The Week of January 9, 2023: Electric vehicles, the debt ceiling, privatization, gas stoves, and much, much more.
The Week of January 9, 2023: Electric vehicles, the debt ceiling, privatization, gas stoves, and much, much more.
Before turning to electric vehicles and their future, please note that there will be a Capital Matters Conference in New York City on January 26, 2023, on Innovation, Growth — And Their Newer Enemies.
It will be held at the Union League Club in NYC.
Sponsorship information and tickets are available here: https://bit.ly/3VH8i0x
Speakers: Larry Kudlow, Kevin Hassett, Linda McMahon, Amity Shlaes, David L. Bahnsen, Jason Trennert, Peter J. Travers, Andrew Puzder and, well, me.
E lectric vehicles (EVs) seem to be finding more of a market more quickly than expected.
Writing in the New York Times, David Wallace-Wells:
Around the world, E.V. sales were projected to have grown 60 percent in 2022, according to a BloombergNEF report prepared ahead of the 2022 U.N. climate conference COP27, bringing total sales over 10 million. There are now almost 30 million electric vehicles on the road in total, up from just 10 million at the end of 2020. E.V. market share has also tripled since 2020.
To put that into perspective (and Wallace-Wells indirectly refers to this later in the article), there are nearly 1.45 billion cars on the road today.
Still, EVs have to start somewhere.
Wallace-Wells notes that EVs represent 80 percent of new car sales in Norway, up from 20 percent in 2016, an undeniably good result. But Norway is a lightly populated, extraordinarily rich country (much of its wealth comes from fossil fuels, by the way), where cars have long been very heavily taxed (it has no domestic auto producers worth talking about). So, the generous incentives offered to buyers of EVs went a long way.
Steve Hanley, writing in CleanTechnica in June 2022:
Over the past 8 years or so, [Norway] has aggressively promoted the transition to EVs by eliminating the fees and taxes that normally apply at the time of purchase. That’s a big deal, but so are a lot of other small incentives that add up to big money over time.
EV drivers in Norway are permitted to use bus and taxi lanes to avoid traffic. They pay lower bridge and tunnel tolls (Norway has lots of both), lower ferry fees, reduced tolls, and lower parking fees.
Some of these breaks are now being phased out, mainly because they were hard to sustain given the number of EVs on the road, but it was interesting to read this in the same article:
[T]he world is drowning in motor vehicles and at some point, the reign of private cars will need to come to an end as part of the quest to tamp down carbon emissions from all sources. While electric cars don’t spew crud out of tailpipes, they still are responsible for plenty of emissions in the manufacturing phase. The proposals by the Norwegian road administration [to reduce the breaks given to encourage EV buyers] may foreshadow a coming public policy debate about the place of the private passenger car in daily life going forward.
An outlying view? I’m not convinced.
In Germany, reports the NYT’s Wallace-Wells, “more than 55 percent of new cars registered in December were electric or hybrid.” Though that impressive figure comes after a strong year for EVs in Germany, it remains only one month of results, and those results that were skewed by the introduction of a less generous (and less easily abused) subsidy regime this month. Moreover, it is worth keeping in mind that registrations of hybrid and electric vehicles were roughly evenly divided, and that sales of new hybrids will be banned in the EU from 2035. Climate fundamentalism is, like the religious or quasi-religious cults it resembles, marked by an obsessive quest for purity, no matter the cost, and no matter the hardship. Given the extent to which some climate fundamentalists fall into line with a religious or quasi-religious tradition, they may put a value on asceticism for its own sake. Indeed, the hardship may be part of the point.
For Germany to embrace EVs and hybrids is not without its ironies. The country is, after all, one of the world’s major auto-manufacturing centers. Roughly 800,000 Germans work in auto manufacturing, and more than twice as many have jobs linked to the industry. It accounts for roughly 20 percent (by revenue) of the country’s giant industrial sector, of which it is, in many respects, not only the backbone, but the brain.
Without the auto industry, Germany’s strength as an exporter — to which the country owes much of its economic success (exports account for a little under 50 percent of GDP; the comparable figure for France is around 30 percent) — would be greatly reduced. Autos or auto parts make more of a contribution to Germany’s exports than any other sector. Roughly two-thirds of Germany’s car production is exported, and more of those car exports go to China than to anywhere else.
