Cafe Hayek

World's Smallest Violin

Couldn't happen to a nicer guy (HT: Jeff Temple). Well, it could. But he's in the top 20 or so.

Blowing the Cover on Political Hot Air

"Green jobs" will dig us more deeply into the red -- so argue Andy Morriss (my Market Correction co-blogger), William Bogart, Andrew Dorchak, and Roger Meiners.

Touting Failure

The Washington Post reports:

President Obama touted his plans for clean energy and economic stimulus Wednesday at an Air Force base near Las Vegas, pointing to the base's vast array of solar panels as a model for the nation as it seeks to reduce its dependence on foreign oil.

Obama, visiting Nellis Air Force Base between fundraising events in Las Vegas and Los Angeles, toured the largest solar power plant of its kind in the Western Hemisphere, a collection of more than 72,000 panels built on 140 acres, including part of an old landfill. The plant, a public-private venture that cost $100 million, generates about a quarter of the electricity used on the base, where 12,000 people live and work.

The president said the project created 200 jobs and will save the Air Force nearly $1 million a year while reducing carbon pollution by 24,000 tons a year -- the equivalent of removing 4,000 cars from U.S. roads.

A project that costs $100 million (though I'd guess this number probably doesn't include the land costs) to save almost $1 million a year? There's a name for that—a lousy investment. And creating 200 jobs? Not really. The project employed 200 people. Not the same thing.

"I Will Stop Thinking More" -- Will You Join Me?

CEI's Sam Kazman explains why Chevron's marketing department should embrace Vladimir Putin.

Tranquilizing the Stimulators

The Competitive Enterprise Institute's Ryan Young and Drew Tidwell understand that there ain't no such thing as a free stimulus.  Here's a great letter by Ryan and Drew in the current issue of Time.  (You can find their letter on line by clicking here and scrolling down a bit.)  Oh, by the way: Ryan is working toward a graduate degree in Economics at GMU.

Kinsley's latest missive in time falls prey to one of the oldest traps in economics--Frédéric Bastiat's broken-window fallacy. Just as a broken window creates work for the glazier at the expense of the window owner, money that Kinsley hopes to inject into the economy must first be taken out of it. Add in collection costs and the usual political malfeasance, and we have a net loss to the economy. There's more: Kinsley argues that last summer's high oil prices were essentially a tax on consumers; the money just went to oil companies instead of the government. But he forgets that oil companies do not have control over their prices. If they did, then why would oil prices ever drop? Kinsley's logic does not follow.

Ryan Young and Drew Tidwell, Competitive Enterprise Institute, WASHINGTON

Congratulations to the Volt!

I don't know what is more depressing about the bailout bill, the fact that we've transferred so much power to the federal government or the fact that to get it passed, Congress added about $100 billion of goodies to make it palatable. Not to worry. Government has plenty of money.

Check this one out:

Buyers of plug-in electric cars would receive tax credits ranging from $2,500 to $7,500.

It's a beautiful bootleg-and-Baptist inclusion. Makes the environmentalists happy and is a massive payoff to GM, struggling to stay afloat and makes a billion or so investment in their new electric car, the Volt. I was telling a friend about it, and not remembering the details, mentioned that the bailout bill included a big tax credit for electric cars. That's good for the Prius, my friend said. Oh no, I said. They'll figure out a way to target GM. If the Washington Post has it right, and I bet they do, somehow, a plug-in electric car is the key to goodness, not a mere hybrid. The Volt just happens to be a plug-in. Just a coincidence no doubt.

GM has been working so hard to find a way to create a less expensive more powerful battery so that the Volt will be more affordable. But you know, that's awfully difficult. And they're trying so hard. So you and I have just chipped in to help make the Volt affordable. Someone let the GM engineers know that they can rest a little bit.

UPDATE: Thanks to reader Patapon for pointing out that even though Toyota is working on a plu-in hybrid, it won't qualify. Imagine that! More details here.

No Planning

Here's a letter that I sent today to the Wall Street Journal:

Crusading for a national "energy plan" and upset that WSJ columnist Holman Jenkins isn't on board, T. Boone Pickens asks rhetorically: "My father used to tell me that a fool with a plan is better than a genius with no plan.  So I ask, what's Mr. Jenkins's plan?" (Letters, Sept. 2).

Contrary to Mr. Pickens's assumption, an economy is not simply a gigantic business firm.  An economy is both incomprehensibly more complex than is even the largest multinational corporation, and it has no specific, overriding purpose comparable to a firm's goal of maximizing profits - a purpose by which the performance of each employee and each investment decision is relatively easy to evaluate.  So while plans and some measure of central direction make sense for firms, comparable plans and direction for an economy are poison.  They prevent the on-going decentralized, competitive experimentation from which spring not only progress that is unplanned, but progress whose details could not have been foreseen before they actually materialize.

The Soviet Union famously had plans for its economy; the United States did not.  Which country was the fool?

Sincerely,
Donald J. Boudreaux

No End of Oil

We'll never run out of oil.  Never.  I explain why (inspired by an insight that I learned from Russ years ago) in today's edition of Canada's National Post.

Rauch on the Volt

The latest EconTalk is Jonathan Rauch talking about the Chevy Volt and GM's attempts to transform its corporate culture and maybe the car market.

Gasoline Prices

The price of regular unleaded is falling about a penny a day. It's down 40 cents from the peak of July 17th. Follow along here.

Good Economics on a Favorite Silly Idea

The Independent Institute's Bob Higgs debunks the notion that Americans would be better off if the U.S. were "energy independent."

Big Visions for Energy

Yesterday's Cato Daily Podcast features yours truly.  (I thank Caleb Brown both for his fine interviewing style and for his reputation-saving talent at editing the audio.)

Feathers and Rockets?

Here's a letter that I sent a few days ago to the New York Post:

You favorably quote an analyst's assertion that "motorists are getting hosed" because prices at the pump have not fallen enough recently to reflect the latest fall in oil prices ("Oil Drop Brings No Relief to the Pump," August 3).

Despite your seemingly supportive accompanying graph, this assertion is questionable.

First, according to the figures in your own graph, oil prices today are 55 percent higher than in late September of 2007 (the starting date in your graph), while gasoline prices today are 57.7 percent higher.  As evidence of hosing goes, these figures are very weak indeed.

Second, if we take a longer time horizon, evidence of hosing disappears completely.  In 2004, for example, a gallon of gasoline retailed for about $2.00 while a barrel of oil sold for about $33.  Today, oil's price is higher by 275 percent while gasoline's price is higher by only 100 percent.

