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Thread: here's the first good reason I've heard to continue ethanol subsidies !

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    Default here's the first good reason I've heard to continue ethanol subsidies !

    free sample ...

    "The Oil-Addicted Ayatollahs

    By THOMAS L. FRIEDMAN
    Published: February 2, 2007

    There may be only one thing dumber than getting addicted to consuming oil as a country — and that is getting addicted to selling it. Because getting addicted to selling oil can make your country really stupid, and if the price of oil suddenly drops, it can make your people really revolutionary. That's the real story of the rise and fall of the Soviet Union — it overdosed on oil — and it could end up being the real story of Iran, if we're smart.

    It is hard to come to Moscow and not notice what the last five years of high oil prices have done for middle-class consumption here. Five years ago, it took me 35 minutes to drive from the Kremlin to Moscow's airport. On Monday, it took me two and half hours. There was one long traffic jam from central Moscow to the airport, because a city built for 30,000 cars, which 10 years ago had 300,000 cars, today has three million cars and a ring of new suburbs.

    How Russia deals with its oil and gas windfall is going to be a huge issue. But today I'd like to focus on how the Soviet Union was killed, in part, by its addiction to oil, and on how we might get leverage with Iran, based on its own addiction.

    Economists have long studied this phenomenon, but I got focused on it here in Moscow after chatting with Vladimir Mau, the president of Russia's Academy of National Economy. I mentioned to him that surely the Soviet Union died because oil fell to $10 a barrel shortly after Mikhail Gorbachev took office, not because of anything Ronald Reagan did. Actually, Professor Mau said, it was “high oil prices” that killed the Soviet Union. The sharp rise in oil prices in the 1970s deluded the Kremlin into overextending subsidies at home and invading Afghanistan abroad — and then the collapse in prices in the '80s helped bring down the overextended empire.

    Here's the story: The inefficient Soviet economy survived in its early decades, Professor Mau explained, thanks to cheap agriculture, from peasants forced into collective farms, and cheap prison labor, used to erect state industries. Beginning in the 1960s, however, even these cheap inputs weren't enough, and the Kremlin had to start importing, rather than exporting, grain. Things could have come unstuck then. But the 1973 Arab oil embargo and the sharp upsurge in oil prices — Russia was the world's second-largest producer after Saudi Arabia — gave the Soviet Union a 15-year lease on life from a third source of cheap resources: “oil and gas,” Professor Mau said.

    The oil windfall gave the Brezhnev government “money to buy the support of different interest groups, like the agrarians, import some goods and buy off the military-industrial complex,” Professor Mau said. “The share of oil in total exports went from 10-to-15 percent to 40 percent.” This made the Soviet Union only more sclerotic. “The more oil you have, the less policy you need,” he noted.

    In the 1970s, Russia exported oil and gas and “used this money to import food, consumer goods and machines for extracting oil and gas,” Professor Mau said. By the early 1980s, though, oil prices had started to sink — thanks in part to conservation efforts by the U.S. “One alternative for the Soviets was to decrease consumption, but the Kremlin couldn't do that — it had been buying off all these constituencies,” Professor Mau explained. So “it started borrowing from abroad, using the money mostly for consumption and subsidies, to maintain popularity and stability.” Oil prices and production kept falling as Mr. Gorbachev tried reforming communism, but by then it was too late.

    The parallel with Iran, Professor Mau said, is that the shah used Iran's oil windfall after 1973 to push major modernization onto a still traditional Iranian society. The social backlash produced the ayatollahs of 1979. The ayatollahs used Iran's oil windfall to lock themselves into power.

    In 2005, Bloomberg.com reported, Iran's government earned $44.6 billion from oil and spent $25 billion on subsidies — for housing, jobs, food and 34-cents-a-gallon gasoline — to buy off interest groups. Iran's current populist president has further increased the goods and services being subsidized.

    So if oil prices fall sharply again, Iran's regime will have to take away many benefits from many Iranians, as the Soviets had to do. For a regime already unpopular with many of its people, that could cause all kinds of problems and give rise to an Ayatollah Gorbachev. We know how that ends. “Just look at the history of the Soviet Union,” Professor Mau said.

    In short, the best tool we have for curbing Iran's influence is not containment or engagement, but getting the price of oil down in the long term with conservation and an alternative-energy strategy. Let's exploit Iran's oil addiction by ending ours. "

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    Default Re: here's the first good reason I've heard to continue ethanol subsidies !

