published Friday, August 19th, 2011

Obama on 'understanding the market'

President Barack Obama backs subsidies and other policies that distort the free market and hide from consumers the true, high costs of alternative sources of energy such as ethanol and windmills.

So it was rather strange when he recently told automakers that they don’t “understand the market.”

Discussing the effect of rising fuel prices on purchases of vehicles that don’t get very high gas mileage, the president declared that auto manufacturers should build fewer large vehicles and focus on smaller, more efficient cars.

“You can’t just make money on SUVs and trucks,” he said at an event in Minnesota. “There is a place for SUVs and trucks, but as gas prices keep on going up, you have got to understand the market. People are going to try to save money.”

It’s certainly true that consumers will try to save money, and many are already choosing to buy smaller cars to cut down on fuel costs. That’s fine when it’s simply the “invisible hand” of the free market guiding consumer choice.

The trouble is that the Obama administration and Congress have imposed policies that artificially inflate the cost of gasoline. Too many of the potential U.S. domestic sources of oil lie untapped in places such as Alaska and off our coasts because of onerous environmental rules. That forces us to get too much oil from foreign suppliers, pushing up our gas prices.

That is government manipulation, not the free market, at work.

Automakers have a strong financial stake in giving consumers what they want. If consumers demand more fuel-efficient cars and fewer trucks and SUVs in response to higher fuel costs, car manufacturers will give them that.

But car makers do not need Washington to intervene, ordering them to manufacture more or fewer of certain types of vehicles. And government should not impose restrictions on domestic oil production that needlessly boost gas prices.

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