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Brooks Wilson's Economics Blog: February 2011

Monday, February 28, 2011

Driving Costs and the Demand for Cars

Gasoline is an important complement to cars.  Other things equal, as gasoline prices rise, miles driven and car sales decline, but more can be learned by separating cars into makes and models, making one a substitute for another.  But the strength of that relationship depends on a number of characteristics.  One make and model, a Honda Civic, may be a strong substitute for another, a Toyota Corolla, and a weak substitute for another, a Chevy Tahoe. 

With the price of related goods for the demand car model in mind, I constructed a table based on the per mile total cost to operate the seven different models over five years assuming the cars were driven 15,000 miles per year.  All the costs except fuel were taken from Yahoo Autos.  Fuel costs were estimated using the average of EPA City and Highway estimates at gasoline price beginning at $2.75/gallon, increasing at $.25 increments to $4.25/gallon.  Fuel economy ranged from 18 City/27 Highway for the Ford Taurus to 51 City/48 Highway for the Toyota Prius. 

This is a simple model; the only cost that changes as gasoline prices rise is fuel.  I expect that other elements of cost would change as the price as well, For example, the price of fuel efficient cars would rise relative to less efficient automobiles both in the new and used markets.  Because I don’t have data to predict the changes in new car purchase price and the used car sales price, I did not modify Yahoo’s cost estimates.  The graph of the per mile total cost of the seven vehicles yielded some expected results and some surprises.  As expected, the total cost per mile of the hybrids rose more slowly than non-hybrids, but not dramatically so.  I anticipated that the total cost per mile of the non-hybrids would be lower at low gasoline prices but would be higher than the hybrids at high gasoline prices.  The Civic and the Fusion both came in non-hybrid and hybrid models and in both cases, the hybrids had lower total cost per mile than their counterparts at $2.75, and that cost differential grew as prices rose.

The reason that gasoline prices did not influence total cost per mile is that they are a relatively small part of overall cost.  Fuel cost never rose above 33% of total cost (Mazda 3 Sports i), and were as low as 17% of total cost at $4.25/gallon (Toyota Prius).  In general, models that were relatively less expensive at low gasoline prices were less expensive at high gasoline prices.

Consumers will try to lower the cost of owning a car, but how?  A more sophisticated inquiry might study the complementarity of makes and models.  Is a minivan a stronger or weaker complement to a large SUV than a crossover?  Likewise, is a compact hybrid a stronger or weaker complement to a compact than a subcompact?

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Wednesday, February 23, 2011

Thoughts on Revolution and Oil Disruption

Revolution is sweeping through North Africa and the Middle East.  The governments facing this spontaneous uprising are universally totalitarian.  Some have had good relations with the United States and some have not.  No one knows if the new governments will be more democratic or less, or if more democratic regimes will be less friendly to the United State and our allies.  Assume the worst, that anti-American, totalitarian, radicalized pro-Iranian governments replace current regimes.  What will this mean for oil output and prices?

I believe that after a temporary spike due to the fear of disruption of or actual disruption of supplies, output and production will resort to their pre-revolution trend.  My conclusion is based on two assumptions.  First, like their predecessors, the new regimes will attempt to maximize oil revenue.  This means setting a monopoly price through OPEC or some similar cartel.  These countries are poor, and long-run reduction of production below the optimal cartel price would reduce economic activity leading to greater discontent.  The new regimes would face counter revolution elements in their own government willing to supply oil to the rest of the world and these challengers would be able to promise bigger rewards to backers than the current regime based on increased oil production.  Second, although the new regimes would set prices through a cartel, they would have as much incentive to cheat on cartel prices as those they replace, making it difficult for the cartel to maintain production quotas.  In short, the revolutionary frenzy may be bad for the U.S. diplomatically, it will not mean a great deal economically.

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Friday, February 18, 2011

Two Problems with Profiling

Profiling is a method of observing characteristics, actions and circumstances to draw conclusions about a person.  It is a useful tool that we all use every day.  Doctors build health profiles based on age, weight, race, sex and personal habits such as drinking and smoking.  Amazon books uses profiling to suggest books you might be interested in based on past purchases and current browsing. 