Sincerely,
Donald J. Boudreaux

Cuts Both Ways

Here's a letter that I sent today to the Baltimore Sun:

Brad Heavner says that "drilling off our coasts would have no significant impact on gasoline prices - not in the short term, not in the long term, not ever" (Letters, August 3).  If so, then Mr. Heavner is mistaken to worry that such drilling would "increase our dependence on oil and produce more global warming pollution," for any such impact would also be insignificant.  An amount of oil that would affect prices only inconsequentially is an amount of oil that would affect global warming and Americans' use of oil only inconsequentially.

And see Ross Kaminsky on this topic.

The Volt

Jonathan Rauch profiles the Volt, GM's electric car. It's such a good article I actually found myself rooting for GM, which isn't easy. It's a superb read and highlight both the financial and psychological benefits to GM from innovation.

Meanwhile, the price of gas fell ten cents yesterday at my corner station. That must make those engineers at GM and these guys pretty uneasy. Innovation is risky business. It's amazing it ever happens.

Market Rally

Here's a letter that I sent yesterday to USA Today:

Concerned that oil is nonrenewable, Tim O'Neill wants government to "Rally the nation to find a way to reduce dependence on oil" (Letters, July 25).  This advice, alas, is at best redundant.  The market itself is "rallying the nation" on this front.  Oil's higher price reliably inspires consumers to use less of it and, simultaneously, prompts entrepreneurs to search for alternatives.  And the higher this price rises, the stronger these inspirations become.

Any further "rallying" by government would not only be overkill, it would risk infecting a natural market process with the poison of politics.

The Cost of Gasoline

Is gasoline now more expensive for consumers than it was in the 1970s (as claimed by, among others, the author(s) of this article in the most recent issue of The Economist)?  Adjusting for inflation seems to yield an answer of "yes."  The average retail price of a gallon of 87-octane gasoline in 1979, in the U.S., was 90 cents.  Adjusted for inflation, a gallon of regular gasoline retailed in 1979 at $2.67 reckoned in 2008 dollars -- more than a dollar less than gasoline is retailing for today.

But let's not be too quick to affirm the conclusion that gasoline costs consumers more today than it cost way back then.

While the inflation-adjusted dollar price at the pump for gasoline is indeed higher today than it was during the disco decade, consumers' expense of acquiring gasoline is arguably now lower.  The 1970s were notorious for long queues at filling stations.  These queues meant that consumers back then paid not only with dollars at the pump, but also with hours spent waiting in line (not to mention suffering anxiety over the prospect of being unable to get gasoline at all).

The average price of a gallon of gasoline in 1979 was (in 1979 dollars) 90 cents. So if a worker in 1979, earning that year's average hourly wage of $6.19, spent one hour waiting in line to buy five gallons of gasoline - a standard maximum amount that filling stations would sell to customers during periods of shortage - he would have spent, waiting in queues, $1.24 worth of his time for every gallon he bought.  The total cost per gallon to him would have been $2.14 ($0.90 in cash expense plus $1.24 in time expense).  $2.14 in 1979 was worth about $6.36 of today's dollars -- a cost per gallon much higher than the roughly $4 that we Americans now pay (without having to queue up for the privilege of filling our tanks).

Of course, the results of any calculation of the sort that I perform above are sensitive to the assumptions used (such as my assumptions of one-hour queuing time per gasoline purchase, and a five-gallon per purchase limit; by the way, you can find here a brief account of the 12 hours that my father and I shared in waiting in a queue to buy five gallons of gasoline during the summer of 1979).

The important pont is that, no matter how you slice it, the full price that Americans paid for gasoline during the many shortages of the 1970s was higher than the simple money prices they paid at the pump.

(HT to Hans Eicholz for drawing my attention to the article in The Economist.)

Nonsense on Speculation

An especially clear example of the confusion that economically illiterate people suffer when thinking about speculation is this column today by Dick Morris and Eileen Mc Gann.  The core offending passage is here:

If there is any doubt that it is speculation, not the supply and demand for oil, that is driving up the price, look at this week's history of oil prices. After Bush announced that he was rescinding his father's executive order and permitting off shore drilling and after OPEC announced a weakening of oil demand, the futures market price dropped $15 per barrel. No new oil gushed through the system. The speculators just switched their bets from up to down.

Market prices reflect future as well as current conditions.  Just as, say, General Motor's share price would rise today if that company announced a major breakthrough in fuel-conservation technology - rise even though this technology might not find its way into GM's engines until years from now - so too does new information on greater supplies of oil tomorrow push today's oil prices down.

And it's good that this price adjustment happens today because such information means that oil is less scarce than previously thought.  Because there's more oil than previously thought available in the future, people need not be as careful today in consuming it. "Speculators" play a vital role in causing today's prices to reflect future conditions and, hence, in causing consumers and producers today to act in ways that are consistent with future reality.

Morris's and Mc Gann's supposition that the price of oil should be determined only by today's physical flows of oil -- and that supply and demand reflect only such immediate-run realities -- is wholly mistaken.

(HT Rudy Schober)

Only $5 Trillion

James Pethokoukis gives Al Gore the benefit of the doubt and assumes that the costs are linear. I don't think they would be. Worth reading just for the first paragraph.

Carnival of Contemptibles

Jonah Goldberg's column in today's New York Post is excellent.  Here's a snippet:

Never mind that there's no evidence "speculators" - i.e. commodity traders - are doing anything to increase the price of oil. They aren't hoarding it; no one's cornering the market. The speculators make money when the price goes down, and they make money when it goes up. In short, they don't care if oil prices are high or low as long as they guessed correctly.

That may be the most infuriating part of all this. The speculators don't want high oil prices - but Washington does.

The US government has barred billions of barrels of oil from coming to the market by declaring huge petroleum reserves off-limits to drilling. Uncle Sam stores vast amounts in the Strategic Petroleum Reserve for a rainy day now called "election season." Government drives up pump prices with gas taxes and regulations against increasing refinery capacity.

Classic Demagoguery

I just sent this letter to the Wall Street Journal:

Sen. Dick Durbin's letter today is classic demagoguery.  He presumes that his motives are purer than those of persons who disagree with him; his case for more-intrusive government is based on zero evidence that the culprits he demonizes ("speculators") are responsible for the "problem" (high oil prices) visited upon victims portrayed as helpless but for Sen. Durbin's courageous intercession on their behalf; he demands power to prevent practices defined only with question-begging vagueness ("excessive speculation" and "unfair speculation") - a vagueness that, once enacted into legislation, greases the path to even more power for demagogues such as Sen. Durbin.

