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Mon, 17 Apr 2006

Did Uncle Sam cause high gas prices?

Well, here's another case where the policy mavens inside the beltway shot themselves in the foot and us in the wallet. But it's all for a good cause, right? It'll help the American farmer by demanding more use of ethanol... oops, not necessarily(PDF). That will mostly help large agribusiness conglomerates who can play off South American and Caribbean suppliers to get the lowest possible price, since they use sugar cane to create ethanol while we use higher fiber (and thus less efficient) corn stalks.

This explains why the oil industry and agribusiness were so keen on CAFTA, and why Congress was in such a rush to push it through. Why am I not surprised?

As gasoline prices spiral upward ahead of the high-demand summer season, some traders and consumer advocates are laying at least part of the blame squarely on the doorstep of the federal government.

(link) [CNN.com]

/Agriculture | 7 writebacks | permanent link

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On 4/18/2006 12:55:13
Mark Rouse wrote

So, the USofA, in our wasteful prosperity has really screwed up again. When we went on our first trip to Brazil four years ago, we noted that cars that ran on gasoline only were the exception. At the airport, the taxi drivers tried to figure out how to fit our luggage in the trunks of cars where the entire trunk was filled with an LP gas tank. Almost any vehicle that could haul more than four people used a small diesel engine. When we filled up our rental cars (yes, driving is Brazil is scary and challenging!), we had a choice of 'alcool' or 'petrol' - alchohol or gasoline. The alchohol was not diluted with gasoline - it was 100% ethonol, and the cars ran fine on it. The cost of 'alcool', as of our last trip, was about half the cost of 'petrol'. There was a performance penalty, and the cars didn't get as good of milage with 'alcool', but the net result was that it cost 25% less to get from here to there driving on alchohol. At that time, with the exchange rate, gasoline was running the equivalent of $2.75 US. Unfortuneately, the need in the US to mix gasoline and ethonol creates a cost and ineffeciency that should have been addressed years ago. The main thing that makes the cars in Brazil so flexible is that they use more expensive hoses that do not degrade in contact with alchohol, a moisture filter to remove water that desolves in alchohol (like diesels use) and a program in the computer that allows an extended operational range. Oh - and no sub-6 second 0-to-60 times either. Which may be the real problem......

On 4/19/2006 06:37:03
Arwin wrote

Is there a silver lining?

On the brighter side could high fuel prices should help locally grown products, thus helping family farms? Isn't the idea of agribusiness with high yield in a smaller central location dependent on low transportation costs? It seems to me I read something in Time or Newsweek saying we truck so much of our food availability of fresh veggies in the middle of winter may be much less if transportation costs go through the roof. Well my libertarian friend what would you say to a $1/gal. tax increase on gas? I drive a small car so I'm all for it. It would nudge the market forces along and possibly reduce the deficit.... as long as it didn't wreck the economy. Probably some sort of phased in tax increase would be less likely to shock the economy. I liked this approach ever since it was first proposed by John Anderson during his third party try at the presidency. The bad part would be how would Washington waste this money instead of addressing the budget shortfall or spending it on stuff we really need.

On 4/19/2006 06:42:36
Arwin wrote

Higher compression

Hi Mark, I'm not sure there has to be the big penelty in performance with Ethanol powered vehicles. There will be a penelty with regards to MPG. There just isn't as much energy in a gallon of EtOH as a gallon of gas. Race cars used in the Indy 500 actually are fueled with Methanol. Were the Brazilian cars dual fuel? That is could they run on either petrol or alcohol? If so the compression ratios are kept lower than necessary for a strictly EtOH powered car.... or to keep manufacturing costs low maybe the compression ratio was kept low.... or to keep MPG high the compression ratio was kept low.

