The intelligent solution can sometimes be more damaging than the problem

We really need those global warming contracts for trading (via Don Luskin):

Think of the greatest environmental disaster in recent history. For many people, the Exxon Valdez spill in Prince William Sound comes to mind.

Three hundred seals, 2,800 sea otters, 250,000 sea birds and a host of other wildlife were killed by that spill, acknowledged Corrie Pitzer, an industrial psychologist from SAFEmap International in Vancouver. However, he added, 250,000 birds are killed by flying into windows every year.

"The cleanup cost was $2.1 billion, with a 50 percent reach," Pitzer told an audience at a June 25 session of the American Society of Safety Engineers' (ASSE) 2007 Professional Development Conference in Orlando, Fla. "That means that only 50 percent of Prince William Sound was cleaned."

Six years after the cleanup, a study was conducted to determine ecological recovery in the sound. What researchers found was that the areas that were not cleaned were in better shape – with more wildlife and cleaner water and soil – than the areas that had been cleaned. The chemicals and high-pressure washing used to "clean" the area had destroyed the ecosystem in some parts of Prince William Sound.

"The environmental disaster was the cleanup," said Pitzer.

Corn-based ethanol is another good example:

Cornell University professor of agriculture David Pimental calculates some very disturbing figures. According to Dr. Pimental, it takes more energy to produce a given amount of ethanol than there is energy available in that ethanol. According to his calculations, producing corn and processing it into 1 gallon of ethanol requires 131,000 BTUs of energy; but 1 gallon of ethanol contains only 77,000 BTUs. So producing ethanol actually creates a net energy loss. And since farmers are using fossil-fuel-powered equipment to plant, maintain and harvest the corn and are using fossil-fuel-powered machinery to process that corn into ethanol and then transport that ethanol to collection points (ethanol can't run in underground pipelines because it picks up damaging impurities), the ethanol industry is actually burning large amounts of gasoline to produce ethanol, and that ethanol contains far less energy than the gasoline they consumed to produce it.

But not all scientists agree with Pimental's analysis regarding energy efficiency. Dr. Michael Wang of the Argonne National Laboratory finds that it requires 0.74 million BTUs of fossil fuels to get 1 million BTUs of ethanol to market. That would mean a net gain in energy, not a net loss.

Energy efficiency aside, those in Pimento's camp actually don't see corn as a truly renewable energy source. Pimento estimates that powering a car for a single year using ethanol would require 11 acres of corn. Since corn fields in the United States take a while to replenish themselves due to both soil erosion and irrigation issues, those acres would be out of commission for a period of time, meaning no corn for ethanol and no usable land for other food crops. To sustain an ethanol-based fuel industry, more and more farm land would have to be set aside for corn alone. The ultimate result could be a shortage of domestically grown food and higher prices at the supermarket for all sorts of produce.

It can take 1,700 gallons of water to produce 1 gallon of corn ethanol

Madness, in today's WSJ:

Heavily subsidized and absurdly inefficient, corn-based ethanol has already driven up food prices. But the Senate's plan to increase production to 36 billion gallons by 2022, from less than seven billion today, will place even greater pressure on farm-belt aquifers.

Ethanol plants consume roughly four gallons of water to produce each gallon of fuel, but that's only a fraction of ethanol's total water habit. Cornell ecology professor David Pimentel says that when you count the water needed to grow the corn, one gallon of ethanol requires a staggering 1,700 gallons of H2O. Backers of the Senate bill say that less-thirsty technologies are just around the corner, which is what we've been hearing for years.

Ethanol's big environmental footprint is not limited to water, because biofuels like ethanol are highly inefficient. In September, the Chairman of the OECD's Roundtable on Sustainable Development released a report entitled, "Biofuels: Is the Cure Worse than the Disease?" Authors Richard Doornbosch and Ronald Steenblik compared the power density of different energy sources, measured in energy production per unit of the earth's area. Oil -- because it requires only a narrow hole in the earth and is extracted as a highly concentrated form of energy -- is up to 1,000 times more efficient than solar energy, which requires large panels collecting a less-concentrated form of energy known as the midday sun.

But even solar power is roughly 10 times as efficient as biomass-derived fuels like ethanol. In other words, growing the corn to produce ethanol means clearing land and killing animals on a massive scale, or converting land from food production to fuel production. Peter Huber of the Manhattan Institute says that the best-case scenario promoted by ethanol cheerleaders will actually cause the greatest environmental disaster. If people can actually refine cheap, low-maintenance production techniques that don't require huge water supplies, Mr. Huber predicts a world-wide leveling of forestland as farmers turn vegetation into fuel.

Slowly but surely, these problems are beginning to alert public opinion to the huge costs of force-feeding corn ethanol as an energy savior. The ethanol lobby is still hoping it can keep all of this under wraps long enough to shove one more big mandate through Congress, but the Members need to know the problems they'll be creating. We hope that House conferees, who did not include a new mandate in their energy bill, insist that any final bill is ethanol-free.

Here is one ethanol alternative that might work out better. Here is more on solutions being more problematic than the problem being addressed.