Sincerely,
Donald J. Boudreaux

Politicians Make My Eyes Tear Up

From today's Wall Street Journal:

As it happens, though, there's a useful case-study in the relationship between futures markets and commodity prices: onions. Congress might want to brush up on the results of its prior antispeculation mania before it causes more trouble.

In 1958, Congress officially banned all futures trading in the fresh onion market. Growers blamed "moneyed interests" at the Chicago Mercantile Exchange for major price movements, which could sink so low that the sack would be worth more than the onions inside, then drive back up during other seasons or even month to month. Championed by a rookie Republican Congressman named Gerald Ford, the Onion Futures Act was the first (and only) time that futures trading in a specific commodity was prohibited, and the law is still on the books.

But even after the nefarious middlemen had been curbed, cash onion prices remained highly volatile. In a classic 1963 paper, Stanford economics professor Roger Gray examined the historical behavior of onion prices before and after the ban and showed how the futures market had actually served to stabilize prices.

The fresh onion market is highly seasonal. This leads to natural and sometimes large adjustments in prices as the harvest draws near and existing inventories are updated. Speculators became the fall guys for these market forces. But in reality, the Chicago futures exchange made it possible to mitigate the effects of the harvest surplus and other shifts in supply and demand.

To this day, fresh onion prices still cycle through extreme peaks and troughs. According to the USDA, the hundredweight price stood at $10.40 in October 2006 and climbed to $55.20 by April, as bad weather reduced crop yields. Then it crashed due to overproduction, falling to $4.22 by October 2007. In April of this year, it rebounded to $13.30.

Futures trading can't drive up spot prices because the value of futures contracts agreed to by sellers expecting prices to fall must equal the value of contracts agreed to by buyers expecting prices to rise. Again, it merely offers commodity producers and consumers the opportunity to lock in the future price of goods, helping to protect against the risks of future price movements.

Why Take these Clowns Seriously?

Below is a link to an MP3 file that features part of President Jimmy Carter's July 1979 speech on energy policy.  Carter made all sorts of grand promises and commitments about reducing America's dependence on foreign oil, blah, blah, blah.  Big words, government diktats, and collective 'solutions' to problems real and imaginary sounded no less silly back in the disco days than they do today.

Download National_Energy_Crisis_Address.mp3

(HT my friend Terry Brock)

I have no doubt that 30 years from now people will revisit the speeches, blog-posts, and writings of the likes of Barack Obama and John McCain and find them to be just as fancifully idiotic as is this speech by Jimmy Carter.

Silly Proposal

John McCain's proposal that Uncle Sam offer a $300 million prize to whoever develops a battery that "has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars" is silly -- as explained well by the Denver Post's David Harsanyi.  (Full disclosure: Mr. Harsanyi interviewed me for his column.)  Here are Mr. Harsanyi's closing paragraphs:

But when McCain peddles prize money, he also feeds the perception that industry and scientists aren't already working diligently on energy breakthroughs — with batteries and areas unknown — or that the market doesn't incentivize them to do so.

Worse, McCain makes it seem that a cure for oil is just beyond our grasp. Around $300 million away.

In this arms race of goofy ideas between the candidates — windfall taxes and gas-tax holidays, to name two — we're sure to see more poorly thought-out plans in the near future.

Let's hope they are just empty promises.

Harsanyi explores McCain's proposal further in this blog post.

Perhaps part of Sen. McCain's health-care proposals will be to offer a taxpayer-funded prize of $300 million to whoever invents a safe pill that cures cancer.

Anyone who treats seriously successful politicians' pronouncements about how the world works is about as rational as is someone who reads his or her horoscope in an effort to learn what's in store for the day.

Thoughts on Oil

Yesterday's Diane Rehm Show -- it was on oil prices and drilling prohibitions -- prompts two thoughts.

First, one of the guests, Athan Manuel of the Sierra Club, asserts (somewhere around the 47th minute of the program) that "more drilling will only benefit the oil companies."  Such a statement is the economic equivalent of proclaiming the earth to be flat: it appears to some people to be flat, but a bit of knowledge about the reality beyond one's immediate senses reveals this appearance to be wholly misleading.  As my friend George Leef, of the Pope Center, asked when he heard Mr. Manuel's assertion: "And would increased production of violins benefit only the violin makers?"  'Nuf said.

Second, Ms. Rehm and most of her guests (like many pundits elsewhere) seem to think that the fact that any oil to be had from permitting drilling in ANWR and on the outer continental shelf will not hit the market for several years is sufficient reason to discount the seriousness of calls to open these areas to oil exploration and drilling.  What I find sadly ironic about such complaints is that those who issue them are often the same people who lament the market's alleged inability to plan for the long-run.  In this instance the pundits correctly recognize that opening up new areas today to drilling would require huge amounts of investments -- investments of lots of money and time -- and that oil companies that undertake such investments won't begin to earn a return on these investment for years, perhaps as much as a full decade.

But because of the large stretch of time required to actually bring forth oil from the ground in these areas, these pundits conclude that allowing such drilling is inappropriate.  In other words, while the market has the patience to wait years before starting to earn a return on invested resources, pundits urge government to ignore the prospect of more oil from the likes of ANWR and the OCS because that oil won't arrive for many years.

Boudreaux on energy prices

In the latest episode of EconTalk, Don and I talk about energy prices and why things aren't as dire as they appear.

Suggestions for Lowering Energy Prices

The Cato Institute's Jerry Taylor speaks much good sense, in today's New York Post, about energy prices.

On Women and Assets

Here are two letters sent today to USA Today:

You suggest that women are less likely than men to seek political office because women have fewer political role models, and because "no one urges them to run"  ("Our view on women in politics: Reluctant to take the plunge," May 29).  I offer a different reason: women are more decent than men.

Fewer women than men itch to lord it over others.  Also, women are less willing than men to perform the countless asinine stunts and soul-shriveling pandering necessary to win political office.

Sincerely,
Donald J. Boudreaux

And

Re your editorial "One bright sign emerges in a gloomy housing market" (May 29) and the general dismay about falling real-estate prices and rising gasoline prices: What principle of economics suggests that markets are working well when the price of one asset (say, housing) rises, but not when the price of another asset (say, petroleum) rises?  What principle of ethics dictates that owners of one asset (say, housing) are entitled to capital gains and to enjoy these gains however large they might be, but that owners of another asset (say, petroleum) are not so entitled to their gains?

Finally, what moral precept advises us, in the case of petroleum products, to sympathize with buyers and demonize sellers, and in the case of housing, to ignore buyers and sympathize with sellers?

Sincerely,
Donald J. Boudreaux

Why prices rise

Steve Mufson at the Washington Post is bewitched, bothered, and bewildered about why oil prices keep rising. The headline:

Skyrocketing Oil Prices Stump Experts

The article begins:

Confused about oil prices? So are the experts.