Electrification threatens to transform this picture. EVs have been described as “battery-powered computers on wheels.” They have no need for the complex mechanical engineering at which Germany excels, and they are relatively simple to assemble. In short, EVs reduce many of the traditional skills of the German auto sector to an irrelevance, with consequences that will be felt throughout the German economy. In 2021, IFO, a leading German think tank, warned that electrification could mean 100,000 lost jobs in the auto sector alone by 2025. If that’s right (spoiler: It is), these are merely the early casualties of electrification. The greater implications are unlikely to be pretty, nor (given Germany’s importance to the wider European economy) will they be kept within its borders.
Worse still, Germany’s decline is almost certainly going to be accompanied by China’s ascent.
Wallace-Wells:
In China, where more electric vehicles are sold than everywhere else in the world combined, the rise is perhaps even more dramatic: from 3.5 percent of the market at the beginning of 2020 to 20.3 percent at the beginning of 2022. And growing, of course: Nearly twice as many electric vehicles were sold last year in China as in the year before. The country also exported $3.2 billion worth of E.V.s last November alone, more than double the exports of the previous November.
In the first nine months of 2022, China overtook Germany to become the world’s second largest exporter of cars (by volume), boosted by a sharp rise in exports of what Beijing refers to as “new energy vehicles” (a category that includes hybrids). With their attractive pricing, they are quickly finding a market in Europe. In a sign of the times, Sixt, a German car rental company, has agreed to buy around 100,000 EVs (by 2028) from BYD. BYD is China’s largest EV manufacturer, and (if its sales of hybrids are included), one that has already overtaken Tesla. According to some analysts, it may soon be able to manage that feat without the help of hybrids.
Wallace-Wells notes that the market share being taken by EVs has rapidly exceeded expectations and quotes an estimate by BloombergNEF (a source that I would treat with some caution) that EVs could amount to 40 percent of new car sales globally by 2030. Throw in the rapid growth of production capacity and look back at the rise in other green technologies, and it is enough “to make many optimistic observers giddy with anticipation of what’s to come.”
Well, as a pessimist, it makes me nauseous. Even if we overlook the strong possibility that electrification will lead to significant social — and thus political — dislocation and ignore the reality that EVs are — for now anyway — an inferior product to ICEs in terms of what they offer the consumer, we should not disregard the fact that, by passing laws and regulations that smooth the way for EVs, the West may be handing China a colossal geopolitical victory.
As Wallace-Wells acknowledges:
China produces about 75 percent of all E.V. battery cells, manufactures roughly the same share of those cell components and does more refining of many of the biggest raw inputs than the rest of the world combined.
Even if the West succeeds in establishing a greater presence of its own in the supply chain — and it may — dependency on China in the EV sector is likely to remain an unpleasant reality, compounded first by China becoming a major global force in the manufacture of completed EVs and second by the West’s determination to phase out ICE vehicles. The result will be a strategic disaster. That the world may be a tad cooler at some point in the future as a result (in 2018 road transport accounted for 15 percent of global CO2 emissions) is not much of a consolation prize.
There’s much more that could be written about Wallace-Wells’s thoughtful and thought-provoking article, but perhaps it’s worth concluding with this passage (my emphasis added):
To stabilize global temperatures, we have to get emissions basically all the way down to zero, not just reduce them — an interesting November paper in the journal Geophysical Research Letters suggests it might be better to aim for “approximately” net zero emissions, since it may be the case that global temperatures could stabilize even if emissions aren’t entirely eliminated. To do that, we need to stop burning fossil fuels in cars, not just supplement the existing fleet with slightly more green alternatives. A rapid growth in [EVs’s] market share isn’t itself sufficient, in other words, because — like carbon itself, which hangs in the air for centuries at least — dirty cars stay on the road for a very long time, emitting all the while.
Translation: The position of the existing fleet of ‘traditional’ cars in those countries that prohibit the sale of new ICE vehicles may not be as secure as many now believe.
