The week of July 10, 2023: The flawed bet on electric vehicles, antitrust, tax, regulation, and much, much more.
The week of July 10, 2023: The flawed bet on electric vehicles, antitrust, tax, regulation, and much, much more.
The Mills bomb is (was?) the popular name for the pineapple-style British hand grenade that made its debut during the First World War. It came to mind after I was a few pages into Mark Mills’ intriguing new report for the Manhattan Institute on electric vehicles (EVs), entitled, “Electric Vehicles for Everyone? The Impossible Dream.” The report is too long to do it much justice in a brief(ish) summary. Nevertheless, I’ll touch on a few points he raises.
In Mills’ view, “EVs are a practical and appealing new category for many drivers. The world will see tens of millions more EVs on roads even without government mandates.” I agree. The problem comes when governments decide, one way or another, to “encourage” consumers to buy EVs and, even more so, when they ban sales of new internal combustion engine (ICE) cars.
Mills:
In banning ICE cars and mandating the use of EVs, policymakers are explicitly betting on the truth of three crucial claims:
EVs will lead to “profound” reductions in CO2 emissions
EVs are now, or will soon be, cheaper than, and operationally equal to, ICE [internal combustion engine] cars
There is a diminishing role for the automobile in modern times; in effect, there is a generational realignment in how citizens seek personal mobility.
All three are bad bets not supported by facts.
Even those who don’t agree with his conclusions (and who retain an open mind) ought to concede that Mills raises some awkward questions that deserve a serious response.
The three key bets identified by Mills look right to me, although when it comes to price, there ought, I think, to be a caveat. Policy-makers do not necessarily care too much about the price of EVs being cheaper than that of conventional cars. Rather, they just want EVs to be affordable enough for forced conversion to go through without causing a political uproar. However, even that more modest target may cause difficulties if the only way to hit that politically acceptable price level is job-destroying Chinese imports.
And if that politically acceptable price is still too high for some people and has the effect of pushing them off the road, particularly in cities, that won’t bother many of the central planners in charge of managing the transition away from traditional cars. Running not far beneath the push for EVs is a campaign against the ownership of any kind of car, as evidenced by congestion charges, innovations such as low traffic neighborhoods, and all the rest. Cars are seen as urban clutter, obstacles to a quieter, more orderly and (to those who share this vision) more aesthetically pleasing city, where travel is either collective or (Cycle lanes! Pedestrianized streets!) healthy, and where ideally, residents, comfortable in their fifteen-minute cities, just don’t move around too much. Translated into the real world, the implementation of such a vision could mean economic and social disaster, especially for those without the financial resources to cope, but central planning is what it is.
Mills also believes that cars themselves (whether or not they are EVs) are in environmentalists’ sights (my emphasis added):
As stated in the IEA net zero goal [I discussed this goal in last week’s Capital Letter]: the number of global households without a car needs to rise from 45% today to 70% by 2050, reversing a century-long trend of rising ownership…
As usual, California regulators are ahead of the proverbial curve in admitting that the state’s emissions goals will require citizens of that state—on top of being forced into EVs—to drive 25% fewer miles than they did 30 years ago.
And Mills believes that the war against cars is about more than the climate, noting that, “car culture is viewed in many environmental circles as inherently toxic and unnatural.” In his view, “It would be reasonable to reach the conclusion that, put simply, they’re coming for your cars.”
Early in the report, Mills looks at the growth in EV sales. This is certainly revving up, but at a pace, Mills argues, that looks rather less impressive when compared with the take-off of other “category-creating” vehicles. That’s a tough standard. Launching a new category within an existing automotive technology is very different from the challenge that EVs have faced. Nevertheless, the comparisons add some perspective:
It took six years after its introduction before Tesla sold its 200,000th car. Two years after Ford introduced its electric Mustang Mach-E, sales reached only 150,000 (now the distant second most popular EV in America). Compare that to 1983, when Chrysler invented the minivan, well-timed to meet a demographic shift; consumers bought more than 200,000 in one year. But the consumer adoption record belongs to the 1964 Mustang, another category-creating car and one well-timed to meet the demographic shift of that era. Ford sold 1 million Mustangs within 18 months.