Executives from the giant oil companies say it's partly the fault of "speculators" or financial players. Key financial players say it's really a question of limited supply and expanding global demand. Some members of Congress accuse the Organization of the Petroleum Exporting Countries for bottling up some of its production capacity. And OPEC blames speculators, wasteful U.S. consumers and feckless U.S. policy.

Almost everyone points at China's growing appetite for fuel.

Whatever the causes, one of the most dizzying runs in the history of oil prices picked up pace yesterday -- again -- as crude oil prices jumped to settle at more than $133 a barrel, up $4.19 in one day, 18 percent so far this month and more than one-third so far this year. Prices climbed even higher in late electronic trading.

After a few paragraphs explaining the impacts of the higher prices, the Post quotes an expert who does have a theory:

But the bigger question is: What has been driving the doubling of prices over the past year even as U.S. demand has stagnated and global output has continued without any major new disruption?

"The basic story that has brought oil from $20 to $130 dollars is that world demand is growing robustly when world supply is not," argued Jeffrey Rubin, chief economist of CIBC World Markets. "As a result, we need ever-higher world oil prices to kill demand in the [industrialized countries], which is exactly what's happening."

While U.S. demand has leveled off, Rubin said, demand in China is growing at a 12 percent rate, more than the 8 percent rate he forecast. While the extra increase in China is probably because of short-term factors, such as the earthquake or hoarding by the government in preparation for the Olympics, Rubin said even the lower rate would keep world demand growing briskly.

Hmmm. Seems pretty straightforward, doesn't it? Rubin doesn't seem stumped. I'm not sure why this article was written. I think the author wants one reason. China. Speculation. Greed. (Or more accurately, an increase in greed.) But the simplest explanation is that world demand is growing briskly and world supply is not as responsive.

If we want low gas prices, we should lower the costs of exploration and refining. If lowering those costs has environmental costs you don't like, stop complaining and get on your bicycle.

Current-Account Deficit = Capital-Account Surplus

I sent this letter this morning to the Wall Street Journal:

John Engler rightly defends NAFTA against political-candidates' misrepresentations of this trade agreement ("What Nafta Trade Deficit?" April 21).  But he stumbles into a common error when he asserts that much of the U.S. trade deficit is caused by U.S. imports of oil.

A trade deficit reflects decisions made by persons on both sides of a border.  If foreign suppliers of oil to America spent all of their dollars on goods and services produced in the U.S., Americans' imports of oil would not raise the size of the U.S. trade deficit.  America's trade deficit grows not just because Americans import lots of things (including oil), but also because foreigners choose to invest their dollar earnings in the U.S.  For this reason, Mr. Engler's conclusion that it would be "good" if America's trade deficit were lower is questionable.  I, for one, welcome capital inflows into the U.S.  Such inflows of capital not only directly fund private investments in America, but help to lower Americans' cost of financing Uncle Sam's reckless habit of spending beyond his means.

Sincerely,
Donald J. Boudreaux

If it's true that Americans save too little, we Americans should be especially pleased that foreigners save and invest much of their savings in the United States.

People Harmed by Capitalism or by "Green" Policies?

Indur Goklany's 2007 book, The Improving State of the World , is impressively fact-packed and well-argued.  I recommend it highly.  I recommend also his op-ed appearing in today's edition of the New York Post.  Here are a few paragraphs.

President Bush's call yesterday for a dramatic slowdown of green-house-gas emissions reflects growing concern for the consequences of climate change. But what about the consequences of the world's response?

The fact is, food riots resulting partly from the United States' alternative energy policies have arrived at our front door. Crowds of hungry demonstrators swarmed the presidential palace in Haiti last week to protest skyrocketing food prices.

In recent years, we've heard that climate change could be catastrophic for nature and humanity. But it's becoming increasingly evident that over the next few decades, climate-change policies could prove even more catastrophic.

....

Supposedly climate-friendly policies in the United States and the European Union - subsidizing the production and consumption of such renewable biofuels as ethanol and biodiesel - have diverted such crops as corn, soybeans and palm oil from food to fuel. This, in turn, has increased prices for food worldwide at a time when the highly populous and newly prosperous East and South Asian countries are demanding more of it.

Green Is As Green Does

Today's edition of the Wall Street Journal contains several excellent letters on the alleged desirability of using government to promote "green" technologies.  Here are the first three of these letters:

Fred Krupp's op-ed "Climate Change Opportunity" (April 8) overlooks what most climate change skeptics are skeptical of: government's ability to effectively regulate the economy. If there is a way to make money from alternative energy sources, the market will find it. There is no need for bureaucrats to lead the way. Government regulations at best distort the market to benefit politically favorable (read "green") industries, and at worst create unintended consequences that increase the cost of energy and energy innovation. Congress doesn't need to act in order for energy efficiencies to be realized by business; it needs to stay out of the way.

David Smith
Boston

In Europe, consumers pay up to $9 a gallon for gasoline, in part because European Union governments tax gasoline at rates of $2 to $3 a gallon and more. What most people don't realize is that gasoline taxes are implicit carbon taxes. Taxing gasoline at $1 a gallon is roughly equivalent to taxing the carbon dioxide emissions from gasoline at $100 per ton. So, European motorists are paying carbon dioxide penalties of $300 or more per ton. That's about six times higher than the maximum estimated carbon permit price under the Warner-Lieberman cap-and-trade proposal.

Yet where in Europe is the miracle fuel to replace petroleum? Where are all the zero-emission vehicles? Europe is not one mile closer than we are to achieving a "beyond petroleum" transport system. In fact, from 1990 to 2004, EU transport sector carbon dioxide emissions increased by almost 26%.

Mr. Krupp and other cap-and-trade advocates ignore the main lesson of the failed Synfuels program of the 1970s, memorably expressed by MIT's Thomas Lee, Ben Ball Jr. and Richard Tabors: "If a technology is commercially viable, then government support is not needed, and if a technology is not commercially viable, no amount of government support will make it so."

Marlo Lewis
Senior Fellow
Competitive Enterprise Institute
Washington

The Environmental Defense Fund's president says he is simply trying to lower the cost of adapting to climate change. I'm suspicious. When environmentalists wanted to save the spotted owl, they told us that economic costs should not be a factor in that decision. When they wanted to save salmon by demolishing dams, they told us that cost should not be an issue. When they wanted to protect Alaskan wilderness, they said that energy costs should not be considered. Now, suddenly, they are all about saving us money. Either they have changed the way they think about the environment, or they want to control how I live my life, using any argument. That's handy.