UPDATE: Daniel Botkin has more science (vs. global warming religiosity):

The key point here is that living things respond to many factors in addition to temperature and rainfall. In most cases, however, climate-modeling-based forecasts look primarily at temperature alone, or temperature and precipitation only. You might ask, "Isn't this enough to forecast changes in the distribution of species?" Ask a mockingbird. The New York Times recently published an answer to a query about why mockingbirds were becoming common in Manhattan. The expert answer was: food -- an exotic plant species that mockingbirds like to eat had spread to New York City. It was this, not temperature or rainfall, the expert said, that caused the change in mockingbird geography.

You might think I must be one of those know-nothing naysayers who believes global warming is a liberal plot. On the contrary, I am a biologist and ecologist who has worked on global warming, and been concerned about its effects, since 1968. I've developed the computer model of forest growth that has been used widely to forecast possible effects of global warming on life -- I've used the model for that purpose myself, and to forecast likely effects on specific endangered species.

I'm not a naysayer. I'm a scientist who believes in the scientific method and in what facts tell us. I have worked for 40 years to try to improve our environment and improve human life as well. I believe we can do this only from a basis in reality, and that is not what I see happening now. Instead, like fashions that took hold in the past and are eloquently analyzed in the classic 19th century book "Extraordinary Popular Delusions and the Madness of Crowds," the popular imagination today appears to have been captured by beliefs that have little scientific basis.

Some colleagues who share some of my doubts argue that the only way to get our society to change is to frighten people with the possibility of a catastrophe, and that therefore it is all right and even necessary for scientists to exaggerate. They tell me that my belief in open and honest assessment is naïve. "Wolves deceive their prey, don't they?" one said to me recently. Therefore, biologically, he said, we are justified in exaggerating to get society to change.

How to cut the price of gasoline by 30 cents

Import our ethanol from Brazil! Says President Lula:

I believe that it is a mistake to try to produce ethanol from corn. I believe it's a mistake. Why so? Because corn is the basic animal food for many animals that are being raised by human beings, and it could make it very expensive, the price of the corn for all the rest of the world. The corn prices could go up, and above all, it could make unfeasible the purchase of meat, because of the corn price, especially for those countries like Mexico and from Central America that eat a lot of tortillas. And so they're going to suffer the consequences.... And then, another important thing is that ethanol produced from sugarcane, it's cheaper than the ethanol that is produced from corn.

I guess whoever voted for those corn ethanol subsidies and ethanol tariffs prefers us to pay more for gas. Or thinks that some agricultural special interests are more important than working families (and unemployed families, who need cheap gas and the jobs cheaper gas would create).

Bad news on corn ethanol is good news

Lauren Etter reports:

In the span of one growing season, ethanol has gone from panacea to pariah in the eyes of some. The critics, which include industries hurt when the price of corn rises, blame ethanol for pushing up food prices, question its environmental bona fides and dispute how much it really helps reduce the need for oil.

A recent study by the Organization for Economic Cooperation and Development concluded that biofuels "offer a cure [for oil dependence] that is worse than the disease." A National Academy of Sciences study said corn-based ethanol could strain water supplies. The American Lung Association expressed concern about a form of air pollution from burning ethanol in gasoline. Political cartoonists have taken to skewering the fuel for raising the price of food to the world's poor.

Last month, an outside expert advising the United Nations on the "right to food" labeled the use of food crops to make biofuels "a crime against humanity," although the U.N. Food and Agriculture Organization later disowned the remark as "regrettable."

The fortunes of many U.S. farmers, farm towns and ethanol companies are tied to corn-based ethanol, of which America is the largest producer. Ethanol is also a cornerstone of President Bush's push to reduce dependence on foreign oil. But the once-booming business has gone in the dumps, with profits squeezed, plans for new plants shelved in certain cases, and stock prices hovering near 52-week lows.

I first posted on this over the summer. Glad to see the WSJ is catching up with the blogosphere. Maybe some of the other old-fashioned press will pick this up before 2010.

Quotes of the day

I'm an unabashed elitist. I chose my wife because I think she's better than other women, evaluate wines, books, investments, new hires, all on an ordinal scale from bad to great. This is often confused with racism or other repugnant thoughts because such discrimination tends to disproportionately affect socially disadvantaged groups, but that's incidental. Economists are generally very Liberal, but they also obsess over how smart various economists are, closet IQ idolaters. The key is moderation in all things.--Eric Falkenstein

I agree [mathematical] tools are essential, but I would add that they are not sufficient. So, readers should only trust PhD economists who understand these tools, and also the context in which they are applied. Having a couple business cycles worth of experience actually presenting micro and macro forecasts to CEOs and other key decision-makers, or running a portfolio that is marked to market, as also essential. As economists are primarily experts in models, applied to cherry-picked datasets that present cute results that showcase some novel cleverness, they are ignorant of the their ignorance. Their models are like the electric car, always just around the corner to viability. With hindsight, predicting business cycles--anything really--is very simple. You need someone who has been doing it in real time, with real feedback, giving you advice.--Eric Falkenstein

There's a lot of factors that go into housing prices. Felix [Salmon] says the math of interest rates and housing prices gets disrupted during a housing bubble. But my question would be doesn't the same math then disrupted during a housing collapse. No matter how affordable housing gets, people won't buy in. The real answer is there is no math that links interest rates and housing. So think what you want about where housing prices are headed. There are a number of reasons--foreclosures, the job market, low expectations about housing market returns--to believe housing prices won't pick up anytime soon. Low interest rates, and the threat of them going higher, though, are not one of them.--Stephen Gandel

