AUSTRIAN ECONOMICS ADDICT

Who Killed the Electric Car? (Photo credit: Wikipedia)

THE  REALITY OF THE CONSUMER.

Electric car sales prove once again that consumer decisions in the market trump the President’s, and Government’s, attempt to force their utopian desires on people. Just because a person with power decrees that certain thing’s should be produced, doesn’t mean that they’ll be magically sold once they enter the market. Many an entrepreneur’s great ideas have turned to failure because, in the market, the consumer has veto power over every brilliant idea, and the “special”  brilliance of Government planners is no different.

THE REALITY OF PRICES AND COSTS.

There are three ways that Government can guarantee that electric cars will be purchased. One would be to raise the price of gas-powered cars (through regulation and taxes), higher than the total cost of an electric car. Remember price and cost are two different things, and part of that total cost is the inconvenience of the limited amount of miles driven between charges, and the time spent charging the battery. Each person places a different cost on convenience and time, according to the subjective value he places on each, and no sale will take place unless the price covers his total cost. Put another way, what would the price difference between a gas-powered car and an electric car have to be,  in order to get you to consider purchasing an electric car? The second way would be to lower the price of the electric car, through tax payer subsidies, to a point that it pays for the total costs (as listed above), of owning an electric car.And the third way would be to ban the production and sale of all gas-powered cars. So to generate sales, the Government can raise the price of the gas-powered car, lower the price of the electric car, or it can ban the gas-powered car.

Edison and a 1914 Detroit Electric, model 47 (courtesy of the National Museum of American History) (Photo credit: Wikipedia)

Government is already trying to create a partial monopoly for the electric car through subsidies, regulations and taxes, but sufficient numbers are not being sold to cover the cost of production, because in the market what the consumer values rules. Unless they ban the gas-powered car, the electric car illusion will fade away like it did when Edison and Ford tried it in the early 1900’s. Read here

ECONOMIC REALITY

Even though planners desire a  fictitious world of abundance, unfortunately we live in the real world of scarcity. The crony capitalist economic system we live under, thanks to a hundred years of accumulated intervention by our all-knowing Government, can’t keep market forces from trying to perform their corrective function. The economic principles of supply and demand, subjective value, and price coordination, will always be in play in a world of scarcity. Remember, if we lived in a world of abundance, there would be no reason to economize on anything, and each individual’s subjective valuations wouldn’t have a limiting effect on other individuals. In this world of abundance, a person’s subjective valuations would place a limit only on himself, because time would limit the individual’s ability to consume everything he desired.

REALITY vs. ILLUSION.

If you read this article, Obama Wants $2 Billion In Vehicle Technology Research Funding, by David Shepardson, at The Detroit News, you will see a man who doesn’t believe in the free market. He wants his desires on the type of cars we should drive, the type of energy they should use, and the technologies we should invest in, to magically appear. Even though this illusion is subsidised by our tax dollars, the cost of the cars, the energy, and the investment in technology will be much higher than it would be under normal free market conditions. Lets add up the bill. 1) Tax dollars pay for the subsidies given to the industries who produce the cars and the fuel. 2)  Taxes pay for the investment in this new technology. 3)  Taxes pay for the tax credit given to the people who purchase these cars. 4)  Government spends $3,7 trillion a year. It funds itself by confiscating $2.4 trillion in taxes, and borrowing $1.3 trillion. This means it borrows 35cents of every dollar it spends. Taxing future production will repay the principle and the interest on 35% of the total number of dollars spent on these subsidies. 5) Individuals will pay a higher price for the subsidised car and fuel, compared to the price they would have paid under normal free market conditions. Is it possible to calculate the total cost of all this Government brilliance. The fact that the President and Government attempt to force their desired outcomes on the market shows that they either don’t understand how economic principles work, or they don’t like the outcome of the market process. Whether it’s ignorance of arrogance, it doesn’t matter, the outcome of their interventions is the same, destruction of wealth because resources are not being allocated to their most productive  uses according to consumer demand.

Question, who killed the electric car? Answer, economic reality.

This article, “Insight: Electric Cars Head Toward Another Dead End”, from Reuters, talks about declining sales.

This article, “Electric Cars Power Needs Hinder Driver Freedom, Sales”, from Newsday, talks about reasons for declining sales.

This entry was posted on April 2, 2013 at 3:05 pm and is filed under Econ. 101. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Economic Scarcity, Electric Cars, Green Energy Illusion, Political Ignorance, Politicial Arrogance, Subsidies, Tax credit