Profiling becomes controversial when race is one of the observed characteristics or when the profiler can legally use coercion on the profiled even when the profiled characteristic is statistically based.  Suppose Officer Holmes of the Arcadia Police Department observes that drug use has crept into his normally peaceful jurisdiction.  He travels to Gotham and notes that four times as many Hispanic males are arrested on drug charges than Asian males.  Based on that observation, he focuses his time and other police resources on Hispanic males to reduce drug related crime.  The problem could be one of reverse causality.  Perhaps more Hispanic males were arrested in the past because the police harbor prejudices against Hispanic males.  They are arrested more frequently because they are investigated more frequently.

Now assume that Officer Holmes has read scientifically conducted research based on surveys that finds that 12% of Hispanic males acknowledge illegal drug compared to 3% of Asian males.  He is scientifically justified in using race as a profiling characteristic, but problems remain.  In the course of his work, using race, sex, location and other behaviors to profile potential drug users, he observes 1,000 Hispanic males.  Of these, he stops and questions 270, and of these, he arrests and charges 60 with a drug related crime and all are convicted.  The remaining 210 Hispanic males were innocent and while they were only stopped and questioned, may resent Holmes’ behavior and grow to distrust the police.

Profiling becomes more objectionable as the ability to correctly identify offenders decreases and the level of coercion increases.  On January 8, 2011, Jared Loughner made himself notorious by killing six and wounding twelve in a failed assassination attempt of Congresswoman Gabrielle Giffords.  Some called for more stringent gun control.  Second Amendment supporters and gun owners argued that it would be wrong to inconvenience many gun owners for the actions of a single deranged man.  Others noting that friends, family, students and teachers had observed Loughner’s erratic behavior and on several occasions had called the police for assistance suggest that a stronger enforcement mechanism be developed to help youths with mental disorders and protect the public.

Let’s say that Arizona imposes a new law that that allows authorities to medicate youths profiled by behavioral characteristics as potentially violent.  Assume that researchers followed the behavior of 10,000 young adults and one in a thousand (10 young adults in our sample) have a disorder that will lead to acts of violence.  Now assume that we implement a system that correctly identifies 80% of those with potentially violent mental disorders (8 of the ten potentially violent young adults are identified.  Two are not.).  But there is a tradeoff.   In our example, there are 9,990 young adults who are not potentially violent yet one time in a hundred, or 99.9 times a young adult will be wrongly identified as being potentially violent and subject to forced mediation.  Is catching 8 of 10 potentially violent worth the cost of forcefully medicating nearly 100 who are not?  If this tradeoff is too high, how many wrongful forced medications will you tolerate to stop the violence these youths will cause?

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Thursday, February 17, 2011

Jeffrey on Social Welfare Programs

(HT Drudge Report) Terence Jeffrey’s article, “Jeffrey on Socialism's Trajectory: Obama's HHS Is Bigger Than LBJ's Government,” is an interesting blend of the good, the bad and the ugly.  To be sure, the bad and the ugly are small, and the good is big.  His main point is that in the past increased spending on social welfare programs has dramatically increased the size of government and placed us on a socialist path to ruin and that Patient Protection and Affordable Care Act (healthcare reform) pushes us further down that path.

The ugly is the overuse of the word “socialism.”  The Merriam-Webster Dictionary defines socialism as
a system or condition of society in which the means of production are owned and controlled by the state.
None of the programs he mentions, Social Security, Medicare, Medicaid, the prescription drug benefit, and now healthcare reform is a socialist program.  The government exercises control without owning the means of production.  Like socialism, the healthcare programs, as they have been designed and implemented, have weakened markets by limiting the role of prices. Socialism is only one road to serfdom. 

The bad is the exaggeration of the growth of government associated with the introduction of Medicare and Medicaid in 1965 and the prescription drug benefit in 2003.  He introduces his ideas with an interesting fact he discovered while examining the historical tables published with Obama administration’s $3.7 trillion budget.  If the budget is passed as the administration proposes, the Department of Health and Human Services will spend $909.7 billion, more than the entire 1965 inflation adjusted budget of $822.6 billion.  The fact is a good literary tool because it catches the eye, but it also exaggerates the still impressive growth of government.  It exaggerates because America’s population and wealth have grown; we should expect a bigger budget.  Measuring the budget as a percentage of gross domestic product is a more meaningful measure. 