The FCIC appears to imply that Goldman's pressure on AIG was a cause of the credit crunch. This is a bizarre view. Again, Goldman was merely the first to pick up on the mounting problems, so it left the mortgage party before other banks. The idea that Goldman should be blamed for causing a panic could only be true if there was no reason to panic. Obviously, there was ample reason. The housing bubble was on the verge of an epic explosion. The fact that Goldman was the first firm to worry doesn't mean it led others to worry irrationally. It means Goldman was smarter than the rest of the pack.--Daniel Indiviglio

The fact that there is a Democrat in the White House almost does not seem to matter. President Obama arguably has a subordinate position to Rubin because of considerations of money. If you differ, then ask yourself if Barack Obama could seek the presidency in 2012 without the support of Bob Rubin and the folks at Goldman Sachs. Case closed. For America's creditors and allies, the key question is whether the Democrats around Rubin are willing to embrace fiscal discipline at a time when deflation in the US is accelerating. That roaring sound you hear is the approaching waterfall of the double dip. With the US at the moment eschewing anything remotely like fiscal restraint and the rest of the world going in the opposite direction, to us the next crisis probably involves U.S. interest rates and the dollar. Judging by Rubin's performance in the past, when he talked first of a strong dollar, then a weak dollar policy, and fudged the issue regarding fiscal deficits, we could be in for quite a ride.--Institutional Risk Analyst

Alberto Alesina is a new favorite of fiscal hawks like former President George W. Bush's chief economic adviser, N. Gregory Mankiw. A professor of economics at Harvard University, the 53-year-old Italian disputes the need for more government spending to prop up growth and advocates spending cuts instead. This is Alesina's hour. In April in Madrid, he told the European Union's economic and finance ministers that "large, credible, and decisive" spending cuts to reduce budget deficits have frequently been followed by economic growth. He backed his proposal with historical research on rich countries' experiences since 1980. Later, at the Group of 20 summit in Toronto on June 26-27, the presidents and prime ministers of the advanced economies agreed to shrink their budget gaps by half or more by 2013. That put pressure on President Barack Obama to follow the lead of cost-cutters such as Britain's Chancellor of the Exchequer, George Osborne, and German Chancellor Angela Merkel. Says Alesina: "I think the Germans are right." Alesina argues that austerity can stimulate economic growth by calming bond markets, which lowers interest rates and promotes investment. In addition, he says, deficit-cutting reassures taxpayers that more wrenching fiscal adjustments won't be needed later. That revives their animal spirits and their spending. Alesina says that as a way to shrink deficits, spending cuts are better for growth than raising taxes. --Peter Coy

... [the ethanol lobby is] begging lawmakers for even more government money and mandates because there's still no natural market for their product. Which would be fine if ethanol really did any good for the environment. But ethanol made from corn, in particular, does more harm than good. And worse, the production of corn ethanol had been befouling the Gulf for years before the oil leak, as fertilizer runoff from Midwestern farms has created oxygen-free "dead zones," where seafood can't live. Sure, the oil leak has made things a lot worse. But calling corn ethanol a superior alternative is like saying it's better to chew tobacco than it is to smoke cigarettes—marginally true, but beside the point, and disingenuous in the extreme.--Daniel Mitchell

It was the ‘duty’ of white citizen ‘patrols to search negro houses and other suspected places for firearms.’ If they found any firearms, the patrols were to take the offending slave or free black ‘to the nearest justice of the peace’ whereupon he would be ’severely punished.’ Militias such as the Ku Klux Klan, the Knights of the White Camellia, the White Brotherhood, the Pale Faces and the ‘76 Association spread terror among blacks… The use of firearms for self-defense was often the only way black citizens could protect themselves from mob violence.--Justice Clarence Thomas

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance. The result is that insured residents of Massachusetts wind up paying more for health care, according to the report. “The active members subsidize some of the costs tied to those individuals who terminate within one year,’’ the report says. The report was released as state lawmakers consider proposals to make it harder for consumers to jump in and then dump their health insurance coverage.--Kay Lazar

What's really funny is that Alex [Rodriguez] has paid advisers piles of money to craft his image and it never seems to work. Meanwhile Dustin [Pedroia] looks like a homeless guy half the time and people love him.--Peter Abraham

Ethanol: Another example of subsidies fueling inflation

Pete Davis notes:

It's not often that a U.S. domestic policy change causes worldwide food riots, but that's what our ethanol subsidies have done according to a World Bank analysis. On December 19, 2007, President Bush signed H.R.6 into law with a five-fold increase in the mandated use of ethanol in gasoline. That stood on top of another large ethanol mandate in another H.R.6, enacted on August 8, 2005. Corn prices have jumped from $2/bushel in 2005 to $4/bushel last year, and they've just crested $6/bushel. In 2005, 6% of U.S. corn production went to ethanol; now its up to 23%. Only now are we beginning to realize that we're not achieving any overall energy efficiency with our heavy ethanol subsidies and mandates, we're just helping U.S. corn growers and starving the world's poor.

