expensive cars.  Either smaller cars.  Or foreign made cars.  Or they will just not buy a car at all.  Leaving them little more than toys for the rich.  Who can afford to pay no matter what the government decrees.  And any savings in fuel costs?  There will be none.  When the governments see all that loss tax revenue they’ll find something else to tax.  They’ll have to.  Because they’re all running chronic deficits.

This is yet another example of why we should never listen when a Keynesian is talking.  Or anyone that says higher taxes and more regulations will create economic activity.  For they are either completely ignorant of business and economics.  Or they’re just lying to help advance an anti-business government agenda.

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