As Jeffrey noted, budget expenditures, which were 17.2% of GDP in 1965, grew to 25.3% of GDP in 2010.   Expenditures by Health and Human Services represented a miniscule .68% of GDP in 1965 to 6.25% in 2010.  The contribution of Health and Human Services expenditures to the total budget is similarly impressive.  Those expenditures were 6.24% of total budget expenditures in 1965 and grew to 24.7% in 2010.

The good was Jeffrey’s brief tour of important events leading to an expansion of the size of government.  In 1937, Roosevelt attempted to pack the Supreme Court with politically like-minded justices.  He failed to pack the Court, but he succeeded in intimidating it.  Social welfare programs deemed unconstitutional prior to the attempted Court packing were found constitutional thereafter. Medicare and Medicaid began in 1965 and government grew.  The prescription drug benefit was signed into law in 2003 and the government grew.  The new programs are at least correlated with an increase in the size of the federal government as a percentage of GDP and because they programs have grown rapidly, they are probably one of the causal factors of government’s growth. 

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Tuesday, February 15, 2011

Wind Farms: Production Costs and Externalities

The pollution that results from the consumption of carbon based fuels is well known.  Less well known is the pollution produced by alternative sources of energy.  This post highlights pollution generated by wind farms.  The document I am quoting, “Why Wind Won't Work? - it's Weaker than Water.,” was produced by the Carbon Sense Coalition.  As the name implies, the group is doubtful of the value of alternative sources of energy.  They describe themselves as
…a voluntary group of people concerned about the extent to which carbon is wrongly vilified in Western societies, particularly in government, the media, and in business circles. We aim to restore balance and reason to the carbon debate, and to explain and defend the key role of carbon in production of most of our energy for heat, light, and transportation, and all of our food.
The scientific method involves methodical study and measurement and prudent researcher should examine sources and our own biases.  The article is not a scientific article but I believe that it makes valid points about problems associated with wind farms.  In part, the executive summary reads
Wind power is very dilute, and thus a large area of land is required to gather significant energy. Wind energy needs a wide network of roads, transmission lines and turbines which degrades any area containing wind farms. It has a huge land footprint.

The operating characteristics of turbine and generator mean that only a small part of wind energy can be captured.

Wind power is also intermittent, unreliable and hard to predict. Therefore large backup or storage systems are required. This adds to the capital and operating costs and increases the instability of the network.

Wind farms are uniformly hated by neighbours and will not be willingly accepted without heavy compensation payments. Their noise, flicker, fire risk and disturbing effect on domestic and wild animals are well documented.

The wind is free but wind power is far from it. Its cost is far above all conventional methods of generating electricity. Either taxpayers or consumers will pay this bill.

The third paragraph begins, “Wind power is also intermittent, unreliable and hard to predict.”  The article provides evidence from Texas and reported in the Daily Kos.
Wind turbines are prominent in Texas, but a cold snap in early 2008 caused power demand to soar and winds to drop. This sudden loss of wind power (from 1,700 MW to 300 MW) just as demand reached the evening peak caused the grid operator to declare a power emergency and start shedding load and  cutting power to customers. The operator cut supply by 1,100 MW within ten minutes.

The authors also comment on carbon emissions associated with wind.  Note that they do not say if wind generates more or les carbon emissions than a coal fired plant, but that wind produces a lot of carbon.
Superficial commentators think that because wind itself does not rely directly on carbon fuel, its introduction thus reduces carbon dioxide emissions. This is not necessarily so, and promoters should be required to prove their case. 

Firstly wind requires backup to maintain steady power generation when  wind power fails. The best backups are probably hydro power or gas power, both of which can be turned on and off as quickly as the wind changes. Coal and nuclear can provide backup, but it is very expensive to do it that way. Nuclear is forbidden in Australia and coal of course emits the dreaded carbon dioxide.