Quotes of the day

... the Supreme Court has agreed to review United States v. Jones, the DC Circuit’s “mosaic theory” case on whether and when use of a GPS device installed on a car is a Fourth Amendment search.--Orin Kerr

Even in a crowd of rising food and commodity costs, corn stands out, its price having doubled in less than a year to a record $7.87 per bushel in early June. Booming global demand has overtaken stagnant supply. But rather than ameliorate the problem, the government has exacerbated it, reducing food supply to a hungry world. Thanks to Washington, 4 of every 10 ears of corn grown in America — the source of 40 percent of the world’s production — are shunted into ethanol, a gasoline substitute that imperceptibly nicks our energy problem. Larded onto that are $11 billion a year of government subsidies to the corn complex.  ... Because of the subsidy, ethanol became cheaper than gasoline, and so we sent 397 million gallons of ethanol overseas last year. America is simultaneously importing costly foreign oil and subsidizing the export of its equivalent.
That’s not all. Ethanol packs less punch than gasoline and uses considerable energy in its production process. All told, each gallon of gasoline that is displaced costs the Treasury $1.78 in subsidies and lost tax revenue.--Steven Rattner

After earning my PhD, in chemistry, I worked in drug-discovery research for more than 20 years. Aside from being a fascinating profession, it was pretty secure -- until the last decade. Then it became anything but. Why the change? Well, it costs about $1 billion to bring a new drug to market. Blockbuster drugs that bring in multiple billions in profits, such as Lipitor, are needed to support the R&D costs of all other drugs -- ones that don't pan out, and ones that just can't help enough people to justify the investment before the patent expires. And the patents of almost all current blockbusters are expiring about now, cutting drug companies' revenues drastically. Adding to the problem is the Food and Drug Administration, which has become overly restrictive and risk-averse, has made it very difficult (and even more expensive) for companies to bring replacement drugs to market. To trim expenses, companies began to outsource research to India and China. It started as a trickle, but soon became a tsunami, leaving many thousands of highly intelligent and well-trained professionals with nothing to do -- a shameful waste of talent.--Josh Bloom

Combined with central government debt and other liabilities such as bad bank loans, analysts estimate China’s overall explicit debt load is about 70 per cent of gross domestic product. But some analysts believe the contingent liabilities of the government are much higher, once debts on the books of state-owned enterprises and other entities implicitly backed by the state are included. “If you take a very broad view of the Chinese government’s contingent liabilities rather than explicit debt on the books then the number comes to well over 150 per cent of China’s GDP in 2010,” according to Victor Shih, a political economist at Northwestern University in the US. The US has a debt-to-GDP ratio of 93 per cent, while Japan’s ratio is over 225 per cent.--Simon Rabinovitch and Jamil Anderlini

... I do not believe that China’s high savings and low consumption rates are a function of any remarkable preference on the part of Chinese households for savings over consumption. They are simply the automatic consequence of a system in which increases in GDP growth are subsidized by transfers from the household sector, which effectively constrains the relative growth of household income and, with it, household consumption. In that case the only way for China to rebalance would be for Chinese household income to grow faster than GDP. This requires three things above all. It requires that wages grow faster than productivity, that the currency appreciates, and that real interest rates rise. This does not seem to be happening in China, as I discussed in a blog entry last month. Wages have been rising quickly in the past year, but the currency is barely appreciating in real terms against the dollar (and is probably depreciating on a trade weighted basis), and of course real interest rates are declining sharply.--Michael Pettis

In Does Education Matter?, [Alison] Wolf illustrates the absurdity of the increase-the-graduates/increase-the-growth logic by reference to the high remuneration of lawyers. That is, given lawyers’ high wages, having more lawyers would surely mean that there are more and more people earning more and more dough, and therefore in total, society is becoming more and more wealthy. ‘[This] would suggest’, she writes, ‘that the fastest way to boost growth would be to send everyone to law school’. Which is clearly ridiculous. In fact, what the high remuneration of lawyers tells us is that we live in a highly regulated society – as opposed to a productive one – which consequently values lawyers. It doesn’t mean that churning out an ever-increasing number of law graduates is the elixir of economic growth. Likewise, Wolf writes, ‘it is no more self-evident that since some education makes some of us richer, more would make more of us richer, than it is that “two aspirin are good” means “five aspirin are better”’. The wrongheaded belief that you can generate growth simply by increasing the number of graduates has led to the effacement of the structural problems of the economy. In other words, seeking the wrong answers has generated the wrong questions. For example, ‘there tends to be an obsession with how many engineers the UK produces, when the real question ought to be why haven’t we got more engineering industry?’, says Wolf. You don’t have to be a fully signed up economic determinist to recognise that our economic travails cannot be solved through education, education, education.--Tim Black

Al Gore’s lifestyle is a test case for the credibility of his gospel — and it fails. The tolerance of Al Gore’s lifestyle by the environmental leadership is a further test — and that test, too, the greens fail. The average citizen is all too likely to conclude that if Mr. Gore can keep his lifestyle, the average American family can keep its SUV and incandescent bulbs. If Gore can take a charter flight, I don’t have to take the bus. If Gore can have many mansions, I can use the old fashioned kind of shower heads that actually clean and toilets that actually flush. Al Gore looks to the average American the way American greens look to poor people in the third world: hypocritically demanding that others accept permanently lower standards of living than those the activists propose for themselves. ... The Vice President thinks he can square this circle, but he can’t. Sometimes the truth is inconvenient. Mr. Gore must find either a new cause or a new way to live. ... I don’t judge, dear reader, and neither should you. May we all find mercy when we stand alone, naked and ashamed before the judgement seat of God. ... If Al Gore really wants to understand why the global green movement has tanked, he should start by taking a long hard look in the mirror. Gaia, too, can be betrayed by a kiss.--Walter Russell Mead