Bill Conerly
Chairman
Cascade Policy Institute
Lake Oswego, Ore

"Earth Hour" and the Dark Ages

The World Wildlife Fund arranged today's "Earth Hour" -- a pledge by many people from around the world to turn off lights for an hour.  The following is from a page on the WWF website:

Earth Hour is a global event created to symbolize that each one of us, working together, can make a positive impact on climate change - no matter who we are or where we live.

Created by WWF in Sydney, Australia in 2007, Earth Hour has grown from a single event into a global movement. In 2008, millions of people, businesses, governments and civic organizations in nearly 200 cities around the globe will turn out for Earth Hour. More than 35 US cities will participate, including the US flagships--Atlanta, Chicago, Phoenix and San Francisco.

Earth Hour brings together communities, local governments, corporate and nongovernmental organizations to heighten awareness about climate change and to inspire our nation to take practical actions to reduce their own carbon footprints.

Reading about the WWF's "Earth Hour" -- and hearing on the radio and t.v. too many mindless endorsements of this stunt, and seeing Google's special black "Earth Hour" design for its opening page today -- I sent the following letter to Carter Roberts, President of the WWF:

Dear Mr. Roberts:

You and members of your organization worry that industrialization and economic growth are harming the earth's environment.  I worry that the intensifying hysteria about the state of the environment - and that the resulting hostility to economic growth - might harm humankind's prospects for comfortable, healthy, enjoyable, and long lives.

So I commend you on your "Earth Hour" effort.  Persuading people across the globe to turn off lights for one hour supplies the perfect symbol for modern environmentalism: a collective effort to return humankind to the dark ages.

Sincerely,
Donald J. Boudreaux

By the way, of course, the WWF should award some special prize to the North Korean government, for that government keeps North Koreans not in any meager "Earth Hour," or even "Earth Day," but in what WWFers might call "Earth Decades" -- very little light ever.  This picture of the Korean peninsula speaks volumes -- the Dark Ages today; a society keeping its carbon footprint tiny.  Of course, in doing so it keeps itself also desperately poor, often even to the point of starvation.

Joe Kennedy II Wants More Regulation of the Oil Industry

Joseph Kennedy II knows neither the relevant history nor economics.  Here's a letter that I sent today to the Wall Street Journal in response to Kennedy's essay that appeared yesterday in that paper.

Joseph Kennedy argues for more government regulation of the oil industry ("We Need a New Bargain With Big Oil," March 22).  His argument, however, is suffused with ineffective anecdotes (such as the untearful tale of the "young mother, who had to move in with her mother to keep her children warm and healthy") - with mistaken history (Teddy Roosevelt's attack on Standard Oil was for "the good of the nation" only if the nation was served by breaking up a firm that steadily pushed the price of kerosene down) - with naivete about government (Mr. Kennedy assumes that all those additional powers that he demands for government will be exercised by apolitical geniuses) - and with bad economics (his assertion that private firms have no right to charge "whatever they want" reveals his failure to understand that prices convey vital information and incentives to producers as well as to consumers).

So why, exactly, did you publish Mr. Kennedy's uninformed and ill-reasoned essay?

Sincerely,
Donald J. Boudreaux

Worstall on Bureaucratic Actions

Here's a letter that I sent yesterday to the Wall Street Journal:

Arthur Brooks reports on research showing that "political intolerance in America ... is to be found more on the left than it is on the right" ("Liberal Hatemongers," January 17).  I'm not surprised.  "The right," after all, includes many persons who are liberal in the original sense.  These persons distrust centralized power and celebrate markets and free trade as liberating humankind from poverty, tyranny, and superstition.  True liberals do not fancy themselves fit to tell others what to ingest, what not to smoke, what merchants to patronize, what insurance to buy, or otherwise how to live.

True liberals understand that society is indescribably complex and that our knowledge is always tentative.  In contrast, too many of today's "liberals" - overestimating their own intelligence and underestimating both the intelligence of others and the dangers of government power - egotistically yearn to remake society according to their own images.

Sincerely,
Donald J. Boudreaux

Lending evidence to the hypothesis that today's so-called "liberals" overestimate their own intelligence, the insightful Tim Worstall over at the Globalization Institute's site has this important post on -- oh my! -- a big bureaucratic blunder.  Turns out that government bureaucrats are human after all.

Walter Williams on Government Control Over Thermostatsl

My colleague Walter Williams shares his spot-on insights about the proposal in California to give a government agency the power and authority to remotely control thermostats in private buildings.  Here are some paragraphs from Walter's column:

Some people might agree with this level of government control over their lives, but if these amendments become law, you can safely bet other intrusive energy-saving proposals are waiting in the wing.

For now, California's energy Nazis are simply testing how much intrusiveness Californians will peaceably accept. I can easily imagine California's Energy Commission requiring remotely controlled main circuit-breaker boxes that control all the electricity coming into your house. That would enable the energy czar to better manage your use.

Say you're preparing a big dinner. The energy czar might decide you don't need so much heat in the rest of the house. Or, preparing a big dinner might mean the energy czar would turn off the energy to your washing machine and dryer while the electric stove is on.

There's no end to what the energy czar could do, particularly if he enlists the aid of California's Department of Health Services. Getting six to eight hours sleep each night is healthy; good health lowers health costs. So why not make it possible for the energy czar to turn the lights off at a certain hour?California's Department of Education knows children should do their homework after school rather than sit playing videogames or watching television. The energy czar could improve education outcomes simply by turning off the television, or at least turning off all noneducational programs.Of course, there could be a generous provision whereby if an adult is present, he could use a password to operate the television.You say, "Williams, you must be mad. All that would never happen." That's the same charge one might have made back in the '60s, when the anti-tobacco movement started, if someone predicted that the day would come when some cities, such as Calabasas, Calif., would outlaw smoking on public streets.

A Critical Distinction

Today's New York Times ran this report on the attempt by the government of California to gain statewide control over private thermostats.  I sent the following letter in response.

Government officials in California now seek power to centrally control thermostats in private buildings ("California Seeks Thermostat Control," January 11).  In an attempt to paint those who object to such government intrusion as alarmists, your reporter explains that "The fact that similar radio-controlled technologies have been used on a voluntary basis in irrigation systems on farm fields and golf courses and in limited programs for buildings on Long Island is seldom mentioned" by opponents of such power.

Suppose Sacramento proposes to remotely control, in "emergency" situations, all newspaper presses.  Would you remain sanguine about such government powers if someone explained that history is full of instances of the press voluntarily restraining itself?

Sincerely,
Donald J. Boudreaux

Call me pedestrian -- bourgeois -- simple-minded -- dumb-as-dirt, but I see a huge difference between voluntarily doing something and being forced to do that same something.

