The Battle Over Ethanol Limits in Gasoline

Congress has mandated that renewable fuels must provide 36 billion gallons to be blended into the domestic fuel supply by 2022.  This means principally that ethanol must be blended into gasoline to meet this requirement.  The ethanol trade group Growth Energy, headed up by General Wesley Clark, says this goal cannot be met unless the present EPA limit of 10% ethanol in gasoline is increased to 15%.  The EPA just announced that it has increased the 10% blend limit to 15% for cars and light trucks of model year 2007 and later.

The EPA is waiting for additional research on cars and light trucks of the 2001 to 2006 model years, before deciding whether to increase the ethanol blend limit up to 15% for those models.  Live stock ranchers, auto makers, oil refiners, and many environmental groups oppose an increase in the blend limit.  Live stock ranchers do not want their feed costs to go up as more and more corn is converted into ethanol.  Auto makers are concerned about lower performance from engines and damage caused by higher ethanol blends.  Many of their warranties are voided by the use of 15% ethanol blends, called E-15.  Oil refiners simply do not like having to make still more blends of gasoline.  The many blends cause their production costs to go up, which means they must charge their customers more.  Environmentalists are concerned that engines degraded by ethanol will emit more pollution.

There is concern about people being confused at the gas pumps by the additional blends of gasoline.  But this brings up the interesting issue of even if the EPA allows 15% ethanol blends, who would want to use them?  They will be more expensive per mile driven and cars and light trucks using them will suffer some performance loss.  The answer is probably that some states will start requiring their use through some means or other.  Will that be by subsidizing the high ethanol blends or will they actually mandate that people with newer vehicles must use the higher blends, despite their higher costs and performance degradation? 

There are strong lobbyists, such as the ethanol refiners and corn farmers who are conniving to get their states to make such requirements.  This will not be good for most Americans.  This is just one more example of factions and special interests taking advantage of most Americans for their own financial gain by using the force of government to remove themselves from the free market into a protected, crony status.  As I have often noted, the only way to prevent such crony and faction based rip-offs is to limit the power and scope of all of our governments: federal, state, and local.  Questions are being asked about why this announcement was made just prior to the mid-term elections, but the increased use of ethanol is popular in many rural areas of the Midwest.  Pleasing those special interests prior to the election is the reason for the timing.

Obama's Plan to Increase Exports

Today's Washington Post had a front page article on Obama's plan to double American exports in the next 5 years as a way to increase the number of American jobs.  This central planning scheme consists of two efforts:

• Try to restart some free trade agreements stalled by the Democrat Congress by their insistence that other countries maintain policies favorable to labor unions and the environment.
• Provide $2 billion of government funds to provide financing of the sales of American goods abroad.

Now, free trade is a great idea.  Basically, two parties will make a trade on a basis which is viewed as favorable to each party.  Everyone, both the American and the Indian, Chinese, Brazilian, Chilean, Canadian, Pole, Norwegian, or Italian with whom he is trading benefits.  This simple reality is much too often lost in schemes to protect jobs in non-competitive companies and industries.  Of course, sometimes the non-competitive company or industry is made non-competitive by government policies.  Such policies in the U.S. include:

• Sharing the dishonors for the highest corporate taxes in the world with Japan, while such taxes in many, many other countries are less than half what they are in the U.S.
• Policies which provide many means for labor unions to intimidate employees into selecting them as their labor negotiators and promoting labor union leaders into effective company managers.  Particularly strong and disturbing cases of these policies are the current situations at GM and Chrysler.
• Energy policies which drive up the cost of energy, such as mandates to use more expensive alternative fuels and restrictions on exploration and drilling in government-owned land and offshore.  Taxes on energy use are another foolishly expensive policy.
• Causing delays and added expense in the construction of new energy plants and refineries with ridiculous environmental regulatory and litigation delays.
• Raising questions about the cost of future CO2 emissions penalties, making it impossible for many companies to expand or modernize present facilities in the U.S.
• Attempts to continue pursuing a health care insurance plan which will raise the cost of health care insurance premiums, which is a significant business expense.
• The U.S. Postal Service monopoly increases mailing costs.
• Excessive safety regulation and expenses tied to those regulations.
• Excessive accounting regulations and tax record keeping obligations.
• Regulations requiring companies to hire women and certain favored minority groups.
• Foolish antitrust policies and the equivalent of class-warfare they cause between American companies.
• Subsidies or special interest tax considerations which favor some companies and industries over others without allowing the free market to decide which are the stronger companies and industries.