Gore’s failures are not just about leadership. The strategic vision he crafted for the global green movement has comprehensively failed. That is no accident; the entire green policy vision was so poorly conceived, so carelessly constructed, so unbalanced and so rife with contradictions that it could only thrive among activists and enthusiasts. Once the political power of the climate movement, aided by an indulgent and largely unquestioning press, had pushed the climate agenda into the realm of serious politics, failure was inevitable. ... Like war, global warming may well be real — but that doesn’t mean a treaty can help. The green movement’s core tactic is not to “hide the decline” or otherwise to cook the books of science. Its core tactic to cloak a comically absurd, impossibly complex and obviously impractical political program in the authority of science. Let anyone attack the cretinous and rickety construct of policies, trade-offs, offsets and bribes by which the greens plan to govern the world economy in the twenty first century, and they attack you as an anti-science bigot.--Walter Russell Mead

Today, heterosexual marriage is frequently depicted as a site for domestic violence and child abuse. A review of academic literature on the subject would indicate a preoccupation with the damaging consequences of heterosexual marriage. Terms such as the ‘dark side of the family’ invoke a sense of dread about an institution where dominating men allegedly brutalise their partners and their children. This preoccupation of professional victimologists is reflected in popular culture. Cinema and television constantly give us stereotypical stories about unhappy, failed and dysfunctional heterosexual marriages. In contrast, same-sex unions are treated with reverence in popular culture, depicted as mature relationships between loving equals. Of course, heterosexual couples continue to get married, but there has been no time in history when the institution of heterosexual marriage has enjoyed such feeble affirmation. Indeed, these days heterosexual couples are often likely to hear the refrain ‘Why get married?’ or ‘Why wait for marriage before having children?’. Paradoxically, in some quarters the idea that marriage for heterosexuals is no big deal coincides with the cultural sacralising of same-sex unions. It is difficult to avoid the conclusion that behind the gay-marriage discussion there lurk some profound questions about how to endow intimate relationships with meaning today. And in such circumstances, elite-sanctioned snobbish intolerance is really no more acceptable than anti-gay prejudice.--Frank Furedi

Image link here. Photo link here.

And I would have gotten away with it, if it weren't for you darn facts!

Tyler Cowen points out:

The tax credit for ethanol is an example of a cost ineffective subsidy. The cost of reducing CO2 emissions through this subsidy exceeded $1,700 per ton of CO2 avoided in 2006 and the cost of reducing oil consumption over $85 per barrel.

I am not shocked, but it is worse than I had thought. Here is the full paper. But the funny thing is, that's not even the worse thing I read about biofuels today. Courtesy of Daniel Akst, try this article:

...a growing body of scientific evidence suggests these gasoline alternatives will actually boost carbon-dioxide levels and thereby aggravate the problem of global warming. A study published in the latest issue of Science finds that corn-based ethanol, instead of reducing greenhouse-gas emissions by a hoped-for 20%, will nearly double the output of CO2 and other gases that trap the sun's heat. A separate paper in Science concludes that the clearing of native habitats around the world to grow more biofuel crops will lead to more carbon emissions.

I've been sounding the alarm on corn ethanol for some time.

UPDATE: Don Surber has more.

Quotes of the day

We have a tariff on imported ethanol from Brazil, which is made from sugar cane. Ethanol here is usually made from corn. Sugar cane ethanol is about eight times more efficient than that made from corn. By removing the tariff, Brazilian ethanol becomes cheaper and will make ethanol-gasoline blends cheaper.--Bob Pindyck

I wonder whether the women’s anger is a reaction to the mayor’s crudeness or a standard response by monopolists who are threatened with competition.--Daniel Hamermesh

Schumer for free trade!

Schumer sometimes disappoints, but this is good:

"Ethanol has increased the average American's grocery bill $47 since July," said Sen. Chuck Schumer, citing figures from Iowa State University.

Schumer (D-N.Y.) is pushing for an immediate end to the 54-cent-per-gallon tariff on ethanol imports as a way to increase the supply of the federally mandated fuel additive, reduce pressure on the corn market and bring down milk prices.

"Bring the cheaper ethanol in, reduce the price of corn, and then reduce the price of milk," he said.

U.S. needs 600 million acres to grow enough corn ethanol

to replace gasoline.

Ummm, ... that's more than all the farmland in the U.S., not to mention all the people and animals that will go hungry because they can't afford corn anymore, and there's no more wheat, soybeans, oats, potatoes, or any of those other crops. Reminds me of the film Idiocracy, when the sports drink lobby convinced the government to irrigate all the nation's crops with sports drink, and no one understood why starvation ensued.

Go trade on the Global Warming Exchange; clicking the charcoal box at the upper right of this page will get you there.

New Direction for Energy Independence, National Security, and Consumer Protection Act.

Congress attempts to reduce carbon emissions. Ahem, attempts:

... the bill undermines energy independence by raising taxes on domestic production and throwing up new barriers to exploration. It's hard to see how it has any effect on national security, and we're at a loss about its consumer-protection claim too, unless you think Americans need "protecting" from the incandescent lightbulb. The bill bans those, effective 2012, on page 601.

