New CAFE Standards and the Libertarian Road to Environmentalism

Yesterday the EPA, NHTSA and Obama administration proudly announced huge leaps in the CAFE (Corporate Average Fuel Economy) standards that automotive manufacturers will be required to adhere to by the year 2025 to the tune of 54.5 mpg.  Currently the standard is set to 29.7 mpg equivalent for 2012 model year vehicles for sale in the U.S.  These statements have created a fire storm of criticism from conservative groups and individuals.
I read one comment that claimed that the laws of physics would need to be defied in order to achieve such a result.  The commenter said that we'd have to sprinkle fairy dust on the cars to achieve those kinds of figures.  While the tongue-in-cheek comment was funny indeed, I take issue with the logic behind that criticism.
The fact of the matter is, we've been able to build cars with 30+ mpg and enough power for highway speeds since at least the 1960's, but we're only just beginning to achieve that as an average for our fleets (not quite, but close).  Back then, car companies were working with carbureted, points ignition, push rod engines, nylon bias-ply tires and the aerodynamics of a brick.  We now have cheaply available technologies such as direct or port fuel injection, computer controlled ignition systems, dual overhead cams, variable valve timing, low rolling-resistance tires and wind-tunnel-honed body shapes that would put to shame the aerodynamics of even the highest-performing race cars from that era.  That's not to mention the weight-saving materials technologies that have been developed since then.  We've now got lighter, stronger steel and aluminum alloys, carbon fiber and other composite materials, and the ability to use computer modeling and prototyping to design parts with lighter weight and greater strength than ever before.
With that said, it's safe to say that I don't believe 54.5 mpg for a large passenger vehicle capable of highway speeds and adequate acceleration to be a hard target to attain to.  In my opinion, that target is an underachievement.  If we've learned anything from the information age, it's that technology can always be made better and cheaper with each passing year.  My phone, which fits in my pocket, is 1.25 times as powerful as the computer that I paid about $1000 for in the year 2000.  It uses way less power, generates way less heat and only cost me $25.  The engineering of mechanical devices follows a similar trend toward increasing utility for less money, and cars and trucks are no exception.
The thing about the CAFE regulations that I take issue with is the notion that the government has actually achieved anything here.  It's been known with reasonable certainty for about 60 or so years that the oil supply that we use to power our cars is finite and that it will likely cease to be an economically viable energy source within the current century (probably within the next couple of decades).  It's also been warned for several decades now that the carbon dioxide that is released from the burning of fossil fuels is a greenhouse gas that could possibly irreversibly raise the temperature of our planet, and more and more evidence accumulates supporting that notion.  But we've only just achieved what was possible 5 decades ago in fuel efficiency.
The fact of the matter is, for at least the first 30 years of anti-pollution regulations by the EPA and other government entities, the government was actually counter-productive in the quest for more efficient, lower emitting power systems in vehicles, and continues to be so.  The responses to regulation were cumbersome and prone to failure.  Engines generated less power and worse fuel economy, and the resultant vehicles are generally regarded as some of the worst engineered of all time.
It's taken from the late 1960's until very recently to surpass the kinds of power and efficiency numbers that were regularly seen back then.  The engineering of cars and their engines continued to be of inferior quality until the market demanded, by educated consumer sentiment (using information available via the internet) and increasing oil prices, that manufacturers produce a more powerful and efficient product than was previously available.
This goes to show you that markets are what drive innovation, and that politicians ride the coat tails of those market forces to achieve their own ends.  Most government intervention serves to stifle the market forces that generate innovation in favor of the interests of the politicians and their cronies.  Since the average citizen is barred from direct influence in the modern political process on the national level, those groups with the most money pull the most weight, and are the true constituents of the national politicians.  Which group do you think benefited most from the low fuel-efficiency of American cars?  Answer that question correctly and it will tell you who bought the elections and guided the policy of the last 50 years regarding such issues.
And that brings me to my final point.  The EPA and the NHTSA have no constitutional authority to generate policy.  Laws and regulations can only be written legally by the legislative branch of the government, while the EPA and NHTSA are part of the executive branch.  The U.S. Constitution was written in such a way as to prevent any one group or individual from gaining absolute power.  Any executive order dictating a new law is unconstitutional on that basis alone.  The conflicts of interest that arise as a result of this violation are obvious, and were not lost on the writers of our Constitution.
I count myself as a supporter of the science behind the global warming theory, so I have no love for heavy and inefficient cars being on the road. But if we're going to make sweeping rules that govern such things, it should be done through the proper channels, and via the legislative branch of our government in order to dilute the influence of one group or another, and to truly represent the people who voted for these politicians.
All of this rule-making is beside the point anyway.  By the time 2025 rolls around, gasoline powered cars will need to do better than 54.5 mpg just to stay competitive with the technologies that will replace internal combustion engines.  Rising gas prices will essentially render internal combustion engines obsolete.  The market will force these companies to innovate or risk bankruptcy.  The best thing the government could do at this point is to get out of the way.

