Linking The Prices of Fuel and Food is a Terrible Plan
By Repair Man Jack Posted in Congress — Comments (30) / Email this page » / Leave a comment »
Drawing down our national stockpiles of agricultural crops in order to turn them into ethanol is stupid. This is just the sort of policy idea we have grown accustomed to hearing from people who own four SUVs yet still cringe at the thought of other people’s industrial activities causing higher than normal gas prices. It’s the sort of pathetic panderation that shouldn’t be issued for consumption except when rich, urban presidential candidates are trying to convince the yeoman caucus-farmers of Iowa to bless off on their pathetic candidacies.
Despite all that I said above being undeniably true, ethanol plays a starring role in the new Senate Energy Bill. Via this legislative fiasco, the US Senate attempts to establish a nexus between food and fuel. This way the two can become substitute goods. Absent a big, heaping stockpile of Solyent Green, this practice makes so little sense that I wish the US Senate would do something less damaging instead, like reintroducing their Immigration Bill.
Congress already tried this policy in 2005. They passed the 2005 Energy Policy Act, which mandated that 7.5 billion gallons of biofuel be sold annually by 2012. Unfortunately, most of this biofuel comes from corn. This causes massive economic problems, and not just for us.
Read on . . .
Lester Brown reports on the detrimental effects of widespread diversion of corn from food to ethanol. It is not a pretty read.
Once completed, distilleries now under construction could double U.S. ethanol output, turning nearly 30 percent of next year’s U.S. grain harvest into fuel for automobiles. This unprecedented diversion of the world’s leading grain crop to the production of fuel will affect food prices everywhere, risking political instability.
The U.S. corn crop, accounting for 40 percent of the global harvest and supplying nearly 70 percent of the world’s corn imports, looms large in the world food economy. Annual U.S. corn exports of some 55 million tons account for nearly one fourth of world grain exports. The corn harvest of Iowa alone exceeds the entire grain harvest of Canada. Substantially reducing this export flow would send shock waves throughout the world economy.
So the rest of the world pays a higher grocery bill, thereby empowering Archer Daniels Midland and General Mills to rake in more money off the ethanol boondoggle. I’m struggling to see how this would be significantly more moral than conquering an oil-rich Middle Eastern despot and confiscating his petroleum reserves.
Brown continues to point out the resplendent economic idiocies that adorn our Congress’ 2005 Energy Bill.
The countries initially hit by rising food prices are those where corn is the staple food. In Mexico, one of more than 20 countries with a corn-based diet, the price of tortillas is up by 60 percent. Angry Mexicans in crowds of up to 75,000 have taken to the streets in protest, forcing the government to institute price controls on tortillas.
Gosh, I wonder where all those hungry Mexicans will go to find enough work to afford their tortillas? Have I said anything snarky about the Senate Immigration Bill yet in this posting?
Rising grain and soybean prices are driving up meat and egg prices in China. January pork prices were up 20 percent above a year earlier, eggs were up 16 percent, while beef, which is less dependent on grain, was up 6 percent. For China, which suffered the most massive famine in human history in 1959-61, these food price rises could be approaching a politically dangerous level.
In India, the overall food price index in January 2007 was 10 percent higher than a year earlier. The price of wheat, the staple food in northern India, has jumped 11 percent, moving above the world market price.
China, I feel no great surge of sympathy for. If we manage to accidentally give the Chinese as good as we get, they’ll just take it out on us in trade. They live in a beatific Socialist Workers Paradise. They can wave a magic wand and make unpleasant pricing structures go away by fiat.
In terms of street-level reality, China handles these things in their own, special way. It’s amazing how little we’ve heard from the guys who opened their yaps and complained in Tiananmen Square. The hardest part of social unrest in modern China is cleaning the human viscera out of the track assemblies of the knock-off Soviet-Era tanks.
But India hasn’t done anything we haven’t hired them to do. Unlike the Chinese, they bear us no particular malice, and do not deserve to have their populations deprived of nourishment because American electorates vote for morons when we stock our Congress.
If Americans are viewed with jaundice abroad, it has far more to do with our arrogant legislators than it does with our military policy. People might miss affordable grain, I have yet to hear anyone not affiliated with a pack of Moonbats long for the good old days; when Saddam Hussein ran his screaming political dissidents through the plastic extruder.
Of course, we aren’t just teeing off on the rest of the world. We’ve managed to foul our own collective nest as well. Like the punch line of a really bad Ward Churchill paper, it’s all about chickens coming home to roost.
In the United States, the U.S. Department of Agriculture projects that the wholesale price of chicken in 2007 will be 10 percent higher on average than in 2006, the price of a dozen eggs will be up a whopping 21 percent, and milk will be 14 percent higher.
