Friday, May 30, 2008

Ethanol, Food Prices, and More Bullshit

Virginians love to BM&G about how the corn conspiracy and ethanol subsidies are driving up the price of a steak and driving down demand for other locally-produced commodities from beef to coal. I say let 'em - they're just flat wrong.

There's a new study out on the increased food prices we're seeing, as summarized by the NYTIMES (the official summary of the OECD/UN report can be accessed here). The overall impact of ethanol on food price increases seen recently is about 2-3%. So, that loaf of pound of hamburger that went up by about a quarter at the grocery store had about a penny to do with ethanol. Anyway, as it turns out the reason food prices are rising is not this complicated, general-equilibrium of energy, housing and ethanol, but one of simple supply and demand (mostly just demand) in the food market alone. Basically, the reason food prices are rising is because people around the world are busting out of poverty and can now afford higher quantities and quality of food (which, by the way, is a GOOD thing). See, most of the corn in the US goes to cattle feed. Therefore as people get richer and consume more protein, badda-bing! Higher corn prices, which leads to higher plantings of corn relative to non-feed grains (soybeans, wheat, etc.) and those prices rise accordingly.

If you're looking to goat the government for grain prices in the US, look first at sugar policy. Sugar policy affects corn prices much more than ethanol for one simple reason: After feed grain, the highest end-use of corn is high-fructose syrup. Understanding this requires a pretty high-tech econometric techinique: Drink a Coke (you COULD drink a Pepsi and reach the same empirical conclusion, but I wouldn't recommend it), then look at the label. Then, go to Europe, and repeat. The second ingredient on the US can (after H2O) is high fructose CORN syrup; on the European can it is SUGAR. Ever wonder about this? Everywhere else it's cheaper and to put sugar in as the main sweetner in most things, but here it's not because the in the 1930s the us put a quota on sugar imported to the US, mostly to keep CUBA friendly (see how well that worked???).

Now the Sugar quota has a second, indirect effect on prices. You see, sugar isn't just a better way to sweeten drinks, IT'S ALSO MORE EFFECTIVE FOR MAKING ETHANOL! To make ethanol you need to start with SUGAR! In the US, guess what the main ingredient used to make the sugar for ethanol is! CORN (NOT actual SUGAR)! Ever wonder why Brazil is making and using ethanol more efficiently and with fewer subsidies? BECAUSE THEY MAKE IT SMARTER THAN WE DO!

Thursday, May 29, 2008

Recycling is Still Garbage...For Now

I've always kinda liked this old article, entitled "Recycling is Garbage" from the NYTIMES on recycling. There's plenty to dispute in such cocktail-napkin calculations of such important stuff, but it hits it head-on (apply directly to the forehead): Recycling is no free lunch. In fact taking into account land prices, alternative uses of resources, and energy burned in recycling, it is usually more costly (even in environmental terms) to recycle than it is to pitch things like glass and plastic. Paper and aluminum usually do better in terms of cost-effectivness and energy use. In fact, given the higher energy use and carbon footprint of recycling we might be shooting ourselves in the proverbial foot.
But, in a long-run sense, maybe doing all that recycling earlier is beginning to pay off. Technologies for actually doing the job are improving and the NYTIMES now touts: "In Economic Terms, Recycling Almost Pays" (keyword: almost). Anyway, it teaches us to: 1. be sceptical of the "free lunch", and; 2. think dynamically and long-run, not short run. (Similar arguments can be made for ethanol, by the way: Initially we were burning more energy to make ethanol than we were getting out of it, now we've tipped that, and it's beginning to pay for itself. However, in the case of ethanol, who are we really kidding to think that it is a best long-run solution?)

Sunday, May 25, 2008

Wire Hangers and Rubber Rooms

Sooo, I always like to cite a couple of back-of-the envelope calculations (as well as harder-core ones) about the gains from trade. 6-8 years ago there was something floating around about the gains from trade that put it at about $50-60,000 per job saved. So we could have levied a small non-discriminatory consumption tax on all goods sold (regardless of country of origin), redistributed every cent to those "hard working ... American" (wink-wink) that would have been laid off by the "great sucking sound" and we'd all have a little more than we did with the trade restrictions.

Another story has to do with rubber rooms. Because of labor obligations, most US-located assembly plants for US-label cars "employ" a certain number of workers in rubber rooms, where they essentially drink coffee and... (???).

But check this one out. In the US wire-hanger industry about 250, er, Americans are currently employed, facing competition (mostly from China) and are protected by a tariff. The Economists blogging staff estimates that the cost of the tariff to US dry-cleaning firms is about $212,000 per job saved.

The Energy (Sub)Burble

Check this out from Krugmania... Keep in mind this is about Sydney, not Dallas, but it tells us a lot about the problems of urban planning in the US. Then there's this article about Los Angeles... Sooo, it got me thinking about an energy-economics article from a few years ago in the Quarterly Review of Economics & Finance (I have it in my office but I'm on the road now) that basically said that we are almost completely unresponsive in our long-term capital investments to the current price of fuel, but more responsive to the real historic high price. We only hit historic highs for gasoline a few months ago, so sometime in the next 10-15 years we might be beginning to reorganize our lives to manage the prices we're seeing now (and that's the good news...).