The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Oil is non-renewable; corn, soybeans and sugar are renewable. One day (Who knows when?), the world will run out of oil. The world never will run out of corn, soybeans and sugar. Based on those simple facts, the decision was made to turn food into oil, otherwise known as biofuel. Yet that decision has been a favorite liberals’ (and to a lesser degree, conservatives’) target.
The underlying facts are not so simple. My friend Warren Mosler, for whom I have great respect, wrote on his blog:
“The reality is very simple, and there is no end in sight. The US is a net exporter of food, and a net importer (directly and indirectly) of motor fuels. So with current high gasoline prices we get a higher price for our food surplus by burning up part of it for fuel.
Even if the energy used in creating the ethanol is somewhat more than the energy produced, the energy used is generally coming from lower cost and domestically produced sources such as coal. And the fuel burned in our cars replaces gasoline- a much higher cost energy that we import.
So, bottom line, burning up part of our surplus crops as motor fuel, which drives up food prices world wide, we reduce imports of motor fuels and we get a higher price for the remaining foods we export. That is, we benefit economically from the global chaos and the likelihood of mass starvation created by this policy.
(We should) outlaw ethanol and biofuels that use up acreage that otherwise produces food.”
I wrote to Warren, “So it is your opinion that the U.S. is short of farming acreage, and that we now have reached the limits of U.S. food output? And it is your opinion that the entire world has reached the limits of food production, which is why the U.S. turning some of its corn into oil raises all food prices, worldwide? Sounds a bit suspicious to me. Do you have any data to support these beliefs?” I’ll let you know what he says.
I saw “A Note on Rising Food Prices” by Donald Mitchell (no relation) of The World Bank Development Prospects Group, 2008. It’s a long paper, but I’d like to show you the featured (bolded) lines from three adjacent paragraphs:
“–Estimates of the contribution of biofuels production to food price increases are difficult, if not impossible to compare.
–Despite all the differences in approach, many studies recognize biofuels production as a major driver of food prices.
–Many other potential drivers of the escalating food prices are mentioned in discussions, but there are few quantitative estimates of their impact.”
To paraphrase, “We have estimates, not data, and we can’t compare those estimates. Some people think biofuels raise food prices, but some do not. Nevertheless, we emotionally, not factually, have adopted the position that biofuels raise food prices.”
The paper goes on to list some of the reasons for higher food prices:
1. The increase in energy prices
2. Increases in prices of fertilizer and chemicals
3. Increases in the costs of transportation
4. Drought in Australia
5. Poor crops in Europe
6. Rapid import demand increases for oilseeds by China to feed its growing livestock and poultry industry
7. Decline of the dollar
8. The increased investment in commodities by institutional investors to hedge against inflation
9. And oh yes, turning corn and soybeans into oil.
Those of you who have read Inflation/Oil know that inflation has been caused by increased oil prices. So one should assume that creating oil from plants would at least to some degree, mitigate inflation by increasing the supply of oil. Of the nine reasons for higher food prices, five are due to the increased price of oil.
This means, if corn and soybeans were not turned into oil, the price of oil would be higher, inflation would be worse and the price of food would go higher. Of course that is speculation, because despite many absolute opinions, no one really knows the effect of biofuels on food production or food prices.
Consider corn. Oil is made from corn silage. Only a tiny percentage of all corn is used for human consumption. It’s called sweet corn. The vast majority of corn is field corn, which is turned into silage. Only silage is turned into oil. Silage is made from cobs, leaves, stalks, husks and the grain itself.
“In 2009, there were over 86 million acres of corn planted in the United States. In the same year, only a little more than a quarter-million of that was used for growing sweet corn.” ( CompareXY Library) With only 1% of all corn acreage devoted to being eaten by humans, it is difficult to say with any certainty that oil production decreases sweet corn production. A further complexity: Even sweet corn cobs, leaves, stalks and husks are turned into silage.
The above is a bare hint at the massive data surrounding this subject, data that can be turned to any desired meaning. For me, the bottom line is:
1. If the creation of biofuels uses less oil than it creates, the process saves a non-renewable energy source at the cost of a renewable energy source.
2. Creating oil reduces inflation.
3. Inflation has an adverse affect on people’s ability to buy food.
4. The U.S. use of field corn, soybeans and sugar for oil has only a minuscule affect, if any, on the world’s human food supply.
5. The U.S. and the world are capable of producing more food crop than now is produced.
6. A limiting factor in world food production is oil prices, which can be reduced by increasing the supply of biofuels.
There are many other factors and many other considerations, and the above surely is an overly simplified summary, but on balance, I feel biofuels are a worthwhile federal investment. I do not believe biofuel production with cause the mass starvation Warren predicts. Quite the opposite.
I welcome your comments.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
So it seems both food and gas (oil) is on the rise. Since corn grows from the ground and oil is found in the ground, it appears they both are conspiring against the human race. Or, maybe really bad money supply policies have something to do with it. Take your pick since I have real data to back up either idea. However, I do pay more for gas and food than I did a year or even 6 months ago. That is a data fact.
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“Corn, soybeans and sugar are renewable” if there is water and the temperature is right, climate change can be very harmful to crops. The world could run out of food without any biofuel production.
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Or, we might grow corn, soybeans and sugar in Canada, Alaska and northern Russia. The world has been much, much warmer than it is today — and much, much colder, too.