The Senate has changed hands and changed leadership. The Culture of Corruption ™ has gone the way of Enron, and we now have the most ethical representative body known to the history of mankind. So what do these Solons of The West do when confronted with manifold evidence that a policy has failed and is quite literally taking food out of the mouths of starving children in developing nations with whom we do massive volumes of international trade?
They propose making the error five times over. The new energy bill mandates raising the ethanol minimum to 35 billion gallons of biofuel. Perhaps Hillary Rodham Antoinette believes they should all eat cake, assuming they can still afford the eggs and milk to bake one.
President Bush has recently talked some smack about vetoing wasteful spending proposals NOT included in The Mediacare Prescription Drug Pander, and has included the latest Homeland Security Reauthorization Act on his list of targets. If he cares about this more than say, border security, he should swat this atrocious bill like no SWAT Team can . I repeat, the linkage of prices between food and fuel is stupid and will only bring America and the world continued hardship.
(Apologies to The Red Hot Chili Peppers for the shameless lyric piracy in the paragraph above.)
At the end of the 19th century, I recall reading (in the book "The Great Game" about the stock market) about 1/3 of the nation's land was devoted to raising fodder for animals, especially horses, the dominant mode of transport then.
Follow the Democratic Congress! Back to the 19th century!
If this really becomes the case, 2006 will truly be the last year US CO2 output drops, rather than increasing.
"I have nothing but contempt for Representatives who only represent themselves." - H. Roe Bartle
... was seeing Sen. Charles Grassley (R-IA) during the State of the Union address. I thought the man was literally going to soil himself when the President announced his commitment to ethanol.
Like many liberal policies, this one is being pursued with scant regard on the big picture impacts, to the (world) economy as well as the environment.
It's such a fine line between stupid and clever. - David St. Hubbins
...and we're going to find out how it turns out.
One of the things I've learned the hard way is that when a lot of credible experts get terribly worked up about something, it's probably profitable to trade the other way.
From where I sit, it's inevitable that we'll see a large amount of land get diverted to corn-for-ethanol. That's simply because of the hundreds of millions of investor dollars that have been shifted to building distilleries in the last two years, anticipating a government-mandated market for the stuff. Sophisticated investors usually make sure that the appropriate legislators stay bought. That means nothing is going to stop this train.
The only thing I'm willing to predict about this whole exogenously-driven re-allocation of resources is that the outcomes will be surprising. And given that the expectations are uniformly bad, that leads me to expect that at least some of the surprises will be upside surprises.
China inflation: I must express the contrary opinion that China's food-price inflation is a monetary phenomenon, resulting from their undervaluation of the renminbi. And I'm sure you know that the Great Leap Forward, which appears in a passage you quoted, was an entirely man-made phenomenon. (I admit I'm being charitable to Mao, calling him a man.)
However, the famines in India in the mid-1960s were quite real (meaning, not caused by moronic government policy), and constituted a huge foreign-policy focus for the Johnson Administration. (Historians, God bless 'em, remember nothing of that era but Vietnam.) This situation bears watching, as you point out.
of grain to offset the price phenomena. China could feed their people with rice and other grains. What about their livestock? China also has begun depleting its water table in the interior. That could limit, in a sense, their ability to "grow" their way out of this mess. (Bad puns are hopefully not punishable under GATT provisions.)
"I have nothing but contempt for Representatives who only represent themselves." - H. Roe Bartle
Before I continue: I presumptively consider every bit of information that comes out of China to be either disinformation or misinformation. That includes stories about falling water tables, which may be true, but I wouldn't know unless I was a hydrologic engineer measuring them directly.
China isn't like the United States. We have to feed everyone. And because our markets are free to some small extent, everyone will be fed.
China (by which I mean, the Chinese regime) doesn't face that problem. Their goal is to retain power, and their chosen strategy is to deliver developed-world levels of prosperity to their urban populations (a nation-within-a-nation that is about as large as the US or maybe even the Eurozone), while keeping their victims rural inhabitants from replaying the Maoist revolution.
In short, they don't need to adequately feed all 1.3 billion people. They just need to keep the peasants above starvation level and murder enough of them and suppress information flow to them to keep them under control.
China is engaged in the largest market-share grab in history, which is why they expend their resources and their energies building manufacturing capacity that they don't need but expect to grow into, rather than food.
If I'm right about all this (note my opening caveat), then China is not short of food.
I guess if you don't consider a well-fed population an economic good, than you are never short of a bite to eat.
