The result is that it creates an SUVmarket to fill, and whichever auto manufacturer doesn’t fill that niche loses potential profits to fund research, upgrade products, etc. This puts them behind their competitors.

On the other hand, when they do supply the SUV market, they are roundly criticized. Government, by preaching efficiency but encouraging waste (through cheap gas) creates a built-in conflict between auto-makers, consumers, and environmentalists.

Notice that the conflict doesn’t include the politicians who set the policy. They’d rather let the auto industry take the blame. No, they’re not hypocritics… much.

There is another interesting point in all of this. If you believe in market based solutions, this oil spill is yet another reason why people lie to you about this concept and why there is fake political ideologies. Say if the Department of Interior only provided a backdrop of safety guidelines for the industry. The petroleum industry could self-regulate and come-up with environmental or safety standards to best fit their industry while reducing cost of government compliance. This sounds good until government distorts this concept by letting oil companies like BP cap liability, tax-payers subsidize their products, or lets them through state statues use waivers that may or may not be constitutionally acceptable (depending on pro-business or pro-consumer courts). So here is the point government does distort the price for the oil industry by limiting safety costs imposed on them and this allows for risky behavior because the cost is not built into the price of their product. If government didn’t shield their costs, we may see greater costs at the pump so BP can make up for lost profits. Also we would see better long-term standards within the industry. Government should play a role in developing alternative energy markets like electricity to help bring competition in the transportation energy market and to help reduce the in-elasticity of the petroleum market.

People should not be mad when I say fake political ideologies because in the world of talking points, industries never pay the full price of their actions because government distorts these prices for them. This is known by political think tank groups but very rarely is ever discussed in the public or in the media. So be careful when you hear tough talk or shaming BP from Democrats or Republicans because they are lobbied by oil industries to help distort costs. Also don’t believe in the talk of big bad government because in private these industries need government to protect them against paying for prices that are external to what they value in their market price.