Rampaging Regulators

Quoting from an e-mail sent out by the good people at Free Market Environmentalism Roundtable (a project of PERC):

As some of you may already know, the California Energy Commission has proposed amendments to its standards for building energy efficiency. These standards include a requirement that any new or modified heating or air conditioning system will have to include a thermostat whose set point can be remotely controlled by government authorities who would be empowered to lower (in winter) or raise (in summer) your thermostat's temperature set point during "emergency events." The comment period closes on January 30th for those of you (especially California residents) who would like to register your ire and opposition.

Here's the document: CEC-400-2007-017-45DAY.PDF .  Check out pages 63-64 of this document for the offensive section.  (HT Roger Meiners)

I understand that any clever economist or philosopher can build models or offer coherent arguments "proving" that giving government power to control the thermostats in private buildings will improve "social welfare."  But no one can explain how such power does not diminish human freedom -- and is not a huge leap down the road to serfdom.

I quote again the final lines of Thomas Sowell's greatest book: Knowledge and Decisions:

[Freedom] is, above all, the right of ordinary people to find elbow rooms for themselves and a refuge from the rampaging presumptions of their "betters."

The Browning of Britain?

One of the hallmarks of sound economic thinking is the ability to distinguish costs from benefits.

Tim Worstall is a darn good economist.

The Case for Increasing Supplies of Petroleum

A few Cafe patrons have, quite reasonably, questioned my claim that it is not at all obvious that we're running out of oil.  The main point common to all of the e-mails that I've received on this matter is that, even though proved reserves of oil are today higher than they were in decades past, the actual, physical amount of oil in the ground must be less than it was back then.  After all, the more oil we use the less oil there must be remaining in the ground.

This fact is almost surely true.  But economically it might be irrelevant.  I reprise below one of my earliest posts here at Cafe Hayek:

Is it Possible that the Quantity of Oil is Practically Infinite?

Don Boudreaux

It seems obvious that we're destined to encounter seriously reduced supplies (and higher prices) of oil.  Even physics professors say so.

But consider a couple of scenarios.

Scenario One: You’re a hungry mosquito on the surface of an enormous balloon. The balloon contains as much blood as an Olympic-size swimming pool contains water. You, hungry mosquito that you are, inject your snoot into the balloon and enjoy a meal. Of course, by doing so you negligibly reduce the volume of blood in the balloon. But whether you know it or not, you can gorge yourself on blood from this balloon for the rest of your life and there will still be far more blood remaining in the balloon at your death than you’ve consumed during your lifetime.

Scenario Two: You’re a hungry mosquito on a balloon the size of child’s marble. You take a meal. The size of your meal relative to the blood-contents of the tiny balloon is large; you significantly reduce the contents.

…..

I don’t know if humanity and its demand for oil is like the mosquito in scenario one, but I’m sure that we are not like the mosquito in scenario two. We might be in some intermediate scenario – say, like a mosquito sitting atop a blood-filled balloon the size of a large beach ball.

But we could be like the mosquito in scenario one. That mosquito needn’t know – probably wouldn’t know – that she’s atop a physical quantity of blood that is practically limitless. If she's told, accurately, that the amount of blood in her balloon is finite, she might worry that she’ll run out of blood, or that she'll drink so much that what eventually remains in the balloon will be too costly for her to suck out; she might persuade herself to drink less blood. Would she be wise to do so?

If scenario #1 is closer to reality -- and the evidence so far is consistent with that possibility -- then the relevant constraint on our getting oil out of the ground is not any scarcity of the physical amount of oil that exists in the ground as much as it is the scarcity of our ingenuity and resources for use in that endeavor.  As this ingenuity and these resources become more abundant -- as their effectiveness in finding and extracting crude oil improves -- the amount of oil available for our use does indeed increase, in a very real way, over time even as we consume more oil.

Really?!?!

Here's a letter that I sent a couple of days ago to the Washington Times.

22 September 2007

Editor, The Washington Times

To the Editor:

Carl Henn makes two astonishing claims (Letters, Sept. 22).  The first is that "our fuel of choice oil runs out at exactly the rate we use it."

According to MIT's M.A. Adelman, "At the end of 1970, non-opec countries had about 200 billion remaining in proved reserves.  In the next 33 years, those countries produced 460 billion barrels and now have 209 billion 'remaining.' The producers kept using up their inventory, at a rate of about seven percent per year, and then replacing it."  Over the same time period, proved reserves in opec countries have nearly doubled from 412 billion barrels to 819 barrels.  [From Adelman, "The Real Oil Problem," Regulation, Spring 2004.  Available here.]

Clearly, we don't run out of oil "at the exact rate we use it."

Second, Mr. Henn avers that cars aren't important because "our country somehow got along without them for more than 200 years."  Well, yes - and Americans in the past also "got along" without refrigeration, indoor plumbing, and antibiotics. Is Mr. Henn content to "get along" also without these things?

Sincerely,
Donald J. Boudreaux

Hot Heads

Jeff Jacoby's August 15th column on global warming, in the Boston Globe, is outstanding.

Today's edition of the Globe published the letter that I sent after reading Jeff's piece:

JEFF JACOBY courageously denounces the hysterical groupthink so prominent in the crusade against global warming. I am a global-warming skeptic -- not of the science of climate change (for I have no expertise to judge it), but of combating climate change with increased government power.

Al Gore, Robert Kennedy Jr., and too many others dismiss the downside of curtailing capitalism in order to reduce emissions of greenhouse gases. They write and speak as if the material prosperity that capitalism brings is either not threatened by increased government power, or is of only small importance when compared to the threat of global warming.

Truly reasonable people are, and ought to be, skeptical of each of these dogmas.

DONALD J. BOUDREAUX
Fairfax, Va.

The writer is chairman of the department of economics at George Mason University.

And an even better read to be found in today's edition of the Globe is the second installment of Jeff's assessment of the climate-change debate.

Unclean Politics Means Unclean Energy

In today's Washington Times, my friend and co-blogger at Market Correction, Andy Morriss, nicely exposes the foolishness of the misnamed "Clean Energy Act of 2007" (which the U.S. Senate recently approved).  Here are Andy's final few paragraphs.

There is a way to improve energy security: unleash entrepreneurs. Refiners have been solving America"s energy problems since the start of the 20th century. When the U.S. faced a major gasoline shortage in 1910, entrepreneurs revolutionized refining technology and doubled gasoline yields. For the last 30 years, they"ve been boosting output from refineries, making it possible for our total capacity to rise even as older, less efficient refineries were closed.

