Saturday, 17 January 2009

Australia is the backward country

In a recent article published in Australia, even the head of the world's largest producer of 1960s yank tanks and 1990s/2000s 4x4s is admitting that petrol should be less cheap than it is.

Their reasoning is certainly dubious since almost every economist knows larger, thirstier cars are more economic than small ones that use complex technologies like front-wheel-drive.

What the General Motors official is saying is that they are losing money on thirsty cars because for a period in 2008 petrol's cheapness rose in nominal terms to new record lows (in Australia, 600ml/$) and that car sales in the United States are the lowest since World War II. However, the logical point above is that General Motors would do best to concentrate on Ford Falcon-like rear-wheel-drive designs that are cheapest to produce if they want to maximise profits. After all, large front engine, rear-wheel-drive cars were what dominated the motor industry in the 1950s and 1960s when profits were at a maximum.

Even if 4x4s are very complex designs, phasing them out for similarly complex front-wheel-drive cars is not likely to restore profitability. It is surprising that books like the PIG to Capitalism do not say, as they logically show, that smaller cars with less space and higher cost that result from reduced cheapness of petrol serve to lower living standards.

On the other hand, it just shows how conservative and backward Australia is when its population is calling for still cheaper petrol in a country that should by virtue of its great ecological limitations to population size have by far the least cheap petrol in the world.

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