President Obama announced new CAFE standards this week. For cars and light trucks up through model year 2016, according to the standards, the Corporate Average Fuel Efficiency should reach 35.5 miles per gallon. In his speech , the President said the new standards would--in addition to reducing CO2 emmissions--eventually save consumers money, and create jobs: The fact is, everyone wins: Consumers pay less for fuel, which means less money going overseas and more money to save or spend here at home. The economy as a whole runs more efficiently by using less oil and producing less pollution. And companies like those here today have new incentives to create the technologies and the jobs that will provide smarter ways to power our vehicles. Keith Hennessy , senior economic adviser to President George W. Bush, looked at analysis the National Highway Traffic Safety Administration did in 2008, and noted that the Obama plan looks like a scenario the NHTSA drew up. And in that scenario, there is a cumulative job loss of nearly 50,000 . Over at Baseline Scenario , James Kwak works up some supply curves to address this issue. The argument that aggressive CAFE standards costs jobs is based on the straighforward notion that cars cost more to build, the price goes up, causing demand to go down, and then fewer cars get made. The Obama plan assumes that cars will cost, on average $1300 more (they also estimate that the average fuel savings over the life of the car will be more than double that--but it is less clear the impact that has on the consumer decision at time of purchase). Kwak draws that up like this: But Kwak writes that this argument neglects the fact that the car now is more fuel efficient: That’s good, and it means that people will be willing to pay more for it. In other words, the demand curve shifts outward, so at equilibrium, quantity will be Q2, which is somewhere between Q0 and Q1. Q2 will still be less than Q0; otherwise, the free market would have come to that equilibrium by itself. (If people valued the increased fuel efficiency at $1300 or more, the industry would already have done it, at least according to a pure free-market argument.) So things are not as bad as in the picture above. Kwak also says the cars are more expensive because there is moe "stuff" going into the cars. Someone has to make that stuff, so even if fewer cars are sold, that in itself doesn't mean fewer jobs. For the full detail of Kwak's argument, you need to go to his post at Baseline Scenario . The NHTSA report Hennessy refers to is available here .