Secondly, wind farms are usually in remote locations and the turbines themselves are necessarily spread over a large area. Each turbine has 1,500 tonnes of concrete, 2 tonnes of rare earth metals, and lots of steel and copper and requires much heavy transport and earth moving equipment to construct the towers, the access roads and the transmission lines. They  also need maintenance over this large area. Every one of  these activities emits carbon dioxide.
Finally, the authors compare the cost per kilowatt hour of various energy sources.
Energy Source USA Cents/Kwh
Natural Gas 8
Coal 9
Nuclear 11
Hydro-electric 12
Wind 14
Wind offshore 23
Solar thermal 26
Solar voltaic 40
Eventually, we will run out of oil and coal and these energy sources produce pollution even if you believe that these fuels contribute little to global warming or that the cost associated with global warming are relatively small.  My point is that other energy sources, particularly renewables, are expensive and dirty.  Rather than subsidize alternative sources of energy, the government should tax each according to the level of pollution they generate.  Setting the tax would be contentious but I would prefer this problem to rewarding government funding based in part of the political pull of recipients.

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Thursday, February 10, 2011

Bauman, the Stand-up Economist, Updated

(Edited 2/2/2011) Yoram Bauman, the stand-up economist, is a funny man and a good economist, and apparently, that is not an oxymoron.  Watch his new video for two reasons.  First, Bauman humorously explains Mankiw’s ten principles of economics, and second, he gives an example of an external cost and why markets cannot solve the problem.  The standard solutions are a tax on the good producing the pollutant or a cap-and-trade system.  He then pushes a carbon tax as a replacement to some part of the current tax system such as the corporate tax or the payroll tax. 

I am skeptical about some results that climate scientist reach.  Data may be corrupted by the urban heat island effect.  Proxies used to estimate past temperatures beyond fifty years do not seem to be statistically robust.  I also believe that the opportunity cost of alternative energy is well above the $.30 per gallon tax he seems to support, meaning that the cost of solving the problem is greater than the cost of the problem.  Finally, I doubt that unilateral action by the United States would significantly reduce global carbon emissions; it is a global emissions problem without a global enforcement mechanism.  With all my doubts, I still favor a carbon tax as a substitute to some other portion of our tax code.  It is a better, meaning less distorting tax.
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Spontaneous vs. Government Order and Oil

In 1973, Arab oil producers cut production and began an embargo of the United States in response to the government’s decision to supply the Israeli military during the Yom Kippur War.  In the short run, neither demand nor supply are responsive to prices.  As Arab nations withheld oil, prices surged and in a misguided attempt to manage rising prices, the government instituted price controls that added fuel to the crisis and energized a government subsidized search for alternatives to oil.  

Wind, solar and ethanol have largely been failures and still heavily rely on subsidies.  Programs to encourage conservation have spent taxpayer dollars but were the expenditures necessary?  In the summer of 2008, did consumers need incentives from Uncle Sam to conserve gas?

The spontaneous interactions of consumers and producers has mitigated the problem.  High prices encouraged oil exploration.  New sources oil were found.  Deep water drilling and other technologies were developed.

This is but one chapter in a long story of the battle between scarcity and market led innovation in oil production.  Jonathan Fahey reports in “New drilling method opens vast oil fields in US” that a new and non subsidized drilling technology first developed for extracting natural gas but now applied to oil has the potential to greatly expand U.S. production.
Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas and California. By 2015, oil executives and analysts say, the new fields could yield as much as 2 million barrels of oil a day — more than the entire Gulf of Mexico produces now.

This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.
As with other market developed technologies, it is cost effective.
…drilling for shale oil is not dependent on high oil prices. Papa [chief executive of EOG Resources, the company that first used horizontal drilling to tap shale oil] says this oil is cheaper to tap than the oil in the deep waters of the Gulf of Mexico or in Canada's oil sands.
Problems remain.  Oil is still a finite resource and like all energy sources, it pollutes.  If environmental critics are right, and burning oil results in global warming by releasing carbon into the atmosphere and warming is costly, then developing relatively cheap new sources of oil is a mixed blessing, but a blessing nonetheless.  Other things equal, I would rather struggle with carbon emission with relatively cheap oil prices.