On 4/19/2006 08:13:58
Dave H wrote

Govt Nudging

Man, I should never have said the word "libertarian" here ;>) Most "hard-core" libertarianism is like most "hard-core" communism, etc.: they're "closet plays", meant to be read, not performed. It's just as impractical for libertarians to spout off about privatizing police departments as it is for communists to yammer on about the State "withering away". Ain't gonna happen. Some wag once remarked that the true measure of a libertarian was his or her support for the private ownership of nuclear weapons. After all, until someone is injured by force or fraud, according to doctrinaire libertarians, no crime has been committed. I know I'd sleep better at night knowing Osama's "right to bear arms" was fully respected! Now, that being said, blithering idiots like myself, who self-identify as some variety or another of libertarian, fulfill a vital socio-political function. We keep the bastards honest, by forcing them to confront the end results of their various schemes, mostly involving economics When the government "nudges" the economy, it usually ends up pushing it off a cliff. Which would be the real result of a $x additional tax on gasoline. It would certainly appear to be a measure to accelerate development of alternative fuels/sources, but in reality would end up being nothing more than exactly what it is: a tax. Which the government would fritter away setting up a massive bureaucracy to develop alternative fuels/sources, with less than 1% of the collected monies actually getting in the hands of engineers/scientists. Pretty soon you'd see a retro-fit program for vehicles: "No Car Left Behind", which would, for a mere $20k per vehicle, insure that they could run on "pure" alcohol. Which we would them import from countries South of the Border, until they were taken over by the likes of Chavez in Venezuela, at which point we'd be forced in to prevent the spread of WMD's (no to mention SUV's). Cynical? Surely. But I would submit that it's also unapologetically realistic, based on recent governmental performance. As for the "silver lining" you mention, you'd best hope that the trucks keep rolling. There are no longer enough farmers in Indiana to feed the cities, and the land and equipment available has become almost totally dedicated to cash crop (corn and soybean) production. Would we in the countryside react to such a crisis? Of course we would - it's simple economics. And in about a decade you'd have a full;y functioning farm economy, capable of feeding our own citizens without trucking or shipping everything grown halfway around the planet. Of course, by that time most of the population in the cities will be long dead. Famines are not always the result of crop/food shortages, quite frequently they're failures of distribution. Just ask the Africans. Thanks for the comments and Be well, Dave H.

On 4/19/2006 10:08:32
Mark Rouse wrote

Arwin, The Brazilian cars that we've rented were all dual-fuel. Actually, they could run on pure alchohol, pure gasoline, or any mixture. Hence the performance difference -which probably only matters to North Americans who go to Brazil. There is a distinct difference in driving style; North Americans prefer acceleration and braking to get out of situations where Brazilians would use anticipation and skill. I've told my wife that the Brazilians that come to the US and have success as race drivers are just retired cabbies from Rio! Seriously, though, all the cars we've driven and ridden in in Brazil are tame by USofA standards. Usually small four cylinder engines with manual transmissions (come to think of it, I've never seen a car in Brazil with an automatic...). We rented the largest cars we could rent, most often a Suzuki that is not available in the states, and often got 15 kilometers per liter running alchohol and 20 with gas. That's 45-48 miles per gallon of gas in a car the size of a Ford Focus. In Vitoria, we rented a Kia Besta, which is a van that's between the size of a full-size van and a 15 passenger death-trap. It had a small diesel engine which ran on bio- diesel (ummmmm popcorn......) and got 12-15 kilometers per liter. But don't expect to win any drag races with it. There are solutions to the fuel crisis, but until we're willing to compromise, we won't see them in the USofA. I read a report a couple months ago that said that the number of cupholders in a car is a more important factor to the North American car buyer than the gas milage. My gut tells me that that is true. On our way home from Texas two weeks ago, I had the cruise set on 70 and was the slowest vehicle on the road. The number of LARGE SUV's pulling LARGER trailer that passed me (probably going 80-85 mph) was astonishing. When we moved Josh to Texas, we pulled a 12 foot rental trailer with a Ford F150 pickup and got a whole 12 miles per gallon. What does a full-size Hummer pulling a 30 foot travel trailer at 85 mph get?

On 4/20/2006 06:34:16
Arwin wrote

Fuel's gold?

Dave you are right about no silver lining if fuel prices jump so quickly the farm economy can't adjust. However even though the fuel prices have taken a big jump over the past few years, we aren't seeing inflation adjusted record highs. I think economies fair better when things happen gradually so the market forces have time to react in a way that causes the least disruption. Hence my comment about a phased in, but probably wasted tax on fuel.... Are we taxed less than most countries when it comes to fuel? I'd guess yes. If the change in the price of fuel is gradual, and I expect it will be, excluding a few spikes and dips here and there, you might be able to realize the silver lining I am talking about. I hope so because I'd like to see your success, but also I hope the grim scenario you paint doesn't come true, or if that scenario starts to come true, I suspect we'd find a reason to jump in militarily. Another picture I wouldn't like to see. Mark thanks for the stories about your travels outside the country. I enjoy travel abroad too because of the differnces we can observe.

On 4/22/2006 03:38:09
Mark Rouse wrote

I thought this was timely: http://news.yahoo.com/s/ap/20060421/ap_on_re_la_am_ca/brazil_oil_sufficiency I seems that the USofA, which has a population that is about 50% larger than Brazil (298 million vs. 188 million), uses 10 times as much oil (20 million barrels/day vs. 1.85 million barrels/day). Adding that to the worlds largest hydroelectric dam, growing exports (and a growing trade surplus) and a stable currency makes you wonder if they don't have what it takes to be another economic superpower. All they need is some industrial prowness (everything they build except airplanes and cell phones is crap) and a stable, non-corrupt government.

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