"I have nothing but contempt for Representatives who only represent themselves." - H. Roe Bartle
...I'd say that in an ideal situation, they would have a well-fed populace from top to bottom, given that the humanitarian good of healthy people translates directly into the political good (from the regime's POV) of reduction of revolutionary pressure.
If this is all true, then the Chinese leadership are making two bets simultaneously:
1) By locking up manufacturing for the whole world, they will have a lot more to work with in future decades. They're betting they can keep a lid on things while the business strategy takes the time it needs to work out; and
2) When the Chinese people have achieved first-world levels of prosperity, they will not agitate for greater political freedoms, as nearly everyone in the West assumes they will.
I'd put my money on both bets.
That no government has EVER, in the history of mankind done a good job of picking winners, losers, or new technologies.
Only idiots, both left and right who have become addicted to government will still believe that they can do things better than the free market.
If there really is a huge national concern with replacing fossil fuels then the only thing that would make sense is to raise taxes on fossil fuels and offset them with lower income taxes.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
There was plenty of moronic government policy in India from independence for at least 30 years. There was some liberalisation in the 80s and more in the 90s, which is why India is now achieving some pretty impressive growth.
The determination of Indian governments to keep farms small and low-tech was a pretty serious crime against humanity. It was not on the scale of the 'great leap forward' or the 'cultural revolution', but it was pretty bad.
Quentin Langley
Editor of http://www.quentinlangley.net
International Editor of
Christopher Alleva
Spiking food prices is not the only defect with the energy bill. Like Nero, our friends in Washington are fiddling about while Rome burns. There are profound issues facing the nation's energy future and the people in Washington are engaged in this folly they call an "energy bill." Apparently, a lot people on Capital Hill believe they can make energy policy by decry. The bill is long on mandates and short on solutions. Command utilities to generate 25% of their electricity from "renewables", dictate the auto companies to magically make their cars get 50 miles to the gallon, order consumers at gun point to buy 36 billion gallons of bio-fuels, and throw in some demagoguery, criminalizing non-existent price gouging. Incredibly, there are no provisions to be found encouraging new energy production or streamlined permitting for new refineries, generating plants or other energy infrastructure. In fact it's just the opposite.
The bill (S 1419) http://energy.senate.gov/public/_files/S1419.pdf is chalk full of provisions that will actually compound the problems not solve them. It's as if FDR's rose from the dead and resumed inflicting his statist agenda on his mythological "forgotten man" ever deepening the depression. The problems with this legislation are like the song "Love Story", where do I begin?
House Bill (HR 6) was the genesis of S 1419. It kicks off with Title I, "Ending Subsidies for Big Oil Act of 2007.' This part basically, limits expense and amortization deductions, raising the tax liability of oil and gas companies. This coupled with retroactive royalty increases will undoubtedly divert billions of dollars to the federal treasury and take away from corporate capital expenditures ("capex") at the very time it is most essential. Over the last three years often vilified Exxon Mobil has made more than $41 billion in capex. http://finance.yahoo.com/q/cf?s=XOM&annual. In the same period, they paid more than $77 billion in taxes. Illustrating the already adverse investment climate for oil and gas is the fact they spent $56 billion in stock buybacks in those three years. Large stock buybacks usually indicate management's determination that investment returns on capex are to low to justify. If Congress were actually acting in the public interest they would be passing a bill to encourage oil and gas producers to make investments. Instead, they're writing more laws that discourage desperately needed capex.
The absurdity of this bill would make most people blush except U.S. Congressmen and Senators apparently. The bill retards private investment but provides direct public prizes like "The Bright Tomorrows Lighting Prize" This is a great example of how ludicrous this whole exercise is. The bill directs the Secretary of Energy to award a $10 million prize to anyone that produces a solid state 60 watt incandescent lamp and a $5 million prize for a halogen lamp in comformance with standards set forth in the bill. This is a fools errand. What do they think, there's some wunderkind toiling away in a high school physics lab going come out of nowhere to claim the prizes.
Those bright lights of Senate don't limit their infinite wisdom to light bulbs. These guys must be engineering wizards, dictating furnace fan, residential boiler, and electric motor design among many other things. When not playing engineers, the Senators want to play diplomat. The last 20 pages of the bill detail a utopia full of platitudes that repeat much of the poor policy ennumerated in the rest of the bill. And I thought the Senate was limited to advice and consent on foreign policy?
Should this energy bill become law consumers will be paying much more for energy. Energy producers will curtail vital investments and prices will skyrocket. This energy This energy bill is a disaster waiting to happen. Fortunately, when the consequences of the ill advised legislation are realized we'll know who to blame.