Wallace-Wells sees “EVs and gas cars [sharing] the roads for a decade or two.” The administrative state being what it is and climate policymakers being what they are, my best guess is that this transition period will shrink at some speed, and that those “clinging” (to borrow a word) to their ICE vehicles in the meantime will have to endure increasing bureaucratic harassment.
And if that means that some are forced to abandon private cars altogether, that will, to many climate activists, be a feature, not a bug.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 101st episode, David is joined once again by Anthony Scaramucci. They intended to talk about SBF, the FTX collapse, and the state of the whole crypto world, but they got distracted into a very broad discussion of vaccines, school choice, papal authority, and the blessings our guest and host enjoy in a market economy. This is a classic episode you will not want to miss.
No Free Lunch
David has also launched a new six-part digital video series, No Free Lunch, here on National Review Online. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy. . . .
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
The Budget
Senator John Thune (South Dakota), the second-ranking Republican in the U.S. Senate, has suggested that Congress take up Social Security reform as part of its legislation to increase the federal debt limit. With Social Security’s long-term funding gap now topping $20 trillion, there is no time like the present — no time, that is, except for the past. New data from the Congressional Budget Office suggest that, had Congress acted on Social Security reform two decades ago, the federal government’s largest spending program could have been made solvent with only a modest impact on the incomes of average retirees.
Gas Stoves
With the news that the Biden administration is considering stricter regulation of gas stoves over health and environmental concerns, it’s worth remembering this Capital Matters piece from Paul Gessing in August 2021 . . .
It has been heartening to see the strong backlash to the recent announcement that the Biden administration’s Consumer Product Safety Commission (CPSC) was considering restrictions and possibly an outright ban on natural-gas stoves, which forced the CPSC to back off, though it is still moving ahead with fact-finding and other steps that could eventually lead to restrictions. The pushback showed that we Americans still don’t like being told by our government which products can and cannot be used in our homes. It also showed that we remain wary of costly climate-change policies, even when they come to us in disguise . . .
Climate
If there is one thing that we have learned (or, more accurately, relearned) from the pandemic, it is that an emergency is an ideal opportunity for the state to grab more power and then, rather too often, mess things up.
There are a couple of reasons why climate policy-makers and their proxies increasingly prefer to talk about the climate “crisis” or a climate “emergency,” rather than good old climate change, a sneaky but calm phrase that, however strangely, I’m beginning to miss. One is to stoke up the fervor of climate fundamentalists, who, like all millenarians, like to be reassured that doom is indeed just around the corner. The other is to prepare the way for (yet more) measures that would otherwise be unacceptable in a free society.
The Fed
It’s hard to shake the feeling that former New York Fed president Bill Dudley’s recent Bloomberg column — “What Could Go Wrong for the Federal Reserve in 2023?” — is a testament to nearly everything that is wrong with how federal officials view monetary policy. There’s no reason the folks running the Fed can’t change course, and folks like Dudley could — and should — help push policy in a better direction . . .
Growth
One of the most dangerous “progressive” ideas loose in the world (and especially academia) is that we can and should cut back on economic growth and have experts manage a “sustainable” economy. In this Discourse article, Veronique de Rugy vigorously defends the importance of economic growth . . .
Electric Vehicles
An enormous amount of money is beginning to be ploughed into electric vehicle (EV) plants across the U.S., quite a bit of it in the Southeast, in what is becoming known as the battery belt . . .
Back in October, a poll revealed that 14 percent of Britons would opt for an electric vehicle (EV) as their next car, up from 10 percent in 2021. Respondents did say, however, that the country’s economic woes might lead them to stick with their existing cars for longer.
Now it seems that the combination of rising EV prices (not least thanks to more expensive lithium) and a weaker economy may be pushing Brits away from EVs and toward (cheaper) internal-combustion-engine (ICE) vehicles.
California
On Election Night 2022, California governor Gavin Newsom slammed the door on persistent rumors that he intended to run for president in 2024, after spending much of the year not-so-subtly positioning himself for a national run if President Biden did not seek another term. (For example, it’s not normal for the governor of California to challenge the governor of Florida to a debate, or to run ads in Florida denouncing that governor.) Our Will Swaim found the governor’s sudden lack of interest so abrupt and at odds with Newsom’s previous behavior, that he doubted Newsom really was ruling out the idea completely.