But its worst (and little noticed) provision may be a requirement that 15% of U.S. electricity be generated from "renewable" sources by 2020. Utilities that can't meet these goals are fined -- taxed, really -- based on how far short of this Eden they fall. Currently, only about 3% is provided by such renewables as wind, solar or "biofuels."

In any case, as we're all discovering with corn-based ethanol, renewables have their own problems, both substantive and political. Liberals are all for wind power -- as long as it doesn't obstruct their oceanfront views off Nantucket. Hydro power is dandy -- except it kills fish and disrupts their habitat. Solar requires acres and acres of real estate. There's plenty of land for solar arrays in the middle of the country, or at least there was before the land was turned over to grow corn for heavily subsidized ethanol. And, by the way, using farmland for energy means using less to grow food -- which means higher prices at the kitchen table, or more food imports, or both. The House Members who voted for this must figure all of this will be some other Congress's problem.

Earlier this year, Mr. Dingell suggested that if Congress were really serious about global warming, it would impose a carbon tax. At least that's being honest about the costs. The "renewables" mandate in the House energy bill, by contrast, is a multibillion-dollar stealth tax on electrical utilities, and ultimately on electricity users. The danger is that, with all eyes on car-mileage standards, this tax could become law without many people even noticing.

Obama is NOT listening to his economic advisors

Hence, the job-killing Patriot Employer Act he is sponsoring:

Mr. Obama's proposal would designate certain companies as "patriot employers" and favor them over other, presumably not so patriotic, businesses.

The legislation takes four pages to define "patriotic" companies as those that: "pay at least 60 percent of each employee's health care premiums"; have a position of "neutrality in employee [union] organizing drives"; "maintain or increase the number of full-time workers in the United States relative to the number of full-time workers outside of the United States"; pay a salary to each employee "not less than an amount equal to the federal poverty level"; and provide a pension plan.

In other words, a patriotic employer is one which fulfills the fondest Big Labor agenda, regardless of the competitive implications. The proposal ignores the marketplace reality that businesses hire a work force they can afford to pay and still make money. Coercing companies into raising wages and benefits above market rates may only lead to fewer workers getting hired in the first place.

Under Mr. Obama's plan, "patriot employers" qualify for a 1% tax credit on their profits. To finance this tax break, American companies with subsidiaries abroad would have to pay the U.S. corporate tax on profits earned abroad, rather than the corporate tax of the host country where they are earned. Since the U.S. corporate tax rate is 35%, while most of the world has a lower rate, this amounts to a big tax increase on earnings owned abroad.

Put another way, U.S. companies would suddenly have to pay a higher tax rate than their Chinese, Japanese and European competitors. According to research by Peter Merrill, an international tax expert at PriceWaterhouseCoopers, this change would "raise the cost of capital of U.S. multinationals and cause them to lose market share to foreign rivals." Apparently Mr. Obama believes that by making U.S. companies less profitable and less competitive world-wide, they will somehow be able to create more jobs in America.

He has it backwards: The offshore activities of U.S. companies tend to increase rather than reduce domestic business. A 2005 National Bureau of Economic Research study by economists from Harvard and the University of Michigan found that more foreign investment by U.S. companies leads to greater domestic investment, and that U.S. firms' hiring of more offshore workers is positively, not negatively, associated with the number of American workers they hire. That's in part because often what is produced overseas by subsidiaries are component parts to final, higher-value-added products manufactured here.

It's all about Ohio in this election; if the Democrats can take this state they will have the election nearly locked up. Bush similarly pandered with his steel tariffs. The distortions of democracy in America (e.g. subsidizing corn ethanol ahead of the Iowa caucuses) lead to job destruction, ironically in the name of job protection.

UPDATE: Greg Mankiw, William Buiter, and Anne Sibert hate it, too.

UPDATE: Don Boudreaux notes Obama's deaf ear to his economic advisors as well, and invokes the concept of Consumer Sovereignty (hear ye, those of you who are "pro-choice"):

There are countless distressing facets of this anti-trade nonsense. One of these is the weaselly "I'm for free trade as long as it's fair trade" refrain. Such a claim (now as familiar in political campaigns as Dunkin' Donuts) is a cowardly attempt by the candidate to stand on both sides of the issue by invoking a word ("fair") loaded with emotion but devoid, in this context, of meaning. No one, as far as I know, favors unfair trade -- but by slapping the label "unfair" on any trade that a candidate's favorite constituents dislike, that candidate can oppose free trade while claiming still to support free trade.

Such a rhetorical gimmick is unfair.

Also distressing is the fact that Austan Goolsbee, the fine economist who is a close adviser to Obama, apparently is ignored by the would-be President of the USA on this front. Of course, I have no knowledge of what Goolsbee says and doesn't say to Obama, but I presume that Goolsbee isn't in the anti-trade camp. Consider that just this past June Goolsbee had this excellent column in the New York Times, with this key passage:

We [Americans] hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

A related source of distress is Alan Blinder's recent skepticism of trade -- his lending his good name and the prestige of the economics profession to protectionists.