In short, American refiners have regularly increased the quantity and quality of gasoline from each barrel of crude, and done it without Congress" advice.

If we want to increase our energy security, we"ll stop changing the rules every time a politician needs an issue for his next campaign ad. Refineries, pipelines, and oil fields are all multibillion-dollar investments that take years to earn a return. The constant shifting of government rules undermines the certainty investors need before making such a large-scale capital commitment.

If we want to make America more secure, decrease gasoline prices, have cleaner fuels, and increase the reliability of supplies, we need to get the government out of the way of the entrepreneurs who can deliver those things.

Where Externalities Lie

Here's a letter that I sent today to the Wall Street Journal.

To the Editor:

Like many others, Professor Hendrik Van den Berg insists that "we need to raise the price of gasoline by introducing a tax that reflects the congestion, environmental and national security costs of oil" (Letters, July 3).  I disagree.

First, government already taxes oil production and gasoline.  How does Prof. Van den Berg know that the current level of taxation is inadequate?  Second, government itself is a steamy swamp of negative externalities.  Not only do politicians and bureaucrats spend other people's money, they do so overwhelmingly while under the influence of special-interest groups.  The only tax that we should raise is one that increases the cost of using government.

Sincerely,
Donald J. Boudreaux

I am consistently amazed at the way so many persons -- including (especially?) economists -- cleverly identify real or imagined externalities in private markets and then propose political "solutions" for these alleged problems as if the government officials who will design and implement these "solutions" are wise, well-informed, and pure of motive.

The Answer Is In the Margin

Muirgeo asks, in response to this post on Congress's latest effort to keep the price of gasoline below its market-clearing level:

Can anyone tell me why the oil companies would want to build a refinery when profits are so high just the way they are?

Also in the Comments section, The Albatros and Methinks offered very nice answers.  I offer here my own response -- or, actually, a response to a Washington, DC, radio news anchor who asked on air the very same question that Muirgeo poses:

News Editor, WTOP Radio
Washington, DC

Dear Editor:

Morning anchor Mike Moss proposes that the U.S. government enter the business of gasoline refining.  He argues that the private sector has no incentive to build more refining capacity as long as oil-company profits are high.

Moss's economics is backwards.  It implies that private firms would consistently refuse to expand outputs of MP3 players, gourmet coffee, cell phones, and other high-demand products. Firms instead would invest only where profits are low or negative - treating consumers to endless supplies of the likes of chocolate-coated olives and cardboard condoms.

In fact, of course, the profit motive drives firms to invest precisely where returns are highest -- assuming that they're not thwarted by government regulations.

Letters to the editor must be short, inevitably resulting in some simplification.  If the oil-refining industry were monopolized or if its firms could effectively cartelize, then any high profits currently earned would be less likely to spawn new investment in refining capacity.  I have no sense that the oil-refining industry enjoys monopoly power (except, perhaps, insofar as government regulations that artificially raise the costs of building new refining capacity do help to shield existing firms from the full force of market competition).

More directly, although I can't read minds, the impression I got from listening to the radio announcer, and from reading Muirgeo's comment, is that these persons commit the same fundamental economic mistake that many freshman students commit: the failure to think at the margin.

Thinking 'at the margin' reveals that, yes indeed, if profits are higher for sellers of product A than for sellers of product B, devoting resources to the production and sale of more units of product A will yield higher returns on those resources than would be yielded on those same resources were they instead used to produce and sell more units of product B.

In this way, high profits direct resources owners to use their resources where the return available on those resources is highest -- which is generally also where those resources most ably satisfy consumer desires.

Will the So-Called "Reality-Based" Community Condemn this Affront to Reality?

The poseurs, preeners, pontificators, and interest-group pimps in the U.S. House of Representatives yesterday passed a bill to outlaw so-called "price-gouging" by oil companies.  And the vote in favor of this foolish piece of legislation was 284-141 -- meaning that lots of Republicans joined Democrats in this opportunity to prove, yet again, that both parties boast members who are either economically illiterate or morally stunted (or both).

A couple of years ago I published this short essay "On Price Gouging" (using the example of bottled water rather than gasoline -- but the same economic principles apply in both cases); here's an excerpt:

Of course, merchants can voluntarily keep their prices below market levels. But to do so would be not only harmful but also unfair! If a grocer refuses to raise the price he charges for bottled water up to the market level, he will find his store besieged by consumers.  Only consumers near the front of the line will be lucky enough to get the water; those closer to the rear will go home empty-handed. Is queuing a fair means of deciding who gets the water?

Also, by not raising the price, the grocer will mute the price signal sent to the global market that bottled water is especially needed in this locale. Muting this signal will reduce how much or the speed with which additional, much-needed supplies of bottled water are shipped from where they are valued less to the disaster area where they are desired more.

Ignoring Political and Economic Science

Yesterday Karol and I took our son, Thomas, to a Cub Scout event at the National Building Museum in Washington, DC.

After the formal program -- the building of a geodesic dome -- was over, we visited an exhibit entitled "The Green House."  This exhibit showcases building materials and methods that, compared to more familiar materials and methods, are friendlier to nature.  An example is flooring made from bamboo, a natural material that is plentiful and grows very fast.

Before I go on, I must be explicit that I have long been skeptical of "green."  Unlike "green" folks, I am not especially inspired by nature.  Yes, often nature is pretty and soothing to visit.  But to get my blood pumping with excitement and awe you must show me a cityscape -- Manhattan's skyline, above all -- and not forests or mountains or beaches.  My tastes run decidedly in favor of those amenities of civilization that allow me to escape nature.  So the reason I am skeptical of "green" is that "green" people, more and more, seem to elevate their taste for nature into a moral proposition -- which, because I don't share their taste for nature, causes them to regard me and others like me as morally deficient.

Nevertheless, when visiting "Green House" I was impressed with the ingenuity that entrepreneurs, architects, and home builders pour into making houses more energy-efficient and even cleaner than are traditional homes.

But at the exhibit's end, a sign caught my attention and made me wince.   I quote the sign in full:

Vote to conserve wilderness areas and support one of the 240 anti-sprawl initiatives across America

This little political advertisement is more than mildly annoying because it appears as part of an exhibit that is largely scientific -- that is, one that presents objective and very interesting evidence of non-traditional home-building methods and materials.  And yet the above statement is wholly unscientific; there's nothing objective about it beyond its claim that there are now, across America, about 240 "initiatives" that some people identify as "anti-sprawl."

But will most, some, any of these initiatives, if enacted, really prevent "sprawl"?  Will most, some, any of these initiatives -- even if they do prevent further "sprawl" -- have an impact on the environment that is, on net, positive?  And will most, some, any of these initiatives -- even if they do have a net-positive impact on the environment -- be worthwhile?