Then again, in light of California’s budget situation being much more dire than the public believed for much of the year, maybe Newsom’s sudden lack of ambition reflected a realization that his record was more vulnerable to attack than he previously believed . . .
Privatization
With the news of nationwide flight delays due to an FAA systems failure today, it’s important to remember that there’s no reason government must be in charge of air-traffic control at all. Privatizing air-traffic control wouldn’t make it perfect, but it would fix some of the problems with the current government model.
The FAA is both the industry’s safety regulator and the provider of air-traffic-control services. But there is no reason for the FAA to do both of those tasks. It should instead continue to regulate safety while its air-traffic-control responsibilities are handed off to the private sector . . .
Earlier today, I wrote about why instead of being upset with the FAA for its failures in air-traffic control, we should ask why the government is in the air-traffic-control business at all. You can read my full argument here.
Christian Britschgi has written more about the government’s failure for Reason. The failure that caused delays and cancelations this morning was of the NOTAM system, which gives pilots information about flights. Britschgi writes that, regardless of what happened this morning (the cause remains unclear), aviation groups have been complaining about the NOTAM system for years . . .
The Debt Ceiling
It is astonishing how far and how rapidly the financial situation in the United States has deteriorated. Perhaps we have grown accustomed to the wailing about debt and deficits, but it has not always been so.
When Ronald Reagan took office, government debt held by the public was about $650 billion. The few liberals who still bother to criticize his presidency will concede that he won the Cold War, defeated inflation, and started a long-lasting economic boom, but his profligate defense spending — they will be quick to add — increased the national debt by a then-unprecedented amount. By the time Reagan left office, debt held by the public had indeed jumped, to about $2 trillion. Back then, liberals told us that the $1.4 trillion addition to the national debt threatened calamity. The fact that Reagan’s total effect over eight years was smaller than that of the “Inflation Reduction Act” highlights just how much times have changed . . .
Writing for Capital Matters today, Kevin Hassett notes that we could be headed for some torrid times as, once again, the U.S. approaches its debt ceiling. How the coming confrontation over raising that ceiling turns out is, for now, anyone’s guess, but markets are beginning to pay attention, and some are expecting that the pushing and shoving over the ceiling may last long enough to cause the U.S. to default on its debt, if “only” temporarily . . .
Immigration & Trade
What’s really noteworthy about this shift, though, is the extent to which corporate America is shifting from seeing Mexican operations as something supplemental to seeing them in a primary role. For instance, in 2022, companies such as “Samsung, Daewoo, Amazon, Dongkuk Steel, Nissan, Jabil, Heineken, Bosch, Alsea, Pirelli, Walmart, The Home Depot,” among others, made significant investments in Mexico, for reasons ranging from regime instability to ethical queasiness to reduced labor costs. How our goods are produced and shipped is a question of billions of dollars flowing through one location or another. The scale of Mexico–U.S. shipping was already staggering, and now it has an upward-pointing arrow . . .
Healthcare
Midterm voters may not have handed a clear mandate to either Republicans or Democrats, but both parties should understand that rising health-care costs are a problem they cannot afford to ignore.
A recent survey by Arnold Ventures found that 67 percent of voters say reducing the cost of health care is the most important priority for Congress to tackle. That number included nearly four out of five Biden voters and about half of Trump voters . . .
Estonia
Estonia may be a small country, but over the last few decades, its approach to digitalization and taxation has received considerable attention. For example, the U.S.-based Tax Foundation has ranked Estonia as having the best tax system of all OECD member states for nine consecutive years.
Sometimes, the focus is on both digitalization and tax at the same time. This was the case in a recent article for the Daily Telegraph in which James Warrington outlined the high-tech and tax lessons that Estonia could offer the United Kingdom. The headline for the piece (which is unlikely to have been written by Warrington) is “What [British Prime Minister Rishi] Sunak can learn from the low-tax, high-tech economies of Estonia and Latvia.” The high-tech part is right, but the emphasis placed on “low tax” is more questionable . . .
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