Biofuels and the Food Supply

CNET News' Green Tech Blog reports on research by clean-energy research firm New Energy Finance that says that oil prices have a bigger impact on food prices than biofuels. And I believe it.

The report also states that changing food patterns around the world (i.e., rising middle classes consuming more meat and less grain), growin gpopulation, rising input costs are impacting food prices.

The report stated that

In grains, during the period from 2004 to April 2008, global dollar prices increased by an average of 168 percent. The rising price of oil accounts for an increase of 32.5 percent and other inputs--such as land and labor costs--contributed 7.4 percent. Dollar depreciation accounts for a further 17.9 percent. Supply and demand imbalances account for the remaining 57.7 percent, with biofuels responsible for up to an 8.1 percent increase in global average grain prices (the impact on U.S. corn was clearly above average). The biggest issues were the failure to improve yields to compensate for global population growth, along with the failure of the Australian harvest.

Biofuels may not be the main culprit in food prices, but given that they will have little or no effect on oil prices they appear to be a waste of resources that could be better spent on something with a greater likelihood of success.

Farmer Ditches Powered Tractor for Mules

The Associated Press reported yesterday on a farmer in Warren County, Tennessee, who had what some may consider an unusual reaction to higher fuel costs: he hitched his tractor rake to a pair of mules instead of using the tractor's engine. The mules cover the fields slower than a petroleum-powered tractor, but apparently the cost of the fuel for the tractor exceeds the cost of feeding and caring for the mules and the cost of the extra time.

Is this the shape of things to come? Are we destined, because of higher fuel costs, to slide back to the Middle Ages? I don't think so, but just the same it may be time to invest in mule- and donkey-futures. Besides, with the terms of the new Farm Bill, farmers in this country should never have to struggle again.

Politics and the Farm Bill

David Brooks of the New York Times posted an editorial online yesterday that talks about actions and power of groups, politics, and the Farm Bill. It's a pretty interesting read, especially in terms of how the current presidential candidates have responded.

America Should Increase Its Gas Tax

Gerard Baker of the UK's Times Online thinks that high oil prices are a good thing, and I couldn't agree more. Oil has been the main focus of U.S. foreign policy since the end of the Cold War, and has been a major element of foreign policy since the 1930s.

If we had no use for petroleum in this country, we would certainly have made dramatically different choices over the past two decades and our disastrous foreign policy moves might never have happened. Instead of cozying up to groups like the Saudi Royal Family, we would instead be criticizing their detestable human rights records.

But the fact is, here and now, we do need oil. And it costs a lot of money, too much many would say. So why do I (and Gerard Baker) disagree?

Markets power our society to adapt to changes. If the price of something is too high, market forces will work to lower it or to find alternatives. During the oil crisis of the 1970s, those market forces drove innovation in efficiency research resulting in dramatically more energy efficient technologies. In fact, if oil prices hadn't cratered in the 1980s and 1990s, our need for oil right now would be dramatically lower. But ease they did, and instead of driving ultra-efficient vehicles and powering our homes and businesses with solar, wind, and nuclear energy, we drive gas-guzzling SUVs and burn coal and even oil in our power plants.

Higher oil prices will hurt in the short term, but in the long term the country (and the world) will be better off. And if we can switch to using all-electric cars like the Tesla Roadster and powering them off of solar or wind energy, then maybe, just maybe, we'll reduce or eliminate our need to fund fascists and dictators in the Middle East and other parts of the world.

It's time for the U.S. to step up and be a world leader once more. What I would propose would be an increased tax on gasoline and diesel fuel. That's right, I said increased. Just as elimination of the Federal gas tax (the so-called "gas tax holiday") would have little or no effect on the price at the pump, so would a tax increase. Why?

Because prices are set by supply and demand. If the government throws another 17 cents onto the price of a gallon of gasoline, we'll start to drive less and carpool more. We're already doing that because of the high prices we're paying at the pump. The oil companies will be forced to reduce prices somewhat (such that a 17 cent per gallon tax would have about a 4-5 cent per gallon effect on prices). They can afford it, after all, given their massive profits.

And then the government could take that money and use it to fund programs in energy efficiency and alternative energy (and I don't mean biofuels, unless we're going to also eliminate sugar tariffs and start making ethanol from sugar instead of corn... but that's another blog post). The money could even be used for improved tax breaks for purchase of all-electric vehicles or hybrids. If we're willing to make minor sacrifices like these now, we can really make a difference for our future and begin to truly wean ourselves from foreign oil.

Ag Secretary Resists Changes to Biofuels Program

Secretary of Agriculture Ed Schafer doesn't think that ethanol is having a major impact on food prices, and sees no need to make changes to programs that promote its use as a fuel source. Meanwhile, prices of commodities like corn, wheat, rice, and soybeans are setting records and food riots are happening in many parts of the world.

Schafer is right that ethanol subsidies alone are not the cause of high food prices. Right now the market is suffering heavily from increased demand (due to growing middle classes in China and India, and increasing world population, and, yes, diversion of food crops to create ethanol) and decreased supply (due mainly to droughts), combined with increased costs for transportation and storage.

But, while the effect of ethanol on food prices may not be as substantial as some people have indicated, it is definitely a part of the problem. Even if it can reduce food prices by a small amount, that will help starving people around the world as well as budget-constrained consumers here in the U.S.