Mills also notes that in 2022, one-third of global EV sales were hybrids, “a category that policymakers are eager to ban,” which, in the West anyway, is true enough. The opposition to hybrids is telling. Climate policy-makers ought to back a technology that reduces emissions and can act as a bridge to consumer acceptance of “full” EVs. That they are not is reminiscent of the opposition by anti-tobacco policy-makers to vaping, an almost infinitely less lethal pastime than smoking. In both cases, the purported policy objective (whether saving lives or saving the planet) comes second to the insistence on absolute purity that is often the hallmark of a certain kind of fanatic.
Mills questions the idea that Millennials and Generation Z are less enthused by autos than earlier generations:
[A]ccording to a recent MIT analysis, that, compared with boomers, millennials exhibit “little difference in preferences for vehicle ownership” and that “in contrast to anecdotes, we find higher usage in terms of vehicle miles traveled.” [go to the main report to check the sources of the data]. The share of cars bought by the yet-to-come-of-age Gen Zs has increased fivefold in the past five years. The data also show that once the 2008 recession ended and millennials found work, they bought cars and took to the roads along with everyone else, restoring and even somewhat accelerating the long-run growth in total vehicle miles driven on America’s roads. Only the Great Recession, and then the draconian pandemic lockdown measures, put temporary halts on that trend.
Overall, Mills’ conclusion (my emphasis added):
In service of government climate strategies to achieve radical emissions reductions, consumers will need to adopt EVs at a scale and velocity 10 times greater and faster than the introduction of any new model of car in history. Policymakers are right about at least one thing: that won’t happen naturally from market forces or consumer preferences.
Lest there be any doubts about the scale of this exercise, here’s one statistic from Mills (emphasis, again, added):
Ultimately, if implemented, bans on conventionally powered vehicles will lead to draconian impediments to affordable and convenient driving and a massive misallocation of capital in the world’s $4 trillion automotive industry.
It’s hard to think that this is good news for the incumbent auto companies in the West (for Chinese manufacturers it may well be different), the firms that supply them, and the workers who work for both.
Naturally, Mills asks how much EVs will really reduce CO₂ emissions. He argues that, “a useful starting point is IEA’s seminal report on ‘energy minerals,’ which includes both upstream factors and grid fueling. The agency concludes that, compared with an ICE car, there is still about a 50% reduction in life-cycle emissions for EV.” That’s a number I have cited myself, so it was disappointing to read this:
However, the IEA analysis not only uses debatable assumptions but also buries the variables and uncertainties.
Oh.
According to Mills, these “variables and uncertainties” include the location of plants used in the EV manufacturing process (the whole way down the supply chain: “A battery plant in Norway, where dams provide about 90% of electricity, adds very little to upstream emissions from mineral processing and assembly, while a lot is added for the same plant in China, where coal supplies two-thirds of grid power”), the location of mines used to extract raw materials for EVs, the size of battery packs, battery lifespans, typical mileage, improved ICE efficiency, the impact of declining ore grades, and much more besides.
As EV manufacturing develops, some of these variables and uncertainties will be resolved, whether for good or ill. Perhaps these unknowns are less important than Mills suggests, and perhaps innovation will shrink them to irrelevance. Perhaps.
The mandated switch to EVs will proceed with little or no attention to market signals. In January 2022, the CEO of Stellantis described EVs as a “technology chosen by politicians, not by industry.” And so they are. Meanwhile, the then-CEO of Toyota and the chairman of India’s largest carmaker are among those who, rightly, have criticized the problems associated with having so much riding on one technology. It is an approach that is not only reckless but also will reduce the incentive to innovate in the EV space and discourage the development or improvement of alternative technologies outside it.
For its part, the Alliance for Automotive Innovation, a grouping that represents companies responsible for roughly 97 percent of new cars sold in the U.S., has warned that the pace of the switch to EVs needed to keep them in compliance with the EPA’s proposed new emissions regulations is “neither reasonable nor achievable” within the agency’s proposed timetable. The targets cannot be met, it argues, “without substantially increasing the cost of vehicles, reducing consumer choice, and disadvantaging major portions of the United States population and territory.”
