At the end of last year, as America was wondering whether or not to rescue the car companies, many were berating the Big Three for failing to build smaller, more fuel-efficient cars. Right along with that was a chorus of commentators wondering why Congress hadn’t acted more aggressively to jack up federal requirements for fuel economy. Along with a bit of taxpayer largesse, Detroit has recently been helped by an uptick in sales of trucks, bringing more wailing and gnashing of teeth over the foolishness of American car buyers cutting back on buying cars when gas was going for $4.00 per gallon but going back to the showrooms when it came back to $2.00. One opinion piece in the New York Times went so far as to suggest now would be the perfect time to add meaningful gas taxes; not all at once in this recession, but raising it a dime per gallon every month for two years, so as to send a “price signal” to motorists.

In Sunday’s Times, an editorial headlined How Many Miles Per Gallon? deplored the Bush administrations failure to jack up the CAFE requirements and called on the Obama administration to make higher efficiency standards a condition of further aid.

To all those making these demands or suggestions, kindly roll them up and smoke them. Motorists know how much gas costs, they know how much they drive, and they know what cars will cost how much. When the price goes up, they cut back on their driving and look for more efficient cars. When prices go down, they look for cars that give them the performance and satisfaction they want. That’s the way it’s supposed to work. That’s a free marketplace responding to price signals.

Adding a monster tax is not sending a price signal, it’s levying a tax. Price signals change with the marketplace, taxes don’t.

Detroit is in trouble because they aren’t building cars that people want, or perhaps they’ve forgotten how to do a good job of giving buyers a reason to plunk down their cash on the cars they’ve built. But the obvious truth is that Detroit has struggled in trying to sell small cars and thrived when they could sell their bigger rigs, and the public seems to want the bigger cars whenever they can afford them. If the American manufacturers had been forced to sell the small cars that Americans don’t really want, a category in which Americans seem to prefer foreign brands, they’d all be out of business already.

We know that “CAFE” stands for Corporate Average Fuel Economy, but “cafe” is short for “cafeteria”, a concept that is much more germane to business in a democracy. In a cafe, sellers put out a choice of products, and buyers take away what they want. For some outside force, like a government, to come in decide what products are on offer isn’t a marketplace, it’s junior high school.  If I Were King, I’d remember that.