And if ethanol subsidies are not having a major impact on food prices, it's clear that they are having no impact whatsoever (or possibly a negative impact) on oil prices, which is their very purpose. So Secretary Schafer, you need to re-think your position and consider changes to the biofuels program.

MEMRI Needs Your Help

The Middle East Media Research Institute, or MEMRI for short, needs your help. This is a non-profit organization dedicated to helping people better understand the culture and economics of the Middle East, and they do a fantastic job. Efforts like these will invariably lead to people better understanding one another, and they foster a spirit of cooperation rather than animosity.

But operating their excellent blog costs them money, and that's where you come in. As a non-profit organization, donations to MEMRI are tax deductible, and they are asking for people to contribute to their mission.

This is an organization that does a lot of good and provides a lot of useful information to which we generally are not exposed in this country. Please try to help them out.

The Cost of "Free Coffee"

Stephen Dubner over at the Freakonomics blog has an interesting post about the value of free coffee. And it made me think about costs.

In Etan Bednarsh's example, the iced coffee from Dunkin' Donuts was free, but it wasn't free. We should remember, in spite of what groups like the Free Software Foundation would have us believe, that there are costs other than just financial when acquiring items. In Etan's case, the cost for "free iced coffee" was the time he would have spent in line waiting for the coffee. How long? Let's say ten minutes, as an example. I've certainly waited in lines longer than that before, but let's just use that for the sake of this argument.

Ten minutes is one-sixth of an hour. How much is an hour of my time worth? When I do consulting work, an hour of my time is worth anywhere from $50 (if I really like you) to $150 (if I think you can afford it). But let's stay at the low end of the scale, and say $50. So ten minutes of my time would then be worth about $8.33. Compared to getting an iced coffee for $3.50 almost immediately, that "free iced coffee" is a pretty expensive cup of joe.

Why is it that so many people never think of time as a cost? I know people who will drive around a city and its suburbs looking for the cheapest gas so they can save maybe ten cents a gallon when filling up. They spend an hour of their time (again, worth at least $50, in my case) to save a buck or two filling up. Is there time really worth only a dollar or two an hour? Maybe it is, but not for me.

The lesson here is about the value of convenience. We live in a society of convenience, where some items we pay more for simply because they're convenient. This convenience comes in the form of time savings, and since time is money, there is (or at least, can be) a cost savings by paying more for an item. We spend more money, but have more of our time available to us.

What we do with that time is, of course, up to us. Most of us seem to use it these days to sit on our couches and watch television (and I'm as guilty of that as the next person). If that's what you're using your free time for, then by all means spend six hours driving around to every furniture store in the city to find the cheapest price on a new couch so you can save a hundred bucks.

For me, though, I'd prefer to spend a little more cash to gain some more of my time that I can put to some productive use.

"...A Floating Island Was His Home..."

Are you tired of all the scheming, in-fighting, and general nastiness that comes from living in a "civilized" country? Hassled by crime, pollution, illegal immigrants, Social Security? Do you just want to get away from it all sometimes?

Apparently, so do Wayne Gramlich, Patri Friedman, and Peter Thiel. When Gramlich and Friedman presented their idea for floating islands (based on an oil rig design known as a "spar platform") to Thiel, the Paypal co-founder and early Facebook investor was excited enough to give the duo half a million in seed funding to advance the cause.

"Decades from now, those looking back at the start of the century will understand that Seasteading was an obvious step towards encouraging the development of more efficient, practical public-sector models around the world," Thiel said in a statement.

The idea is to build floating island cities (which may be clustered together) for individuals to live in to escape from nations. Some people, apparently, believe that, like businesses, governments should have to compete. In this case, though, the "customers" of government are the citizens. By creating independent floating island "nations," the Seasteading Institute believes that it will become easier for citizens to pack up and move to different "countries" of their choosing, thereby creating competition for bloated governmental bureaucracies.

Will it work? Probably not. Governments exist for a reason, and people put up with them for a reason. If I was that unhappy, it wouldn't be too hard for me to move to Canada or Australia right now. The reason I don't is because I have a job and a family here in Indiana. Also, governments defend their citizenry, provide protective services such as police and fire departments, and fund social and cultural projects. If I'm living on a floating island in the middle of the pacific with only a couple thousand other people, it's going to be pretty hard for me to go to an art museum, theater, concert, football game, or other event. By living in Indiana, I have all of those things available to me.

Residents of seasteads like the ones being propsed may be able to avoid taxation, but that's pretty much the only advantage they would have (okay, they may end up with an awesome ocean view). The disadvantages seem to vastly outweigh the advantages. Sometimes it's important to remember that tax dollars are usually spent on things that are actually important. They're not all used for bridges to nowhere.

Also, it appears that the cost for living in one of these seasteads will run into the hundreds of thousands of dollars, but residents will only have about 300 square feet of personal space. The only time people spend that much to live in such tiny quarters is in college dorm rooms.

Farm Bill

Greg Mankiw has a great new post about why the president should veto the new Farm Bill. I live in a farm state (Indiana), so this bill is pretty popular here.

That said, if it doesn't get vetoed, I may have to change professions. Farming is going to be more lucrative than I.T. pretty soon.