When I saw the oil/gas lobby was sitting this out sans any meaningful protest, it was fairly evident something was afoot.
My only hope is a process which is not corn/food-stuff based is developed and these plants are usable in that production.
"Dulce et decorum est pro patria mori"
Contributor to The Minority Report
The title here is a wonderfully concise argument against mass transfer of food to ethanol.
An interesting comparison for leftist priorities is what wins between the perceived benefit of "helping the environment" by using ethanol instead of oil and "helping the poor" in countries like Mexico by keeping corn prices lower. The environment wins hands-down.
As an aside, one potential benefit of ethanol production is if the corn waste products can ever be commerically viable to make into ethanol. This could be neutral as far as affecting food prices.
Peter R - Praetorium.org
Its a redonki-lous situation in that Brazil has become oil self sufficient thanks to their off shore drilling.
Doesn't all this ethanol require retooled engines, hence a need to buy new engines for our cars if not new cars?
Finally, a front post page on RedState exposing the stupidity of Ethanol! Ethanol is a democrat's dream - tax money being used to drive inflation! Brilliant!
Let the free market reign!
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Eliminate the IRS and all payroll taxes! http://www.fairtax.org
After reading posts on this blog, I noticed that a number of the RS members are lambasting Democrats for supporting this whole ethanol idea. We shouldn't forget that there are a lot of Republicans (including the man in the White House) who believe that this ethanol idea is going to save our economy, protect our nation (from problems in the Middle East), and decrease CO2 emissions.
The problem is that the ethanol (i.e., oil/gas) lobby is funding politicians from both parties and getting them on board (i.e., bribing them) for ethanol. I don't understand how nobody is seriously forcing the politicians to answer questions regarding ethanol such as:
1. What is the impact on food prices? Why does my milk cost a dollar more now than last year, and is projected to cost an additional 50 cents to a dollar before the year is over?
2. Do you think using FOOD as fuel is a wise idea in the long-term considering population growth?
3. Does it really SAVE energy, considering the amount of fuel needed to make fertilizer, etc.?
4. Why are we choosing corn over sugarcane (like the Brazilians)?
No politician seems to really care. They all chant the "ethanol is the answer" mantra.
The energy solution is simple:
1. Make automakers increase fuel efficiency of their vehicles. A simple 10 or 15 mile per gallon increase would save our country billions of gallons of fuel annually.
2. Any automaker who says that it will cost so much more that no one will by cars does not realize that as the number of vehicles built with the new technology increases, the production costs will drop. Therefore, the price to consumers will drop as well. The reason the technology costs a lot right now is because (relatively speaking) few vehicles are made using hybrid, etc., technology.
3. Let's keep drilling our domestic supplies. This includes ANWR.
4. More refineries. More refineries. More refineries.
We HAVE to become self-sufficient as much as possible when it comes to oil. If this country wants to survive, we need to take serious steps toward that goal. Ethanol, in my opinion, is not the answer at all. In fact, it's probably worse than what we currently have.
The Democrats weren't an agenda-setting organization in 2005. Their power was limited. The feces that stunk up the 2005 Energy Bill was escatamologically pure elephant dung.
"I have nothing but contempt for Representatives who only represent themselves." - H. Roe Bartle
Politicians setting mileage goals for cars, when they know little to nothing about auto design offers little in the way of a solution. We'd be better off to let the price of gasoline rise naturally and let consumer choice take care of the market. We saw this in the late 70's. The price of gasoline increased drastically and people started buying more fuel efficient cars. We are also seeing it today. If the government wanted to do anything to spur buying of fuel efficient cars, it would be better to offer tax incentives.
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The one thing missing in the debate over car mileage is safety. In crashes, the biggest vehicle wins. It's simple physics. When we mandate higher fuel economy, we are also mandating more auto fatalities. We should let the consumers set their own priorities when buying cars.
If the government wanted to do anything to spur buying of fuel efficient cars, it would be better to offer tax incentives.
We are giving away a very substantial chunk of free taxpayer money with the purchase of a hybrid (which amounts to a nice subsidy of Honda and Toyota). I don't think we should be doing that, either. The government needs to stay out of it and leave the purchasing decisions to the consumers.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
not based on a given technology as is the current hybrid credit. I also didn't necessarily say the government should be giving tax breaks, I was merely opining that tax credits would in my opinion be better than the current CAFE standards.
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As an interesting side note, I read somewhere (can't remember where and don't have time over lunch to find the source)that Honda's sales of their hybrids have been somewhat disappointing and that they were scaling back production.
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My opinion still is that we should let the market (i.e. Consumers) decide.
