And from one of my daily must read blogs no less. The pain…the pain (actually I suspect this is more of an aberration than the norm for the Commissar).
The Commissar has a post on ethanol and its possibility in helping with the current gasoline/oil situation. I don’t know a lot about ethanol other than most people seem to think that ethanol is an unlikely replacement for gasoline. But what got me was the final comment on free markets.
I’m a big fan of Milton Freidman, but freeing ourselves of dependence on Middle Eastern oil should be easily justified on national security grounds. At a bare minimum, any free-market purists would agree that we should remove the tariffs on foreign sugar-based ethanol, imposed to help our domestic corn-based ethanol industry. The Feds should promote:
- ethanol-compatible vehicles, like my Explorer
- more E85 fueling stations
- construction of ethanol distilleries, here and abroad
domestic and foreign sugarcane production to feed ethanol distilleries
It’s coming, comrades, it’s coming. E85. But the Lefties already hate it. Do we need any more evidence that it’s a good idea?
Here is my problem with this line of thought. What is the national security issue really?
The way I see it there are two possible ways to look at this.
First is that a portion of the money we spend on Middle Eastern oil eventually finds its way into the hands of those who would attack this country (I’m primarily thinking terrorism here). If this is the main concern, then reducing our expenditures on oil (from anywhere) is the goal. To achieve this goal we need to find a substitute for oil. Anything else will do literally nothing. The reason is will do nothing is because it is like re-arranging chairs on the Titanic. Since oil is a globally traded commodity, buying from another source will do nothing to the price.
As an aside to this, drilling in ANWR would likely have little effect in the long run and no effect in the short run. ANWR oil production is estimated, in the high case, to be around 1.5 million barrels per day. Current global production is around 85 million barrels per day, and it is growing. So by the time that ANWR is at maximum production it will likely be only a tiny fraction of daily production. To be sure it would have a downward effect on prices, but it isn’t likely to take us back to the $1.01/gallon that we were seeing several years ago.
The second take is that the volatility of oil and gasoline prices is a threat to our national security. Frankly, I don’t see this one. Why isn’t food a national security issue? Something happens to our food supply and we are in big trouble. But, aside from that objection the idea that we can save money by finding an alternative is for the most part a fiction. If it was economical to switch to this alternative right now…we’d switch right now. That is generally how markets tend to work. In my posts on the price of gasoline and oil there are plenty of commenters that are quite upset about the cost of gasoline. Given an alternative that is just as cheap if not cheaper my thinking is that they’d take it. The reality is that all alternatives are generally more expensive right now. Hence, switching from oil/gasoline to something else is going to cost us just as much if not more than what we are currently spending on oil/gasoline.
This doesn’t mean that there are never going to be any substitutes. Basically, I’m arguing that at the current prices for oil and gasoline the alternatives are not economically viable. Yet. If prices stay high like this there are incentives to look for alternatives. What are those incentives? Well here are 8.4 billion in incentives. That’s right, those profits of the oil companies act as incentives to find something better. Be it a more efficient and lower cost hybrid or even perhaps ethanol or something else.
As for the Feds encouraging things, why? If it is currently profitable to do something, then why encourage it? Aren’t the profits enough? If it is profitable and the government is preventing it from being done, then the solution is to get the government out of the way.
My thinking is that we don’t need the government to do anything. In fact, I’d argue that the government is, if anything, part of the problem. The current volatility in gasoline prices is in part due to the boutique blends, the lack of competition in the refinery industry, and other mandates from, you guessed it, the government. The market has found substitutes for many products in the past as they became expensive. Of course, hampering the market means you’ll have less innovation (e.g. the former Soviet Union and the Eastern Bloc countries). In both cases, the market can provide a solution. Having government get in the way, will if anything, likely make things worse.