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Sunday, February 6, 2011

Sessions Wrong on Trade

Since Adam Smith wrote the An Inquiry into the Nature and Causes of the Wealth of Nations economists have supported removing restrictions on trade.  Alston, Kearl and Vaughn reported the results of a survey of economists in “Is There Consensus among Economists in the 1990’s?” which was published in the American Economic Review.  Of those responding to the survey, 93% agreed with the statement that “tariffs and import quotas usually reduce general economic welfare.”

I am assuming that Jeff Sessions is a smart man and understands the economics of trade as well as the calculus of governing. In an ugly example of relationship capitalism, he has apparently concluded that it is more important to make constituents happy than it is to do what is best for the American economy.  The Wall Street Journal reports in “Fair Trade for One” that in December, Sessions “put a hold on the renewal of GSP [Generalized System of Preferences] on behalf of Exxel Outdoors, which makes sleeping bags in his state.”   The General System of Preferences was a program that has been in place since the 1970s that aided poor countries by lowering our tariffs on their products.  This was not only beneficial to poor countries but to consumers and the economy as a whole.  The program had a review process conducted by a subcommittee in the House and Exxel Outdoors had appealed to the subcommittee and lost.  They made a second appeal but Sessions intervened before the second decision.

Bangladesh is the economic powerhouse that Sessions claims is pushing its way into U.S. markets by unfairly subsidizing its products.  Their sleeping bag sales rose to 8.4% of U.S. imports due to manufactures moving production from China to escape “high cost” labor.  Bangladesh has a per capita GDP of $1,500, about the same as Haiti.  Perhaps Bangladesh has a comparative advantage in the production of products manufactured with low skilled labor.

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Saturday, February 5, 2011

The Chevy Volt

The video is of a test drive of the Volt in which the reviewer comments on the quality and price of the Volt.

The Chevy Volt is an interesting vehicle that makes use of new technology.  It uses a lithium-ion battery which holds more charge and is heavier and pricier than the nickel-metal hydride battery pack used in the Toyota Prius and similar hybrid vehicles.  The back up to the Volt is an electric motor that is powered by a gasoline electric generator.  A fully depleted battery takes eight hours to from a 120 volt outlet or three hours from a 240 VAC outlet.
The Volt will sell for approximately $42,000 but with $7,500 federal tax credit that will reduce the cost for most buyers to $34,500.  The EPA gives the Volt a combined gasoline/electric fuel economy of 60 mpg, or about twice the mileage of a similarly sized car.  Assuming that a typical Volt owner will drive 15,000 miles per year, and that gasoline costs $4.00 per gallon, the Volt will save its owner approximately $1,000 per year in fuel expenses.  If a traditional subcompact costs $20,000, the Volt will have a fourteen year payback period for the owner and a twenty-one year payback period for society due to the tax credit.The graph of the “Market for the Chevy Volt” provides some important economic details of the Volt market and the impact of the federal tax credit subsidy.  A lot of guess work went into the shape of the supply and demand curves, but the guess work does not affect the direction of movements of prices, only the size of the movements.  The supply (S) and original demand curve (DO) represent the market for the Volt prior to the federal tax credit subsidy.  At equilibrium on the supply and original demand, 34,667 cars sell for a price of $40,333.

With the subsidy, the demand expands (DN).  The new equilibrium quantity increases by 5,000 Volts to 39,667 and equilibrium price increases to $42,833.  The subsidy is shared by Chevrolet and the buyer.  Chevrolet charges $2,500 more per car (The difference between the new equilibrium price and the original equilibrium price), and after the subsidy, the consumer pays $5,000 less (The new equilibrium price less $7,500.  The price paid by consumers is shown on the graph at the point where the dashed line showing the new equilibrium quantity crosses the original demand curve and then moving horizontally to the price axes).

The private market has a new partner, the taxpayer.  The yellow rectangle is the subsidy paid by taxpayers.  It is $297.5 million dollars ($7,500 times 39,667 Volts).  The government estimates that approximately one third of buyers will not qualify for the subsidy, reducing the taxpayer’s bill to approximately $200 million, or approximately $40,000 per additional Volt sold.  To benefit society, the sale of Volts must generate sizeable positive externalities, reduction in pollution, etc.  Does the subsidy benefit taxpayers?         

