The View From 1776

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According to an April 22, 2006, article posted on CNN.com politicians are again talking economic nonsense: 

“Consumer gasoline prices continue to soar as the Bush administration places too much emphasis on drilling reserves and not enough on alternative fuels, Democrats said Saturday.

“In his party’s weekly radio address, Sen. Bill Nelson of Florida noted that Brazil has announced it will achieve energy independence this year, something the United States has sought since the country’s first oil crisis in the 1970s.

“In Brazil, drivers are filling up their cars with ethanol instead of gasoline,” Nelson said. “And today in America, President Bush says, ‘We have a serious problem. America is addicted to oil.”

Let’s again review a few facts:

1.  The price of gasoline at the pump fluctuates the same as that of other products.  When demand increases and supplies can’t expand, the price will rise.  Even in the fully-managed, price-controlled socialist-corporatist economy so ardently desired by liberals, if oil and gasoline are subjected to price controls, less oil will be delivered to the United States and more will be sold by foreign producers to buyers in other countries who are willing to pay market prices.  Price controls might keep the price of gasoline down, but, as we found with a vengeance during the Nixon-Carter period, the supply will be drastically reduced.  If politicians impose windfall taxes or price controls, you can expect to wait in service station lines for hours just to get a few gallons of gasoline.

2.  No matter what we may do in the United States, worldwide demand for oil will continue to force prices upward.  The giant economies of China and India are growing rapidly and consuming ever more petroleum products.  Both have actively pursued long-term supply deals with Middle Eastern producers like Iran, which has every incentive to direct more oil to China and India, and less to the United States.

3.  Russia, a major oil producer, is increasingly using its oil and natural gas as a political and diplomatic weapon, deliberately curtailing supplies and raising prices to European customers.  Those customers will, from time to time, buy more from producers now shipping to the United States, thus raising spot market prices.

4.  Within the United States environmentalist policies jack up gasoline prices. 

First, environmentalists have prevented the construction of new oil refineries in the United States for more than 30 years.  Refineries have a fixed capacity at any given time.  Inevitably, gasoline prices will rise when demand exceeds refineries’ production capacities.  And don’t forget that Hurricanes Katrina and Rita put the nation’s largest concentrations of refineries, in Louisiana and Texas, out of commission for an extended period, curtailing already tight stockpiles for summer driving.

Second, environmentalists have mandated special blends of gasoline for sale in most states.  This requires refineries to produce smaller batches of tailor-made gasoline, which raises their costs and pushes up the delivered price at the service station pump.  Adding this to environmental limitations on refining, storage, and transportation capacities causes local shortages and price spikes.

5.  Ethanol is little better than a fraud perpetrated by connivance between farm-state Congressmen and environmentalists.  Among other things, ethanol mileage per gallon is lower than gasoline’s.

According to a Wall Street Journal editorial dated May 20, 2002:

“A study last year by Cornell University agricultural scientist David Pimentel shows that it takes so much fossil fuel to create ethanol, that we end up with a net energy loss.

“The numbers go like this: It takes 131,000 BTUs to grow and convert enough corn for one gallon of ethanol. A gallon of ethanol, however, has an energy value of just 77,000 BTUs. In other words, it takes about 70% more energy (which comes from fossil fuels, by the way) to produce ethanol than the energy ethanol creates. It’d be easier—and less costly—for consumers to pour most of every gallon of gas they buy down a sinkhole.

“Professor Pimentel also looked at the cost of making ethanol. He found that ethanol costs $1.74 a gallon to produce, compared with 95 cents to produce a gallon of gas. That’s why “fossil fuels—not ethanol—are used to produce ethanol,” he says.”

Senator Nelson’s reference to Brazil’s use of ethanol is disingenuous.  Brazil’s ethanol is made from sugar, which is chemically a more efficient source than the corn used here.  Production costs of ethanol in the United States are about 30 percent higher per gallon than Brazil’s ethanol production costs.  Ethanol costs Brazilian drivers about 19 percent less per gallon than gasoline.  The opposite is true in the United States.

We can’t follow Brazil’s lead, because sugar prices in the United States are artificially held far above world prices by the fascist-corporatist agricultural price and production controls introduced by President Roosevelt’s New Deal. 

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