    I don't know about this one - as you've posted before, the ethanol does affect tortilla prices in Mexico, which can potentially contribute to more economic headaches for the U.S. Of course, there's always nuclear, but the waste management is difficult, although not impossible.

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    Default Re: here's the first good reason I've heard to continue ethanol subsidies !

    very interesting article, and it makes a lot of sense.
    I think the waste issues of nuclear power are more political than physical issues.

    wikipedia (price of oil):

    1973 was quite the year. (arab-israeli war)

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    Default Re: here's the first good reason I've heard to continue ethanol subsidies !

    ^ Yea, a 10,000 year political problem. I know of few waste dumps where the owners are trying to figure out how to communicate the danger of the place to people 8,000 or 9,000 years into the future. ( - and oh yea - these aren't hippies - this the Department of Energy trying to figure this out.)

    I was watching the Discovery Channel regarding a story of biological engineering of bacteria that transform switch grass into ethanol. This yields far more fuel (perhaps 3x as much) than corn does. ()

    Granted, some corn fields may be taken off line to become hay fields - but I suspect corn is still going to be a popular food item.

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    Default Re: here's the first good reason I've heard to continue ethanol subsidies !

    I was watching the Discovery Channel regarding a story of biological engineering of bacteria that transform switch grass into ethanol. This yields far more fuel (perhaps 3x as much) than corn does.
    Sugar Cane based ethanol already yields 3-4 times as much 'net' energy than corn based ethanol, and sells for at least 50 cents per gallon less than US corn ethanol on the world market. Unfortunately, the USA does not have very much 'real estate' with suitable climate for growing sugar cane. Thus the US gov't has enacted tariffs and quotas to insure that all US ethanol and blended gasoline customers must must pay the higher price for US corn based ethanol. In other words, an extra 5 cents is tacked onto the pump price of every gallon of E90 blended gasoline sold in the USA to subsidize the US corn ethanol industry, on top of the agricultural subsidies and refinery subsidies funded by tax money.


    Granted, some corn fields may be taken off line to become hay fields - but I suspect corn is still going to be a popular food item.
    it will ... but this linking of the 'production value' of farmland to world energy prices has now created a financial link between the energy price value of corn / hay / sugar versus the food price value of corn / hay / sugar. The increasing demand for these farm products for their energy value has also left little or no surpluses for export as food. Thus, in effect, the US ethanol program and the 50 cent per gallon tariff on imported sugar cane ethanol have directly resulted in a tripling in the world price of corn for food or energy use ... with some interesting early results !



    (snip)"The marchers are angry about tortilla prices that have doubled over the last year to roughly 45 cents a pound, causing hardship among the millions of poor Mexicans for whom they are a staple.

    There was no official report on crowd size available, but reporters on the scene gave an estimate of 75,000, based on protesters filling about three-quarters of a plaza that holds about 100,000.

    On Jan. 18, Calderon signed an accord with business organizations to try to limit tortilla prices to about 35 cents a pound. But many of the independent tortilla sellers have ignored the rate, essentially a gentlemen's agreement with no legal backing.

    High tortilla prices put some Mexicans in danger of being malnourished.

    The poor eat an average of 14 ounces of tortillas daily, giving them 40 percent of their protein, according to Amanda Galvez, who runs a nutrition research institute at Mexico's National Autonomous University.

    With the new prices, workers earning the minimum wage of about $4 a day could spend a third of their earnings on tortillas for their family."(snip)


    In essence, this comes full circle re the original article. The direct linkage of world energy prices vs world food prices which results from ethanol subsititution will decrease the proportional price of oil eventually, which hurts the (net) oil producing countries and helps the (net) oil consuming countries), while at the same time increasing the proportional price of food, which helps the (net) food producing countries and hurts the (net) food consuming countries.

    Therefore the oil exporting / food importing countries like Iran, Iraq, Russia, Mexico, Nigeria, Nicaragua etc. will find themselves subject to a double whammy. With any 'luck' (from the Machiavellian point of view of the supposed masterminds behind the US ethanol programs), the resulting high food prices / shortages will stir enough internal problems to force the leaders of these countries to worry a lot more about riots and revolution i.e. their own political survival, and a lot less about taking an active role in world politics.

    OPEC eventually being replaced with OFEC ? With the US, Canada, Australia etc. and to some extent northern Europe comprising the major food exporters ? With global warming trends as their 'ally' ?





    ~
    Last edited by Melonie; 02-03-2007 at 08:46 AM.

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