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December 19, 2007
If you're like me, the bluster and grandstanding associated with big congressional actions make you want to roll up the windows, crank up the radio, and tune out the whole circus. But the mammoth energy bill finally passed by Congress and signed by President Bush is something consumers should pay attention to. Among other things, the new law will directly affect the kinds of cars on the market in a few years—and what buyers pay for them. Some of the big changes that automakers and consumers will both have to contend with:
Surprisingly tough gas mileage standards. The requirement to raise corporate average fuel economy (the quaint-sounding "CAFE," in Beltway-speak) is an aggressive target that will force adjustments by automakers and consumers alike. Getting to a fleetwide average of 35 miles per gallon by 2020, from the current standard of 27.5 mpg, will require annual fuel-efficiency increases of about 3.3 percent. New technology and market competition always drive some gains in efficiency, but over the past couple of decades in the United States, it's amounted to less than 1.5 percent per year. Even in Europe and Japan, where gas costs more and cars get better mileage, annual gains have been 2 percent or less. Environmentalists are disheartened by other aspects of the energy law, such as its lack of support for renewable energy, but on gas mileage it has teeth. Our overall fuel economy numbers will still be lower than elsewhere, but the improvements will be dramatic.
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December 10, 2007
It's been nearly five years since the last recession, and when times are good we tend to forget what we learned when they were bad. So after several years of booming home values, inflated personal wealth, and overconfident spending, 2007 has brought a refresher course in the basic realities of a free-market economy: What goes up must come down. The laws of supply and demand usually prevail. Caveat emptor.
One of the byproducts of a strong economy is the Myth of Control: the notion that we can legislate, regulate, incentivize, intimidate, and even buy our way to unending prosperity. The Federal Reserve, of course, has some ability to fuel or restrain growth and rein in inflation. But as the economy sputters into 2008, we're learning once again that the wizards of Wall Street and Washington (or Shanghai and Bangalore, as the case may be) have no magic pill after all to cure our biggest ailments:
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December 7, 2007
It will bail out some drowning homeowners, but don't expect the Bush administration's subprime survival plan to do much for the broader economy. The "voluntary" deal with lenders will freeze the interest rates on several hundred thousand subprime mortgages, helping many homeowners avoid foreclosure. That's good, except that a few niggling details are still unsettled—like who will pay for the losses that the rate freeze will cause lenders. Nor is it clear how the plan will aid economic growth, or what other consequences—including unintended ones—there might be. I asked James Barth, an economist with the nonprofit Milken Institute in Los Angeles, to help explain the likely impact of the deal:
The purpose of this agreement, supposedly, is to avert a growing problem that could threaten the overall economy. Is there some way to tell whether it will do that?
Let's start with the numbers. Just short of 2 million people are subject to interest-rate resets. About one third of them may benefit from this so-called voluntary agreement between the government and the lenders, another one third won't benefit at all, and another one third will be in foreclosure, so they won't benefit either. So that's about 600,000 people who will be affected. That's not a lot.