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Saturday, October 08, 2005


why urge higher fuel standards?

I think it's a bad idea for the government to regulate the feul economy of cars for two reasons. Firstly, this is a market activity. People in the economy are going to react to a rise in gas prices by considering their opportunity costs and either limiting their gasoline consumption, or pursuing other substitute goods. The market will handle the changed price of oil on it's own. Secondly, the constitution gaurantees economic liberties in the fourteenth amendment. The language is as follows;"Nor shall any state deprive any person of life, liberty, or property without due process of law."Liberty, as referred to in the fourteenth amendment relates to economic liberty as well. People have the right to buy and sell the things that they wish to, at the prices the owners set on their own. If there were no regulation from the government in the first place, there would be no constitutionally granted ability to regulate prices set by a free market. People are not gauranteed certain prices by the constitution. They are gauranteed the liberty to react to prices as they see fit.Another problem with instituting CAFE standarts is that The government would be hindering the natural correction our market diagrams would predict, and instead, the gov't would regulate the production of vehicles, not the price of gasoline. The market will equilibrate on it's own. This proposition simply begs the question, "Is it legal for government to react to high, market set prices by regulating industry?" Constitutionally, and economically, the answer is no. Market failure would result from government interaction. Price gouging does not have an economic meaning because people are going to react to ridiculously high prices by not paying them. They will consider other options, and the market will find the correct market price eventually.

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