Links:
http://yosemite.epa.gov/opa/admpress.nsf/bd4379a92ceceeac8525735900400c27/13f44fb4e2c2d39d85257a68005d0154!OpenDocument
http://www.nhtsa.gov/Laws+&+Regulations/CAFE+-+Fuel+Economy/Model+Years+2012-2016:+Final+Rule

Two Modes of Deflation

One day back in early 2001, I was listening to an interview on the radio with a band called "Our Lady Peace" who had just finished their album "Spiritual Machines."  While I don't think it's their strongest work musically, I found the reason for the album title to be intriguing.  They based the whole thing on a book by Ray Kurzweil, called "The Age of Spiritual Machines."  Since I was a fan at the time, I decided to check the book out, and ordered it online.
When I finally got around to reading it, I found the content to be both terrifying and exciting at the same time.  The terrifying part, that we'd have machines that can think like people within 20 years of its writing for less than $1000.  The exciting part, that we'll have things like smart phones (which I found equally ridiculous at the time) by the end of that decade.  So far all of his predictions have come true.  We've all seen the advent of the iPhone and phones like it (full-blown computers in your pocket were a crazy idea back in 1999 when he wrote about it).  Recently, Watson played the greatest champions of Jeopardy, making them look like idiots while at the same time seeming like a child.  We've started to see computer chips in our clothes, vast wireless networks and on and on.
One of the major trends that he's been predicting is the idea that all of this advancement of information technology will generate deflation.  The thing that makes all of this technology possible is that we have learned how to make it available at lower and lower costs.  And because all things are trending toward information technologies, we'll see this deflationary trend overtake any attempts at generating inflation by the central banks of the world.
Because of Kurzweil's predictions about deflation (which we have yet to see across all economic strata), I searched more on the idea of deflation and found another deflationary argument in a book by Robert Prechter called "Conquer the Crash."  His arguments are based on fractal geometry as it's shown in human behavior, seen in the ups and downs of markets.  The moods of the masses do follow predictable patterns that have been shown time and time again, but I've had little success in actually predicting anything using his models.  Regardless, he has had success in predicting many (not all) major market movements in the last 40 or so years.  He's also predicting a major deflationary event, even bigger than the one we saw in the last recession (2007-2009), any time now (we're due for a major downward trend in mood now).  The way it works is that when people stop borrowing money, the currency pool has to shrink, because the majority of dollars are represented by debts that people owe to each other.  This will increase the value of the dollars, making everything "less expensive."  The caveat is that most people will have less dollars too, so its effects will be nullified over the long term (but people with large debts or their creditors will suffer the most in the short term).
If I remember correctly, somewhere in this same time-frame (the present decade) is about when Kurzweil predicted that his deflationary effect will overcome other economic drivers of inflation.  We'll get more goods, more efficiently, driving down the price via supply.
Kurzweil's and Prechter's methods of extrapolation have little to do with each other, but it's interesting how they both came to similar conclusions using different models, with coincident time-frames.  It's also interesting to contemplate whether these two independent drivers of deflation might feed off of each other, generating the mother of all deflationary events.  The last time we saw anything like this was in the depression era.  The type of deflation that these guys are predicting would make the depression event look small in comparison.
Given the magnitude of deflation that both men are predicting, I could see this type of event changing the way that currency is administered (meaning that the dollar and all other accepted currencies would be destroyed in the process).  My guess is that whatever form currency changes to will be a more effective method than the gold standard at preventing wild fluctuations in currency value (deflation and inflation).
The problem with all of this is that even if both futurists are right, and we do see both deflationary effects simultaneously, it will be impossible to see how it will all play out.  Prechter is very pessimistic.  Kurzweil is very optimistic.  I'm somewhere in between.  I think that over the short term, things will seem very bad.  Trillions of dollars of wealth will seem to have disappeared over night.  A lot of people will loose their shirts.  But over time, people will realize that the debt that those trillions were represented by wasn't of any added value in the first place.  They'll also see that their labor will begin to buy them more stuff (more goods for less effort).  At that point, the reset button will have been pressed on the economy, and the pendulum will have begun to swing in the other direction.  My hope is that the upward swing will happen sooner than later.

The Future is Rich

I’ve spent much of my time in the past ten years reading books and doing online research about the future.  The future of society, technology, the economy, individual stocks and so on.  But something that I've seen more and more of as the economy has gotten worse, is the futurist for hire.  The theme of this type of futurist is common: “for a minor fee, I’ll tell you how you can use my predictions about the future to make money.”  While I believe that some of the people out there who write books about the future are legitimate scientists who are interested in the movements of markets or technological trends, most of them are snake oil salesmen.

Anyone who has read even a portion of the Bible will know what is said about false prophets, and it lets us know that they’ve been around for millenia.  The passages aren’t very kind to these diviners, soothsayers and oracles because they take advantage of people in times of tribulation.  They offer nothing of value, and just paint a grim picture of current events so that you’ll buy into their advice about how to get rich or gain power.  But the reality is that you’d be better off randomly guessing what to do. 

The same applies to these people trying to sell you investment advice based on their so-called expert analysis.  But no matter how credentialed these guys might be, it doesn’t mean they’re right.  Their assumptions may be wrong.  Their theories may be defunct. They may be trying to sway public opinion for political gain. They may just be making it up just to make a quick buck.  A question is asked and out comes an opinion.  You don’t know anything other than that the person telling you is supposed to know what he’s talking about.

What needs to be looked at in these situations is the source of information.  This is usually a person telling you that he knows the future and wants to sell it to you so you can make money with it.  Why wouldn’t he just use this future information to make money with and keep it all to himself?  Why would he want you to compete with him in the marketplace once he’s shared it with you?  The answer is that he doesn’t really know what he’s talking about.  If he did know, he wouldn’t tell you, because that would devalue the information, and he wouldn’t be able to use it for himself.

My advice for those who are looking into the future to make investment decisions,  go to the library and learn about how companies’ financial statements are analyzed or study economic theory.  Learn about new technologies, how they work and how they will be used.  Read the news about current events.  Learn the methods of these experts and try them out to see if they work for you.  Enough can’t be said about doing your own research and thinking for yourself.

Knowledge is power and power means money.  No one will ever give it to you or sell it to you cheaply.  You need to get it for yourself, so don’t be taken in by would-be scam artists who tell you they will just hand it to you.