Relevant and even prescient commentary on news, politics and the economy.

Declining Fuel Efficiency

Danny Hakim’s New York Times article on July 28 was a nice mix of economics and politics. On the former, he writes:

Leaps in engine technology over the last couple of decades have been mostly used to make cars faster, not more fuel-efficient, and the rise of sport utility vehicles and S.U.V.-like pickup trucks has actually sapped efficiency. The average 2004 model car or truck got 20.8 miles per gallon, about 6 percent less than the 22.1 m.p.g. of the average new vehicle sold in the late 1980’s, according to the report.

Hakim notes that this should not be a surprise given all the SUVs on the road. The economics likely go to the fact that oil prices were low throughout much of the 1990’s. The recent increase in oil and gasoline prices has led to a decline in the demand for larger and faster automobiles. But then I’m channeling my free market views. On the politics of the energy bill, my first inclination was to “just say no” to the pork-filled legislation. But note how Hakim opened his article:

With Congress poised for a final vote on the energy bill, the Environmental Protection Agency made an 11th-hour decision Tuesday to delay the planned release of an annual report on fuel economy … The contents of the report show that loopholes in American fuel economy regulations have allowed automakers to produce cars and trucks that are significantly less fuel-efficient, on average, than they were in the late 1980’s. Releasing the report this week would have been inopportune for the Bush administration, its critics said, because it would have come on the eve of a final vote in Congress on energy legislation six years in the making. The bill, as it stands, largely ignores auto mileage regulations.

If one really believes that policy making should be based on the facts, the proclivity of the Bush Administration to hide the facts until after they have secured passage of some piece of partisan waste of taxpayer money might shock you. But after four years of this corrupt Administration, I guess nothing shocks me anymore.

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Weekly Earnings: Not Comparable to Disposable Income

Mark Thoma recently scored a two-for-one shot at the NRO econopundits. He was aiming at something he calls Fuzzcharts and also bagged Donald Luskin with this:

Note also that Luskin whined incessantly when Krugman described a half a percent increase over five years as flat.

While Jerry Bowyer usually does follow his charts with incredibly fuzzy prose – at least he provides a chart. Since Luskin failed to chart real weekly earnings for the 5-year period from June 2000 to June 2005 (the approximately period that Paul Krugman was discussing), I have provided the chart. While it is true that real earnings were 0.6% higher as of June 2005 versus June 2000, the best description of this chart is noisy with very little upward trend. In fact, real earnings were lower in June 2005 than they were as of the end of 2001. But it is this Luskin statement that I find bizarre:

Or visit the website of the Department of Commerce, which shows that a comparable figures – per capita disposable income – is up 9.6 percent, again not “flat.”

Actually, real per capita disposable income as of 2005QII was 8.2% higher than real per capita disposable income as of 2000QII. Additionally, dividing by total population is different than dividing by employment – but I’m so impressed that Luskin finally figured out that over time comparisons should be made on a real per capita basis, let’s forgive these two minor points.

But does a 8.2% increase sound comparable to a 0.6% increase? What might explain the difference between the two series? One difference has to do with earnings being before taxes, while some of the growth in disposable income comes the pretense that the Bush Administration has cut taxes. Disposable income considers only current tax payments ignoring the deferred taxes implied by the additional Federal debt incurred over the past several years.

Of course, many workers will tell you that they did not get much of a tax cut, which is true since the Bush tax shift (not cut) will tilted towards high income individuals – especially those receiving capital income, which raises the second problem with Luskin’s claim that disposable income growth is comparable to weekly earnings growth. As Brad DeLong notes, the share of income received by labor has declined over the past few years. In other words, workers have not enjoyed much in the way of pretax income growth nor the benefits of reduced current taxes. Of course, Luskin has a way of saying “so what” when it is pointed out that his spin of rising income does not apply to labor income – at least over the past few years.

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On the Propensity to Save

Actually, I’m not on summer vacation which is alas why I have not been keeping up with the news. As I try to catch-up, I see that Mark Thoma is a great source even if he may have the concept of marginal propensity confused with average propensity (hat tip to Kash for the second news article):

WASHINGTON (MarketWatch) – The U.S. personal savings rate fell to 0% in June, only the second time since the Great Depression that Americans have spent as much as they earned in a month, the Commerce Department said Tuesday.

To be fair, Mark and MarketWatch both mentioned the increase in housing wealth, which CalculatedRisk featured.

In earlier 2001, one of the explanations as to why we needed a tax cut was a concern that the weakening of the stock market was not only a sign that investment demand would be weak but also that the decline in stock market wealth would dampen consumption demand. As it turns out, consumption demand has grown faster than overall aggregate demand – in part because of the housing boom.

Even though the recent news discussions are rightfully worried about the lack of U.S. savings, regular readers of CalculatedRisk are aware of the possibility that housing wealth may erode. Of course, stock market wealth has been coming back. So whether this wealth effect, which had shifted the savings schedule downwards, will reverse itself is not clear. But even if consumption demand moderates, some of us might see such a development as good news if that somehow translates into more investment demand.

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