A willful determination to enforce a transformation on this scale, regardless of what markets signal, consumers want, and manufacturers can produce, is an invitation to disaster. That it may well be based on a profoundly flawed cost-benefit analysis is additional reason for concern.
And while on the topic of cost-benefit analysis, I’ll just add this from something I wrote in January:
According to the EPA, in 2019 (the last pre-Covid year) transportation accounted for around 33 percent of U.S. GHG [greenhouse gas] emissions. Some 58 percent of that was from cars and light-duty trucks. They were thus the source of about 19 percent of U.S. GHG emissions. The U.S. accounted for 11 percent of global GHG emissions that year. That means that cars and light trucks in the U.S. accounted for approximately 2 percent of global GHG emissions in 2019. They contributed even less in the EU.
In Mills’ view, “EV mandates will lead to trivial, even nonexistent, reductions in CO₂ emissions.”
Under the circumstances, the speed, scale, and coercive nature of the switch to EVs makes no sense. But to climate policy-makers, the symbolic value of this rushed, forced rejection of conventional cars is priceless. It reinforces the sense of a climate “crisis,” and it is also — in keeping with the religious or quasi-religious elements of this crusade — an exorcism of sorts.
But back to Mills, who turns his attention to other factors, which (his emphasis) “absent a prohibition of ICE cars” would govern the take-up of EVs. These factors include price and ease of use. Unsurprisingly, Mills has his . . . doubts. As with the rest of the report, it’s worth taking time to go through these in detail. Maybe Mills is being too pessimistic, but he only has to be right in a few of the issues he mentions for the road ahead to begin to resemble an assault course. Among them are mineral costs, the impact on residential electric networks of home charging, the cost of building out a fast-charging network (and, relatedly, the cost of fast charging), and the cost of upgrading the grid.
Oh yes, Mills touches on the dangers of creating new, geopolitically dangerous raw material dependencies, and the environmental costs of, among other things, the extraction of those raw materials.
Maybe, given time, human ingenuity, and the critical mass that will come when enough EVs are on the roads, some of these problems will be solved. Maybe, but time is not something that Western regulators want us to have.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 127th episode, David was joined by Stephanie Slade of Reason magazine to talk through the wonders of fusionism and why the “new right” skips over the best remedy available for that which ails us.
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here online at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy . . .
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Forgotten Book
The Forgotten Book is a new feature on Capital Matters. It will be a column written by new National Review Institute fellow, historian Amity Shlaes, and will appear every two weeks.
We live in an age of short attention spans, and one of Amity’s objectives is to introduce readers to books or other primary sources that warrant a second look. Some of these works may have been written decades ago — or even a century ago. Recently the forgotten writings of those who protested the New Deal were collected by Amity in an anthology, New Deal Rebels (American Institute for Economic Research).
With her Capital Matters column, Amity will dedicate herself to sharing with Capital Matters readers older, forgotten books, along with new books that aren’t getting the attention they perhaps warrant. In her first review she treats The Curse of Bigness: Antitrust in the New Gilded Age (2018) by Timothy Wu.
Here’s an extract:
The first part of Wu’s walk through the Gilded Age, the economic concentration, is factual: Large industries did consolidate rapidly around the turn of the century. But after that, he strolls off into the thicket. Contra Wu, the Gilded Age was hardly an age of pure laissez-faire.
The trust men, and the Northeast in general, benefitted from a massive government-arranged subsidy: the tariff. It was the tariff, always tailored to the preferences of the giants, that raised prices for basic goods for farmers and workers, right down to prices of tin plates.
Wu verges farther from the evidence in his characterization of trusts and their leaders. The prospects for railroad’s permanent domination may have looked as assured in the era, as, say, the domination of Amazon or Google looks today. But they weren’t. Trucking waited just around the bend.
The Capital Matters week that was . . .