This list could go on and on.  But, the point here is that instead of trying to persuade other countries to shoot themselves in the foot as we have done in our free trade agreement negotiations, we should allow American companies to become more productive.  This is what you do when you want to promote American jobs effectively, not just create a photo opportunity in which you pretend you give a damn about American jobs, while doing nothing substantive.

The second Obama effort to provide government funds to finance company exports, is clearly symptomatic of the perverse Washington central planning disease in which it is imagined a few elite central planners can pick the winners better than the free marketplace can.  This pretense of knowledge, as Friedrich Hayek put it, has always soon been revealed in market chaos and distortions which the free market would not long allow.  Such programs as this government financing money through the Export-Import Bank just favor certain large companies with a great deal of influence in Washington.  They are a redistribution of income from individuals, small businesses, and companies who concentrate on providing a great product or services while trying to ignore Washington as much as possible to the Washington-savvy influence-peddling companies.  They are a bad idea, but they are loved by those who lust for power.  The companies that want this money know that their PACs must provide certain key politicians with money for their re-election campaigns.

Obama has no clue on how to create jobs and it would appear he has no interest in learning what he might actually do as President not to create jobs, but to allow companies and the private sector to create jobs.  The private sector is very good at creating jobs without government central planning interference.  Your job Obama is simply to get the hell out of the way!

Richard Rahn: Manslaughter by Politicians

Richard Rahn published an article called "Manslaughter by Politicians" in the Washington Times on 4 June 2008 which is a good read. Commonly, politicians find reasons to pass many thousands of pages of new legislation every year that affect our ability to perform work and to produce goods and services. The greater part of this legislation imposes great costs, which few people stop to consider. They simply accept whatever intended purpose for the legislation the politician offers up as being the only important result of the legislation. If it seems it might be nice to reduce the amount of CO2 emitted into the atmosphere by the human use of energy, then why bother to calculate the cost of using less energy, of developing and using new forms of energy which emit less CO2, or figuring out what human activities will have to be given up to pursue the goal of reducing CO2 emissions. The same is true with respect to many other things that seem good to people, such as OSHA requirements for workplace safety. When do we ever calculate the actual cost of nice sounding legislation against the expected benefit of that legislation? Almost never, and when we do, the calculation is simple-minded and biased toward proving that the legislation was necessary, since it is usually the government that is funding the research study.

Economics is the study of the use of limited resources and all resources are limited and finite, especially perhaps that of human life hours. We are all constantly faced with the decision to do this or to do that. Often, we cannot do both and if we can, we still often have to decide which action we will take first. So, if we are spending more of our money to buy gasoline because the government will not allow oil and gas companies to drill for oil in the United States, then we will have less money to spend on our medical needs. If we must pay more for food because the government is requiring the use of a large fraction of all US corn to make ethanol for gasoline fuel mixtures and driving up the costs of food production with crop subsidies, then again we will be able to spend less on medical care. Since worldwide food prices have doubled in the last year, many poor people around the world are suffering increased malnutrition, which leads to shortened lifespans. There are reasons why the average life expectancy is highly correlated with the per capita income of a society and why income growth is correlated with economic freedom.

Rahn cites a study by Frank Lichtenberg of the National Bureau for Economic Research that found that the medical expenditure needed to gain one life year in the US is about $11,000 and the pharmaceutical R&D expenditure needed to gain one life year is $1354. Consequently, when the politicians proposed allowing Americans to buy their prescription drugs in Canada, where a national health system puts pressure on pharmaceutical companies to sell their drugs at prices below those sufficient to fund the development of new drugs, the necessary expenditure to buy one year of life through pharmaceutical developments becomes impossible. So, does it make sense to save some money now on drug purchases at the expense of not further extending American lives in the future? Few people ask and think about this question, yet it is a central question.

When politicians fail to ask such questions and to weigh them rationally, they are committing manslaughter. When dealing with manslaughter, we have a serious responsibility to name the crime, even if it does not seem to be the nice thing to do in a non-confrontational society. But, it is better to force a confrontation and examine the consequences of the actions we force upon others carefully, then to unthinkingly bury the bodies as they pile up.