Rodger Malcolm Mitchell
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Yes, it has been but without billions of people in it. Climate change doesn’t necessarily lead to warmer weather at high latitudes. Anyway, temperature is just one of the problems. Depletion of water supplies or bee colony collapse alone might cripple crops. I’m not predicting we will run out of food, but we certainly could.
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And don’t forget the honeybees, if they keep disappearing, then all bets are off.
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This falls under the heading, “Everything is possible” but, not everything is equally possible.
So yes, we “could” run out of food. We also “could” run out of clean water and air, and even “could” run out of land if all the ice melts. Then there is the giant meteor strike causing what “could” be an endless winter. Or we simply “could” run out of people if there is a pandemic.
“Could” covers a lot of territory. Courses in formal logic have a name for that, but I forget it.
Anyway, on balance my personal belief is that food is replaceable and oil is not. So, I’d trade food for oil.
Rodger Malcolm Mitchell
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I guess you were referring to “appeal to probability”? Except that a huge asteroid did hit the earth and mass extinction followed.
You’re absolutely right, not everything is equally possible. That’s why I didn’t say “we could find endless oil supply someday, somewhere, somehow.” Nonetheless, it’s also human nature to ignore the warning signs until it’s too late. What probability did people assign to a substantial nationwide decline in home prices before 2007? The threats to crops are real, I see a future where agriculture is not as sustainable as we may think.
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By definition, Appeal to Probability “assumes that because something could happen, it is inevitable that it will happen.” I clearly made no such prediction.
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I think data is being hidden to benefit specific groups. The farmers really want the prices jacked up so there you go.
My opposition to ethanol is because you are basically being cheated when you buy fuel that’s been “cut” with “corn squeezins'”
Diesel is a real fuel with high energy content. And you use less of it than gasoline for that reason. This is why it’s expensive at the pumps.
Gas with ethanol is a garbage product. It’s energy content is less so you need to buy more just to get further down the road. Now it’s mandated in many places. You have no choice but to buy an inferior product. All in the guise of “saving the environment” somehow. If you figure out how that works let me know.
We need diesel/electric hybrid cars for now, mixed with full electric cars for the future. Along with the highest tech nuke reactors we can invent to power them.
This leaves more oil in the ground for the future and leaves food alone, lowering the cost for everyone.
That’s my platform. I’m gonna run against Trump and Obama. I’ll let you know what happens 😉
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Ethanol is not for “saving the environment.” It’s for saving oil. I agree that the future may hold all electric cars powered by nuclear electric plants. Meanwhile we need to save oil.
Diesel may be an interim solution, but the infrastructure isn’t there, and it too is made of oil and/or vegetables (biodiesel).
Rodger Malcolm Mitchell
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They tout (or market) E85 as though it’s “green”. Flex fuel and all that. Take a look at the imagery revolving around that fuel! Right down to the graphics on the pumps.
Diesel is Europe’s (and the world’s fuel!). We basically blew it here in the US. And we will continue to pay the cost of that poor decision.
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Just do a search for “e85 green fuel” and prepare to be bombarded.
http://tucsoncitizen.com/wryheat/2010/09/10/ethanol-fuel-not-as-green-as-you-may-think/
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My problem with using corn or any other food crop to make fuel, is that it is such a low use of valuable productive farmland, much lower than growing feed for cattle, and with the world population still expected to grow for another few decades, we will need all of that cropland devoted to food production, especially if global warming disrupts that to any extent. To me it’s really only a short term stop-gap at best.
We also really need to establish the net energy return on the process, because if it’s negative then you are making yourself more reliant on imports. I keep seeing conflicting reports on this, and I don’t know who to believe as they all seem to have an agenda.
I’d rather see resouces being put into developing better alternatives like biofuels from waste or algae that don’t displace food crops, and we already have gas to liquid technology that can convert natural gas into a range of liquid fuels and lubricants, which can take advantage of the abundant gas reserves worldwide.
KK Tipton, I think electric is the future for most private cars, thanks to improvements in battery technology (which is what really killed the GM electric car – the then inadequate battery tech) we are already seeing practical electric commuter cars on the market, and I’m sure they will continue to improve. Though I do think we are talking about 20 year timeframes before they make up a majority of the market.
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Where does electricity come from? Most comes from burning fossil fuels, I suppose. When do you think nuclear/solar/wind/hydraulic power will take over?
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Decades.
Hydraulic may be at its limit. People hate dams.
Solar needs a new technology. Not efficient enough.
Wind is limited by the intrusive towers.
Nuclear has potential, but it too needs new technology to solve the radioactive waste and perceived danger problem.
And then there is totally new technology — something not yet developed, or not even yet imagined — an energy station in space that broadcasts energy to a receiving station on earth — something like that.
Meanwhile, coal is cheap and abundant, which stands in the way of alternative energy development.
Rodger Malcolm Mitchell
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There also must be a replacement for petrochemicals, otherwise we still can’t live without oil.
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At the same time, there is another popular belief for the (rapid) rise of food prices and, in general, commodities: The Fed.
1. Keeping nominal short-term rates below the CPI causes investors to seek commodities as a store of value (hoarding), and a means for speculation
2. Quantitative Easing debases the value of the dollar conversely raising the cost of imports
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What about the deforestation taking place elsewhere, specifically Indonesia, that is being done to produce palm oil? (In this case, the deforestation may be increasing net CO2 output and could also lead to the extinction of orangutans.)
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