The above questions not only are legitimate, they are minimally necessary to ask and to answer reasonably.

To descend suddenly from an interesting and (largely) objective display about non-traditional building methods and materials into a grotesquely presumptuous political command meant to appear as if it follows naturally from the rest of the exhibit is jarring and obnoxious.

Still Cool With Being Sanguine

Quoting my Favorite American of All Time, H.L. Mencken, Boston Globe columnist Jeff Jacoby reminds us that there is wisdom in remaining sanguine in the face of the current hysteria over global warming.

The Mencken quotation -- characteristically brimming with insight, wisdom, and wit -- is this:

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

For this reason, among others, I cannot join my colleague Tyler Cowen in joining Greg Mankiw's Pigou Club.  Even if global warming is a reality, another reality -- one with a much more consistent track record throughout history and across different countries -- is the perversity of political incentives.  Given these perverse political incentives (not to mention the inevitiable scrawniness of government's access to information and knowledge), I don't trust government to impose and administer a Pigouvian tax with sufficient disinterestness and skill to make such a tax a plausible policy option.

As I've written before, I'm quite prepared to concede that global warming is real --  although I'll not be surprised if, should I live as long as Ronald Coase (who turns 96 this month ) fears of global cooling will again supplant fears of global warming as the excuse for government to seize more of our money and our liberties in "exchange" for its promises to save us and lead us to salvation in which all marginal social costs are nicely equal to all marginal social benefits.

Wise Words on Global Warming

The Foundation for Economic Education's Sheldon Richman has some wise words about the global-warming debate.  Here's the crux:

More than a few reputable scientists see potential problems in the climate change that is occurring. Thus the issue needs to be evaluated on its merits. I know of no a priori reason to rule out the possibility that human activity is producing enough greenhouse gases to warm the atmosphere to an extent that will have bad consequences. That doesn't mean it's happening, just that it's not impossible.

For every factoid about ice sheets or sea levels or sun spots I can pull from the skeptics' literature, someone else can produce a counter-factoid. How is a nonscientist to decide which is accurate?

This is not to say the skeptics don't raise apparently compelling points. They do, and the believers should address them. But that still leaves the problem of how a layman is to sort the wheat from the chaff.

For advocates of individual liberty it is tempting to believe the skeptics are right because the other side is associated with statist solutions to climate change. Most solutions call for government control over the burning of fossil fuels. No advocate of free markets can be comfortable with a position that entails substantial taxes and subsidies to achieve a political objective -- reduction of carbon emissions -- especially when the solutions promise no more than negligible reductions in temperature. (Temperature, not emissions per se, is supposed to be the believers' cause for concern.)

But picking sides in a scientific debate on the basis of proposed remedies is the wrong way to go about things. A believer in global warming could get the science right but the remedy wrong. That government shouldn't ban smoking doesn't mean smoking isn't bad for you. There is nothing incoherent about favoring free markets and thinking that global warming is a problem.

Sheldon's absolutely correct.

Relatedly, my GMU colleague, law professor Bruce Johnsen, sent this response to the George Mason University Faculty Senate.  Bruce's note is self-explanatory -- and also wise:

Dear Faculty Senate,

I emphatically decline to sign the Climate Change petition and would like to be on record for so declining.  I object to the Faculty Senate presuming to speak for individual faculty members on matters such as this that are both debatable by any reasonable person standard and highly political.  They are best left to individuals' actions as citizens independent of their connection to GMU.  This kind of group-think is most offensive and in my view the Faculty Senate has no authority to engage in it.

Although climate scientists are competent to tell us whether the earth is, for the time being, warming, or whether it is warming outside some historically normal parameters, they are not competent to forecast the economic consequences of such warming or to suggest what should be done in response.  When they try to do so they are not acting as scientists but as political advocates.  Even if it is true that global warming will generate "large-scale disruptions," the consensus among economists -- whose expertise is at evaluating trade-offs --  is that taking the steps necessary to avoid such disruptions will lead to substantially larger disruptions.

Cordially,
D. Bruce Johnsen
GMU School of Law

Politics Gives Me Gas

In the hot-off-the-press New Yorker (Nov. 27th issue), James Surowiecki nicely explains how politics prevents the use of economically and environmentally sound approaches to supplying fuel for Americans' automobiles.  Here's a free link.

To make a long story short, the political power of U.S. sugar farmers -- power that greedily burdens American consumers with policies that restrict the importation of sugar -- keeps the price of sugar in the U.S. so high that making ethanol from sugar is prohibitively expensive.  And this result, according to Surowiecki, is unfortunate: "ethanol distilled from sugarcane is much cheaper to produce and generates far more energy per unit of input—eight times more, by most estimates—than corn does."  But Uncle Sam's protection of sugar growers from foreign competition (along with some nefarious doings of the corn-growers' lobby) artificially makes producing ethanol from corn more attractive than producing ethanol from sugar cane.

Here's Surowiecki:

The favors granted to the sugar industry keep the price of domestic sugar so high that it’s not cost-effective to use it for ethanol. And the tariffs and quotas for imported sugar mean that no one can afford to import foreign sugar and turn it into ethanol, the way that oil refiners import crude from the Middle East to make gasoline. Americans now import eighty per cent less sugar than they did thirty years ago. So the prospects for a domestic-sugar ethanol industry are dim at best.

We could, of course, simply import sugar ethanol. But here, too, politics has intervened: Congress has imposed a tariff of fifty-four cents per gallon on sugar-based ethanol in order to protect corn producers from competition. A recent study by Amani Elobeid and Simla Tokgoz, scientists at Iowa State University, projected that if the tariffs were removed prices would fall by fourteen per cent and Americans would use almost three hundred million gallons more of ethanol.       

But that isn’t likely to happen anytime soon: the Bush Administration proposed eliminating the ethanol tariff this past spring, but Congress quickly quashed the idea—Barack Obama was among several Midwestern senators who campaigned in support of the tariff—and the sugar quotas appear to be as sacrosanct as ever. Tariffs and quotas are extremely hard to get rid of, once established, because they create a vicious circle of back-scratching—government largesse means that sugar producers get wealthy, giving them lots of cash to toss at members of Congress, who then have an incentive to insure that the largesse continues to flow. More important, protectionist rules flourish because the benefits are concentrated among a small number of easy-to-identify winners, while the costs are spread out across the entire population. It may be annoying to pay a few more cents for sugar or ethanol, but most of us are unlikely to lobby Congress about it.

Note that the newly sainted Barack Obama is no less a scoundrelly politician than is anyone else who succeeds in that profession of predators.