Who killed the 65mpg car?
A few years back a left-of-center "documentary" titled "Who Killed the Electric Car" pointed the finger at GM as a member of some oil cabal trying to maintain the dominance of gas-powered cars for all eternity.
Ironically, GM had done more than any other company in researching and developing the electric car. What killed that car was the market. The car was way too expensive, in 1996 it leased for $417 per month (in 2008 dollars). At that price, few people wanted to have a car that drove only 80 miles and took up to 15 hours to recharge.
Anyway, Ford recently unveiled a new car that makes 65 miles per gallon – an astonishing feat for any car company, let alone an American car company that makes its bucks on the gas-guzzling Explorer and Mustang.
But ... Ford can't afford to sell the car in the U.S. Why? The company is sinking faster than the Titanic (but not as fast as GM), so you would think it could sell easily here.
But alas, something has killed the 65-mpg car.
No, it's not the oil companies, and no, it is not Ford. So what is it?
If you guessed the American government, you guessed right.
As usual, federal meddling in our economy produces perverse incentives that, in the long run, usually retard economic growth and innovation – in this case, innovation to solve current problems.
You see, Ford's new car runs on diesel. Diesel, once thought of as a dirtier pollutant than traditional gasoline, is now cleaner and more fuel efficient thanks to new technological innovations. In America, however, we have a a higher tax on diesel fuels that pushes the price up to $0.20 to $1 more per gallon over traditional gasoline.
Environmentalists thought they could clean up the existing polution problem by regulating away the pollutant. Unfortunately they regulated away our ability to clean up future pollution by interfering with the market.
Adding to the problem is the fact that the engine is produced in England, and the exchange rate between the U.S. and England has worsened as U.S. monetary policies continue to devalue the dollar while trying to stop market corrections that are going to happen anyway (and bail out businesses that are going to fail again).
So while Ford would love to sell its new car in America, the U.S. government has made it very difficult to do so by sticking its finger in the economy, deciding what is important for the rest of us. The end result was to kill a fuel-efficient and environmentally friendly automobile that the American public probably would have bought. That is why we call them unintended consequences.