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Friday, February 4, 2011

De Soto on Egypt

Hernando De Soto, a Peruvian economist argues that the economic situation of the poor can be substantially improved by establishing and enforcing property rights for all citizens within a country.  His books, “The Other Path: The Economic Answer to Terrorism”, and “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else” are important contributions to the economic literature.  He describes his involvement as an adviser to the Egyptian government and explains why the lack of property rights contributed to discontent in Egypt in “Egypt's Economic Apartheid.”

In 1997, the Egyptian government hired the Institute for Liberty and Democracy, De Soto’s think tank, to measure the size of the extralegal economy, those working and living without the protection of property through law and the institutions that enforce it.  Those living outside the boundaries of the property rights system define the economically and politically marginalized citizens.

De Soto led a team of over 120 experts who worked with over 300 local Egyptian leaders and interviewed thousands of marginalized Egyptians.  They issued a 1,000 page report in 2004 that estimated the underground economy hired 9.6 million people, 2.8 million more than the above ground legal private sector, and 3.7 million more than the public sector.  An astounding 92% of the population lives without legal titles to their homes.  De Soto’s team measured the value of extralegal businesses and homes at over $400 billion.  If afforded legal protection, the value of these assets would grow rapidly as would the Egyptian economy.The report was approved for implementation by Minister of Finance Muhammad Medhat Hassanein, but before the plan was to be implemented Hassanein was ousted and the reforms shelved.  Why would anyone oppose reforms that would directly improve the lot of the poor and contribute to the overall prosperity of Egypt?

North, Willis and Weingast suggest an answer in “Violence and Social Order.”  Governments in developing nations, termed limited access orders by the authors, trade economic rights to groups who can cause violence for a promise to maintain peace.  The marginalized citizens began a popular uprising that is at the point of turning violent as the powerful political insiders jostle violently or otherwise to establish a new political equilibrium that will maintain or enhance their privileged position in society.  The difficult to impossible task of democratic elements is to maintain the peace, disarm political insiders who can violently demand their privilege, and expand legal access to the economy to the marginalized Egyptians.

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Tuesday, February 1, 2011

Corn and Sugar Subsidies

As mentioned in previous posts, corn growers are subsidized by laws that require consumers to buy ethanol which is more expensive than gasoline.  If it were not more expensive, you would not have to force people to buy it.  The subsidies come in three forms: forced consumption of ethanol paid by consumers, blending fees paid by taxpayers, and tariffs on the importation of sugar based ethanol which is again paid indirectly by consumers.  Included below are quotes by two Nobel Laureates in economics and a former head of the Council of Economic Advisors to President Bush, the president who greatly increased the subsidies to corn growers.

