You know, even on the left and centre of the political spectrum there's sometimes a certain allergy to advocating direct government intervention in the market. For example, the idea that the government should regulate the ownership of SUVs is often treated as just this side of GOSPLAN, whereas I think it would mark the absolute very least we could do to return some sense of sanity to our public roads.
But we all need to grow the hell up. The government regulates, in minute detail, the kinds of cars we can and cannot drive on the road, often to the enormous advantage of the incumbent carmakers.
One excellent example of government regulation that produced a nearly immediate positive effect on the market was the California Air Resources Board's zero-emissions car mandate of the early 1990s. This was the decision where California mandated that 2% of Californias cars be zero-emissions (in practice, electric cars) by 1998. While the story of GM's particular entry in the field is a sad one, it's worth pointing out that not all carmakers were as inept. Toyota and Honda seem to have used the experience of the Mandate as a testing ground for technologies used in their eventual hybrid offerings.
There is little to zero evidence that any of the electric cars would have made it in to production without the CARB mandate. This is something that Ezra is pointing out at Tapped today, writing eloquently that "the invisible hand often gives the invisible finger to visible problems with tangible consequences."
CARB identified a problem - air pollution in California - and the solution - ZEVs - and told the market: Now go to it, gents. The market, being the whiny-ass-titty-babies only corporate CEOs can be, fought tooth and nail against even a modest requirement. Still, they did eventually build a few ZEVs, and could have (if they hadn't dropped the ball so foolishly) made America's car industry internationally competitve for the first tme in decades. Insetad, the market-leading hybrids are being built by Toyota and Honda.
Considering that there was a long waiting list of people wanting EV1s in California when GM decided to shut down the program, it's hard to say that the government was distorting the market. (I beat up on GM a lot, but I should say that no carmaker liked the mandate. All of the car companies - though even moreso the oil companies - fought hard to destroy the mandate.) Rather, the government was forcing the market to serve a demographic who they'd previously ignored, or had been able to underserve.
Eventually, the mandate was abandoned as a result of car company lobbying, and CARB's unfortunate flirtation with fuel cell hype. Sadly, the only thing the hydrogen fuel cell craze has materially contributed to thus far is the destruction of the one government policy that promised real reductions in carbon emissions, air pollution, and customer dissatisfaction. Needless to say, no carmaker has introduced a real, metal-and-rubber hydrogen car yet, even though there were thousands of ZEVs on the road in 2001.