We Killed the Electric Car
by David Deutsch
Not long ago, I saw an amazing documentary called Who Killed the Electric Car? This film tracked the rise and fall of the GM EV1 electric vehicle created in the mid- to late-1990s. The basic plot of the movie is this: GM introduces electric car, people love it, then GM (literally) crushes the electric cars they created, leaving everyone to continue buying internal-combustion engine vehicles. I don't want to give away the whole movie, as I think everyone should at least rent it. The thrust of the film is that the evil corporations conspired to stop a revolutionary new technology that was sure to change the American landscape forever. Or at least highway-scape.
Did they, though? To understand why the electric car failed and why it is now seeing a resurgence, please follow me down into the dark and twisted world of economic theory. Hopefully it won't put you to sleep too quickly.
For the past thirty years, American policymakers have largely followed an economic path called supply-side economics. In a nutshell, supply-side economic theory says that if you cut taxes for companies that make stuff (i.e. large corporations, rich people), prices for their goods will go down and output will go up, thus creating jobs and growing the economy.
It sounds all snazzy when you justify it with a graph and complicated phrases like “shifting aggregate supply curves,” but supply-side economics is—in my humble opinion—pure bunk. This theory is merely a justification for tax cuts for wealthier Americans and large corporations. As it turns out, giving money to firms and rich people who make stuff does not increase output, decrease factor prices, nor grow economies. Usually a supply-side stimulus—most commonly in the form of tax breaks, government projects, or an outright subsidy—is distributed to shareholders in the form of higher revenues, which increases their stock prices. Then the beneficiaries of the increased stock prices use that money to purchase other companies. In other words, supply-side economics is a nice little sales package that helps the rich get richer while allowing for snazzy rhetorical devices such as, “If you don't like supply side capitalism, you must be an America-hating socialist.”
Conversely, I think the only economic theory that makes any sense is demand-side economics, which basically says we should focus income distribution on those who actually consume stuff (i.e. individuals) and can make decisions on how to spend their own money. This creates an incentive for suppliers to seek new customers to buy their stuff, thus increasing the number of jobs, driving up wages, and growing the economy.
The electric car illustrates perfectly why I think I am right about this. At the end of the day, electric cars failed because there was no demand for them outside the wealthy latte-sipping liberal elites of Southern California. This is beautifully illustrated with celebrities like Mel Gibson strolling in front of the camera, extolling the virtues of the EV1; all well and good, but Mel Gibson can afford such cars, whereas most people of modest means cannot. More importantly, the cars were released in the mid-1990s, a time when the economy was humming along and gas prices hovered around $1.25 per gallon. So nobody demanded the cars either, even though there was a high supply of them.
Now flash forward a few years: an oil-funded terrorist attack on U.S. soil, a spike in oil prices, and a depressed economy have smacked us across our collective faces. Lo and behold, demand for alternative cars has suddenly shot through the roof. Green vehicles, including the Chevy Volt, Tesla, and zero-emissions Nissan Leaf went from dream to near-reality in a few short years. And this green-car revolution is only coming about because of demand that stretches beyond the aforementioned wealthy, latte-sipping Left Coast elitists spotlighted in Who Killed the Electric Car? When people demand stuff, firms supply it.
So yes, you and I killed the electric car, but we also saved it, albeit 15 years later. In any case, let's hope this marks the beginning of the end of supply-side economic theory for good. One can wish, anyway.
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