Yeah.. Honda is stopping Accord hybrid production primarily because they are not getting the sales they wished for. The primary reason was the lack of increased fuel efficiency with their hybrids. What they did, unlike Toyota, is actually increase the power of the their engine (therefore uses more fuel), and then convert it to a hybrid. The Accord hybrid is a V6, while a four-cylinder gas-only Accord gets a similar fuel efficiency.
Accord Hybrid (happens to be a V6): 28/35 mpg, $31K-$33K
Accord Sedan (four-cylinder): 26/34 mpg, $20K-$29K
This is where the market said, "No. The price premium is not worth it for the lack of increase fuel efficiency." I also think it's partially Honda's fault for not realizing that without a significant increase in fuel economy, people would not pay the premium.
The story is much different for the Honda Civic Hybrid, currently selling like hotcakes at 49/51 mpg.
The problem is that people won't pay a premium for a Honda hybrid without increased fuel economy. Toyota doesn't have the same problem. They have some ridiculous hybrid offerings (like their hybrid offerings under the Lexus name plate) and they don't seem to be having much trouble. Many people are willing to pay a premium just for that badge. That is the main point of buying a hybrid, after all. It doesn't exactly make a whole lot of financial sense. The money you save on gas won't pay for the increased purchase price and increased repair costs down the road.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
on the hybrid price premium. I was looking for a replacement for my Ford Explorer (~20 mpg) if the price of gas goes above $4.00 / gallon. The best buy I could find is a Volkswagon turbo Jetta. It runs on diesel but gets in excess of 40 mpg, without the hybrid premium. Also, I can run the car above 100,000 miles without having to spend ~$10,000 for replacement batteries. If you look at both purchase and lifetime costs, the hybrids son't currently make sense. However, that's the beuty of the market. COnsumers can buy what they want for their own reasons.
The problem is that the ethanol (i.e., oil/gas) lobby is funding politicians from both parties and getting them on board (i.e., bribing them) for ethanol.
You got the wrong industry there. It's not the oil and gas industry that benefits from ethanol mandates. It's agribusiness. That's who owns most of the ethanol production facilities. That's who produces the feedstock for those facilities.
Make automakers increase fuel efficiency of their vehicles. A simple 10 or 15 mile per gallon increase would save our country billions of gallons of fuel annually.
How about leaving it up to consumers? They are the ones who pay for the gas. Let them decide how much they want to spend. Novel idea, I know, but if people want to drive plastic subcompacts to save a few bucks on gas, they are free to do so right now. There's no need to force it on them. These standards also have the side effect of hurting the American automakers much worse than foreign automakers, because of the labor cost differential. CAFE should be abolished. Let automakers focus on the segments they want and make the vehicles they want. Let consumers buy the vehicles they want.
Any automaker who says that it will cost so much more that no one will by cars does not realize that as the number of vehicles built with the new technology increases, the production costs will drop.
That's ridiculous. Of course they realize that. They are not idiots. The fact that technology is cheaper when it is mass produced doesn't mean that the technology will be anywhere near as cheap as current technology. Hybrids carry a lot of extra equipment on board. That equipment will always add substantially to the price of a vehicle because of the two redundant propulsion and fuel systems. It's also unnecessary. Hybrids do not get that fantastic of mileage in real world conditions... as the new EPA estimates for 2008 show. The Prius just lost 15mpg. That's pretty comparable to the more efficient gas and diesel powered vehicles.
More refineries. More refineries. More refineries.
The money in refining is really good right now, but we've managed to make the US an extremely undesirable place to build a refinery. It's also not clear what the future holds for refining with all this talk of biofuels mandates. That doesn't create a pretty picture that makes people want to get out their check book.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
The only way this concept can be rationalized in my opinion is that a spike in production of expensive ethanol and a shift to biofuels will force Middle East oil countries to lower their prices and for a brief time the US may be able to thumb our collective noses at their oil. It will not work for the long run for the reasons you state, the fact is that ethanol is an expensive way to power transportation. Nuclear and electric trams would work better but would take longer to construct.
If this is the reason for the ethanol bandwagon, (and I admit that self enrichment is also part of the equation), then maybe it is worth a try. It may also have the effect of causing environmental do gooders to see that living "green" and doing away with economic principles will still result in a lot of fat cats finding ways to get rich. Sad for the democrats utopia.
Never underestimate the ability of modern medicine
Given that the prices of food and fuel in America are already, for all intents and purposes, linked.
The refrigeration and transportation of most of the food we eat would already ensure this; we use petroleum in the production of food, as well.
A good read.
"Diplomacy --- the art of saying "Nice doggie" 'til you can find a stick." Wynn Catlin