Trade is just one manifestation of consumer sovereignty. Just as there are, by Blinder's calculus, winners and losers from consumers shifting their expenditures from goods made in America to goods made abroad, there are winners and losers from consumers shifting their expenditures from goods made in Illinois to goods made in Arizona - and from consumers shifting their expenditures from donuts, beef, cigarettes, whiskey, and train travel to bagels, fish, yoga lessons, wine, and air travel. Trade plays no unique, or uniquely important, role as an avenue of economic change spurred in part by consumer sovereignty. The only practical way to rid the economy of such "loses" is to try to freeze it, a futile step that will in the long-run only make losers of everyone.

UPDATE: Jagdish Bhagwati supports Obama yet says:

On NAFTA, he is dead wrong.

UPDATE: He needs some constitutional advisors, too. This pretty much takes away my perceived edge that Obama and Clinton each had over McCain. We haven't even voted, and I'm already depressed.

Flashback to 2007: A post on corn ethanol policy creating hunger

The mainstream media is only 6 months behind me!

Um, make that 9 months.

Corn ethanol

is forcing some of the Bottom Billion to eat dirt.

I told you so.

The U.S. is less of a democracy

than I thought (via Greg Mankiw). I thought it was mostly about corn ethanol, but it's much worse than that:

Brian Knight and Nathan Schiff demonstrate that early voters have up to 20 times the influence of voters in later states when it comes to candidate selection.

Quote of the day

... the total environmental and health costs of making a gallon of gasoline was about 71 cents, compared with a range of 72 cents to $1.45 for corn-based ethanol, and 19 to 32 cents for cellulosic ethanol, depending upon the technology and type of plants used.--Tom Meersman

Melissa Lafsky is the latest to sound the alarm on biofuels

Very important posting:

A worldwide movement to cut emissions and halt what a growing number of scientists call a massive global crisis. Except it all hit a roadblock last week, when two newly-released studies reported that the net environmental effect of using biofuels may be even more harmful than burning the gasoline they were created to replace.

The first study, led by Princeton University environment and economics researcher Timothy Searchinger, found that replacing fossil fuels with corn-based ethanol could actually double greenhouse gas emissions for the next thirty years.

The second study, led by Joseph Fargione, a scientist at the Nature Conservancy, found that by switching to biofuels, we could essentially be worsening climate change for the next 93 years, in that “[t]he clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land,” according to the Times. Not to mention the fact that, by switching to growing corn, U.S. farmers have turned away from growing other crops, such as soy. As a result, Fargione told the Times, “‘Brazilian farmers are planting more of the world’s soybeans — and they’re deforesting the Amazon to do it.’”

So in a matter of days, biofuels go from a celebrated fossil fuels alternative to a rainforest-killing disaster, with scientists already calling for government reform on biofuel policies. If anything, this provides a window into how little we actually know about this issue, and the wide lengths left to go in reaching a viable solution.

Quotes of the day

Today's young women make $1.17 for every $1 their moms earned back in 1980. Young men, however, are earning 10 cents per dollar less than their fathers did 30 years ago, new research shows.--Annalyn Censky

Big losers had to have been small losers first. You have to be down 2% before you can be down 5% before you can get down 10% and so on. Cut your losers at the knees before they cut your throat.--Michael Martin

It's a cliche to say risk management is the combination of art and science. You need to know something about history, statistics, and programming to be useful as a risk manager. You also need common sense, and that is best informed by experience ...--Eric Falkenstein

... now it’s looking increasingly as though Corzine demonstrated virtually all of the pathologies of the rogue trader more generally. Lots of financial firms make big bets and blow up. But what we saw at MF Global was much more than that. In fact, as Corzine detailed at great length in his prepared testimony last week, his big sovereign-debt bet didn’t actually lose money at all. But MF Global died all the same, because the bet was so large and risky that it caused a fatal cascade of downgrades and margin calls.--Felix Salmon

In a democracy people are free to express and debate their opinions. This is valuable in itself. But it has also been held to be instrumentally important because it is claimed that through open free debate true ideas will conquer false ones by their merit. Democracy thus has an epistemic value as a kind of truth machine. In a democracy therefore there should be no dogma, no knowledge that cannot be questioned. Not only is this view mistaken, but it is so obviously wrong that it is astonishing that it has ever been taken seriously.--Philosopher's Beard

“Public choice” economics explores the problems of concentrated interests. There are fewer corn farmers than taxpayers, and the gains from ethanol subsidies are large for each corn farmer, while the costs per taxpayer are quite small. The costs of coordination and the financial incentives mean the farmers will get their way so long as the government has the power to subsidize or penalize. This simple dynamic explains much of how our government allocates resources.

...

And, unlike Marx or Citizens United, it is something the Tea Party and Occupy can agree upon. Although it may seem far-fetched at first glance, if Occupy found common ground with the Tea Party or the sentiments behind it, much could be done politically. After all, there are many 99 percents. But so far, Occupy has absorbed or been co-opted by various one percents.

...

For example, in education policy, teachers are the one percent, while students and parents are the 99 percent. But it is generally the power of the concentrated teachers’ unions that drives decisions about education spending and policy. The fact that teachers unions support Occupy undermines its power. A true movement of the 99 percents would be on the side of students, not teachers.

...