Paul Krugman is a Nobel Prize winner who sometimes criticizes President Obama from the left.  He writes from his column, The Conscience of a Liberal in a post titled “Demon Ethanol,”
I’m almost never censored at the Times. However, I was told that I couldn’t use the lede I originally wrote for my column following the 2007 State of the Union address, in which Bush made ethanol the centerpiece of his energy strategy: “Before the State of the Union address, there had been hints and hopes that President Bush would offer a serious plan to reduce our dependence on imported oil. Instead, however, he took refuge in alcohol.”
Well, anyway — the news on ethanol just keeps getting worse. Bad for the economy, bad for consumers, bad for the planet — what’s not to love?
Gary Becker is a Nobel Prize winner often associated with the political right.  He writes in “Let's Make Gasoline Prices Even Higher
Other ways to reduce dependence on oil take much longer to implement, but a long view is necessary since the terrorism threat will last into the foreseeable future. The federal government has been trying to develop a cleaner substitute for gasoline by subsidizing production of ethanol, made primarily from corn. This program has essentially been a flop: Ethanol is still too expensive, and ethanol factories create pollution consisting of nitrogen dioxides and other gases. The ethanol subsidy of about 50 cents a gallon is just another way to subsidize corn growers, not a serious attempt to find efficient ways to reduce dependence on gasoline.
Greg Mankiw was a head of the Council of Economic Advisors to President Bush.  What follows is a post from his blog that quotes Thomas Friedman and Mankiw’s short reply to the comment (“Sugar Ethanol”).
In today's NY Times, columnist Tom Friedman arrives at the intersection of energy, farm, and trade policy and doesn't like what he finds:
Thanks to pressure from Midwest farmers and agribusinesses, who want to protect the U.S. corn ethanol industry from competition from Brazilian sugar ethanol, we have imposed a stiff tariff to keep it out. We do this even though Brazilian sugar ethanol provides eight times the energy of the fossil fuel used to make it, while American corn ethanol provides only 1.3 times the energy of the fossil fuel used to make it. We do this even though sugar ethanol reduces greenhouses gases more than corn ethanol. And we do this even though sugar cane ethanol can easily be grown in poor tropical countries in Africa or the Caribbean, and could actually help alleviate their poverty.
Friedman calls this state of affairs "stupid." This is a word I usually avoid (for it is hard to use politely), but it does seem particularly apt here.
Sugar growers are also subsidized by consumers.  Their subsidies come through quotas on foreign imports at the expense of domestic consumers and foreign producers.  Mark J. Perry, a professor of economics and finance in the school of management at the Flint campus of the University of Michigan describes the program’s cost to American consumers (“Sugar Policy: Sweet Deal for Producers, Sour for Consumers”).
Due to protectionist trade policies that limit the amount of sugar imports entering the United States at the much lower world price, the American sugar producers are protected from more efficient foreign sugar growers in Central America, Africa, and the Caribbean who can produce sugar at half the cost of beet sugar farmers in Minnesota, North Dakota, and Michigan…

Last year, Americans paid an average of 53.3 cents per pound for domestic sugar, almost double the average world price of 27.7 cents per pound. Exactly how much did Americans pay last year for our “no cost” sugar policy? An astounding $4.5 billion…
That is approximately $150 per American.  If all the money went to the 4,700 farmers that grow sugar beets, that’s about $950,000 per farmer.  Now that’s a sweet deal for farmers! 

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Wolf on Obama and Obamacare

Quoting from the Washington Time’s byline, “Dr. Milton R. Wolf is a board-certified diagnostic radiologist, medical director and cousin of President Obama. He blogs daily at”  As an aside that must be dealt with, I do not care that he is a cousin to the president; it has nothing to do with his qualifications to write on healthcare reform.  His medical degree does. 

Section 2711 of the Public Health Service Act prohibits insurers from establishing annual or lifetime limits of benefits for any insured person or group.  In his Washington Times Op-ed, Wolf finds three problems with our nation’s recent healthcare reform based on the 733 exemptions to section of the act, political corruption, the implicit acknowledgement that healthcare reform increases healthcare costs, and lack of transparency.

Wolf views the granting of exemptions to several cities, Massachusetts, New Jersey, Ohio, Tennessee, businesses and unions including the Service Employees International Union as evidence of corruption.  Without additional evidence, I not only don’t see fire, I don’t even see smoke.  There were 733 exemptions granted.  Perhaps there were 733 applications.  Political donations are reported.  It would not be difficult to statistical estimate the probability of receiving an exemption for those making donations to the Obama campaign and comparing it to the probability of receiving an exemption for those making donations to the McCain campaign.  Until I see more rigorous evidence, I will not consider the allegation of corruption.

The other charges are more difficult to dismiss.  By prohibiting insurers from limiting coverage the cost the amount of claims paid must stay the same or increase.  They will only stay the same if the caps on coverage were set so high that they were never reached.  I believe that this hit low wage earners hardest.  Suppose your job is worth $10.00 per hour to your employer and that you receive this wage in the form of wages at $7.25 per hour and a healthcare benefit valued at $2.75 per hour.  If the cost of healthcare now rises to $3.50 per hour, the employer will either cancel the policy or fire the worker because the cost of the wages and benefits exceed the value of the job.

At best, the  lack of transparency is bad government.  I don’t know what the legal requirements of transparency are, and without additional information, I assume that the administration meets them.  Wolf writes that more than 500 waivers were granted in December but not reported until after the State of the Union.  That is not a high level of transparency from an administration promising new levels of openness.    

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