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May 24, 2004

I tell my students that economists know more than many commentators and other social scientists. One of the pieces of evidence I cite in support is that in the 1970s many folks claimed that "Americans would never give up big cars." Unnatural affection for monster tail fins, Route 66 and the lure of the open road, yadda yadda. But economists predicted that higher gasoline prices would, at least after a time, spur both demanders and suppliers to react. And so they did. Then, after 1986 or so, when gas prices plummeted, Americans reacted again: SUVs half the size of Montana, F-250s, etc.

I look forward to talking about the latest chapter in the story: after just a few months of high gas prices, SUV sales look to be in some trouble. High mpg hybrids are in heavy demand. (And get a load of the tiny, ugly-ass car Mercedes plans to sell--for $20,000!---because it supposedly gets 60 mpg.)

In other car news, last year Toyota earned more than double what GM, Ford, and Chrysler earned, combined.

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Fred Boness

I think I will buy an SUV this year to replace my 1995 Pathfinder (which was a replacement for a 1991 Pathfinder). I could buy some little windup toy that gets 30 mpg but, why? The Pathfinder gets 20 mpg so, going to a 30 mpg car will save $650/year on gas. OR I can wait until SUV prices are discounted $3000. At $650/year that would offset higher fuel costs for four years.

John Doe

Larger vehicles increase traffic fatalities (for people other than the ones making the buying decisions). This negative externality suggests a role for taxation.
Likewise drivers of very small vehicles may be at increased risk. So high gas taxes and fleet mileage requirements might kill more people than they save. Perhaps government should discourage large vehicles while not encouraging people to switch to excessively small vehicles. This could be done through a tax based on amount by which the vehicle outweighs the average. Likewise I suspect tall vehicles impose a negative externality and might also deserve to be taxed.

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