This paper develops a framework for the design and evaluation of spacing policies for adaptive cruise control. Spacing policies are evaluated from the point of view of string stability, traffic flow stability and traffic flow capacity. The standard constant time-gap spacing policy can guarantee string stability but is shown to suffer from poor traffic capacity and traffic flow instability. An "ideal" spacing policy is proposed that evolves naturally from the evaluation framework. The proposed spacing policy is a nonlinear function of speed. It provides string stability and traffic flow stability as well as a higher traffic flow capacity compared to the standard time-gap controller. An associated result proved in the paper is that traffic flow stability implies string stability for flow volumes up to a described maximum value.