Trade
Last month, the public-policy organization American Compass put out what it called a “handbook for conservative policymakers” on economics. As I noted in the print magazine, it brushes aside tax cuts as outdated, despite the unprecedented success state-level conservatives have had cutting taxes in the past three years. As Jonathan Nicastro noted for Capital Matters, the handbook’s recommendations on industrial policy are economically illogical and resemble the sort of “technocratic machinations” conservatives expect to hear from the Left.
Bryan Riley has taken on the handbook’s trade recommendations in a new article for the National Taxpayers Union. Like Nicastro, he notes that many of the policy proposals are similar to those that politicians on the left have advocated for decades . . .
Electric Vehicles
So sales are ramping up, but not by enough to deal with the increase in production. That mismatch may sort itself out after a while, and inventories can build up of any type of car from time to time. But what may make this inventory build-up more ominous than usual is that many of these cars are being manufactured not because of current consumer demand (Tesla is one obvious exception to this) but out of the hope that sooner or later, increasingly heavy-handed government intervention in the auto market will create demand. That might be correct, but, for automakers, it is a very different attitude to reading the market in the way that they are used to . . .
Tax
It’s easy to be distraught by the national-level Republican Party. But look to the states, and you will find Republicans making positive reforms from sea to shining sea.
I wrote in the last print issue of NR about the ongoing state tax-cut revolution. Every state with a unified Republican government that has an income tax, except Alabama, has passed a rate cut in the past two years. Five states — Iowa, Mississippi, Georgia, Arizona, and Idaho — have passed laws to implement a flat tax, and several more have reduced their tax complexity by reducing the number of brackets. Republican governors in Iowa, Mississippi, and North Dakota have talked about joining the soon-to-be eight states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, and in 2027, New Hampshire) that don’t tax individual income at all . . .
Can you make income that you never receive? The question may seem overly theoretical or even downright silly. But it is now at the crux of a case coming before the Supreme Court in the fall.
Toward the end of this term, the justices agreed to hear Moore v. United States for the fall 2023 docket. The case resulted from a provision in the 2017 tax bill passed by Republican congressional majorities and signed by President Trump. The law required a one-time tax payment on certain profits held overseas since 1986. Prior to this bill, such money had not been taxed before it was “realized,” or given to the person in some form. An American couple, Charles and Kathleen Moore, had invested in an Indian company that had consistently reinvested profits back into additional company expenditures. Though they never received any dividends from those investments, they received a tax bill for nearly $15,000 . . .
Antitrust
The FTC, under chairwoman Lina Khan, has sought to remake antitrust doctrine along more progressive lines, but agency morale has declined, and talented lawyers have left. Many antitrust efforts have failed to even reach the courts. As former FTC commissioner Joshua Wright told NR in March, “In the litigated cases we have, small as that number may be, we are getting losses that reject the FTC action, not on theory but on facts and evidence.” The Activision Blizzard case is the latest example.
Wright told NR today, “We’ve known for a long time that vertical mergers can harm competition if the facts match the theory. What the judge held today was that the facts did not match the FTC’s theory — which was obvious when the deal was announced, and should have been obvious to the FTC.” . . .
Khan has tried to explain this away as the friction that one would expect when a new spirit of activism is injected into a previously sleepy agency. Members of the committee should not let her get away with that answer but should instead drill down into the facts underlying this catastrophic plunge in FTC morale.
Former Republican FTC commissioner Christine Wilson has said that with the loss of morale, “we have seen an exodus of experienced lawyers and economists.” “The FTC may take a generation to recover from this loss of institutional knowledge,” she added . . .
Regulation
It seems self-evident that a country’s laws and regulations must be freely accessible to the public. As long ago as 1750 b.c., the Babylonian king Hammurabi put his code of laws on a pillar for all to see. Ever since, the public availability of law has been a crucial part of governance. Hammurabi boasted that any subject involved in a dispute could read the laws and learn “what is just.”
Well, roll over Hammurabi, because the U.S. federal government has apparently abandoned this almost 4,000-year-old principle. While most people are aware that federal regulations have been steadily accumulating for decades, many of these new, legally binding regulations are not publicly available through the Code of Federal Regulations . . .
Can you make income that you never receive? The question may seem overly theoretical or even downright silly. But it is now at the crux of a case coming before the Supreme Court in the fall.