Examples abound that cut across typical ideological lines. For instance, military contractors are the one percent, while soldiers and the citizens they defend are the 99 percent. It is for this reason that in the recent census, 7 out of the 10 richest counties surround Washington, D.C.--M. Todd Henderson

Any time someone gets fired, a manager has failed. He or she hired the wrong person, moved someone into the wrong job, or screwed up in some other way. When it’s necessary to show an employee the door, it’s going to be because we’ve tried and failed to fix whatever in the relationship and the structure wasn’t working. It’s never going to be because the person fits a category that someone has outlined for us. That, in fact, is the opposite of leadership.--Liz Ryan

Fail a lot before you are paying for the failure….I got fired or asked to leave from all my jobs.--Mark Pincus, CEO of Zynga

In 2002, a schoolteacher with previously normal sexual desire began experiencing sexual desires that he was not used to. He began looking at child pornography and engaging in sexual activity that was not common to him before this point. Little did he know, he had an egg-shaped tumor in the orb frontal cortex of his brain, and when he had the tumor removed his sexual desires stopped. A little while later the desires reappeared, so he went back to the doctor’s office. Lo and behold, the tumor had returned to the same region of his brain.--Mike Friesen

... changing your offense makes all your seniors freshmen.--unattributed

In the same way that there are people who never thought they'd see a black American president, there are also people who never thought they'd see a black basketball star dressed like a nerd.  ... If you happen to be someone who looks at Durant, James, or Amar'e Stoudemire's Foot Locker commercials — in which he stalks along a perilously lit basketball court wearing a letterman's cardigan, a skinny tie, and giant black glasses (his are prescription) — and wonders how the NBA got this way, how it turned into Happy Days, you're really wondering the same thing about the rest of mainstream black culture. When did everything turn upside down? Who relaxed the rules? Is it really safe to look like Carlton Banks?--Wesley Morris

On Dec. 12, 1991, [Paul] Kunz set up a Web interface based on a Web server to search a popular database of particle physics literature at Stanford, and sent an email to Tim Berners-Lee about it. It was the first Web site in North America and one of the first dozen in the world.--Liz Gannes

The smartest worriers are learning to code or marrying a developer.--Howard Lindzon

By virtue of its size, business model and popularity, Facebook is the rare company that doesn't need Wall Street to go public. It should press home the advantage and blaze a trail for others to follow.

...

Mr. Zuckerberg's has two options: a traditional IPO, in which banks distribute shares to investors in exchange for a percentage of total proceeds; and the little-used "Dutch auction" that cuts out the Wall Street middlemen by making the allocation of shares dependent on prices bid by each investor.

...

The biggest difference between the two systems, apart from the lower fees paid by companies in auctions, is that when IPOs go Dutch, banks don't choose who gets shares, giving all investors a fair shake and avoiding potential conflicts of interests.

...

This is particularly important for "hot" IPOs, like Facebook. Since these deals often record sharp rises in the first days of trading, there is a temptation for banks to dole out shares to their favorite investor clients, who stand to profit if they get in early.

...

Wall Street's penchant for being both poacher and gamekeeper has left banks with conflicted loyalties; they take companies public while at the same time trying to keep hedge funds and other high-paying customers satisfied.--FRANCESCO GUERRERA

Image links here, here, here, here and here.

The source of inflation

these days is government distortions of markets. What is true for subsidized healthcare and education is also true for food:

Milk now costs $3 a gallon in many states. Eggs, oranges, peas, tomatoes and rice are selling at or near all-time highs. The biggest winners have been corn producers, as corn prices have doubled in two years -- thanks in part to new mandates for ethanol.

All of this is translating into the best gains in farm wealth in decades. Total farm income is expected to leap by 44% to $73 billion this year, according to the USDA. The average income of full-time farmers hit $81,420 last year, with large corporate farms earning in the millions of dollars. Meanwhile, farmland prices in the past five years have increased by $200 billion a year, or an average asset gain of $100,000 per year per full-time farmer.

And yet Congress is writing another five-year farm bill as if this were 1936 and the Okies roamed the plains. The House has already passed a $286 billion bill, and the $291 billion version now moving through the Senate may be the largest feast of subsidies ever served up by Congress. The bill's estimated $25 billion in direct crop payments, and another $10 billion in "emergency assistance" and insurance subsidies, are stacked as high as an Iowa silo.

In other industries, we celebrate the impact of trade and technology in reducing prices. But U.S. farm programs are expressly designed to make food prices higher for consumers. Economists estimate that Americans pay about $12 billion more a year for food as a consequence -- on top of the higher taxes to sustain the direct handouts.

UPDATE: Arnold Kling questions the faith in government of some economists:

For all of the emphasis on pragmatism and humility, there is lurking within most of them an inner elitist who thinks in terms of solving dynamic programming problems and believes that "the requisite organizational arrangements can be designed."

Why are we assuming that the best way for an economist to help an underdeveloped country is to give policy advice to the government? What about giving advice to ordinary citizens?

Why would not our best contribution to an underdeveloped country be to start a business in that country? If we think that we are not competent to start businesses, then why do we think we are competent to initiate policies?

UPDATE: Tyler Cowen demonstrates how keeping congressional paws off of money saves lives:

The NIH works as well as it does because the money is mostly protected from Congress. It is not a success which can easily be replicated. The more money is at stake, the more Congress wants to influence allocation. We should guard this feature of the system jealously and try to learn from it. If we can.