Toward the end of this term, the justices agreed to hear Moore v. United States for the fall 2023 docket. The case resulted from a provision in the 2017 tax bill passed by Republican congressional majorities and signed by President Trump. The law required a one-time tax payment on certain profits held overseas since 1986. Prior to this bill, such money had not been taxed before it was “realized,” or given to the person in some form. An American couple, Charles and Kathleen Moore, had invested in an Indian company that had consistently reinvested profits back into additional company expenditures. Though they never received any dividends from those investments, they received a tax bill for nearly $15,000 . . .
Healthcare
An HSA functions like an individual retirement account, with individuals making pre-tax contributions which are used to fund qualified medical expenses. Families spend out of their HSA to pay for their health-care needs. Today, individuals can contribute up to $3,850 for their own coverage or up to $7,750 for family coverage, with unused funds carrying to the next year.
These accounts empower individuals to take control of their health-care spending, and provide an incentive to shop around for products and services. That can help with cost containment, but also provide a pool of capital to help cover unexpected health expenses . . .
Inflation
Inflation, the left-wing opinion magazine Mother Jones recently insisted, has become “the gasbags’ favorite moral panic.”
Now, when I think of a conventional moral panic, I think about the nonexistent plague of satanist cults that supposedly terrorized American children throughout the 1980s or, more recently, studies that suggest young adults who use aerosolized vaping products are at increased risk of criminal degeneracy in adulthood — much like their roguish, billiards-playing great-grandparents. What doesn’t spring to mind are government-compiled statistics quantifying price instability, which are higher now (and persistently so) than they had been for many of our adult lifetimes.
Free Markets
While it is true that Reagan largely rejected an expansion of government intervention in the economy (and was helped in that by the courts moving away from the old Brandeisian command-and-control interpretation of antitrust law) and significantly advanced the deregulatory push that was beginning in the Carter years, the extent of the state’s retreat is often exaggerated. That’s a discussion for another time.
But the FT’s writers are certainly correct to suggest that Biden’s approach to the economy is different from that of his predecessors, although whether some of the sectors the administration treats as “strategic” truly meet any benign interpretation of that word is another question. Some of the government’s investments in supposedly strategic “green” sectors are exercises in value destruction that might suit China’s strategic interests, but seem to offer little to those of the U.S . . .
Labor
Su was the secretary of labor for the California state government from 2019 to 2021. Her tenure included support for and enforcement of A.B. 5, the California law restricting independent contracting. She also oversaw widespread fraud in California’s unemployment programs. Under her watch, an estimated $32.6 billion in benefits went to scammers while eligible recipients were put on waiting lists.
She left her post in California to become deputy secretary of labor in the Biden administration. She was narrowly confirmed to that post with zero Republican senators supporting her (Manchin voted for her nomination as deputy secretary). Since former secretary of labor Marty Walsh resigned in March, Su has been acting secretary . . .
Transportation
The rail-regulation bill championed by a handful of Republican senators and the entire Democratic caucus is currently stuck at 58 votes, two short of being able to clear the Senate’s filibuster. Republican Senate leadership is largely opposed to it, with minority whip John Thune and Commerce Committee ranking member Ted Cruz being vocal about it . . .
Climate
Max Laraia & Richard Morrison:
Carbon offsets are a popular choice for companies and government agencies looking to achieve net-zero emissions targets. The idea is that for every ton of carbon dioxide (or equivalent gas) a company emits into the environment, it can pay someone else to take a ton out, and that makes the company “carbon neutral” from an accounting standpoint. Recent scandals, however, have called into question the ability of current carbon-offset markets to actually reduce emissions. Some observers even suggest the effort should be abandoned entirely.
Entitlements
Benefits paid by Social Security and other government programs receive automatic cost-of-living adjustments every year for the purpose of protecting beneficiaries from inflation. The size of benefit for some government transfer payments such as food stamps and Medicaid are raised using other mechanisms, but eligibility for those programs is determined by comparing household income levels to Federal Poverty Levels that are automatically adjusted for inflation . . .
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