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The rush to really screw things up

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January 31, 2008

It’s become a ritual: The economy grows sluggish and politicians rush to “do something” about it. What they do almost never has a beneficial economic impact, as any reputable economist will tell you.

But what if lawmakers could guarantee that the price you pay to fill the tank of your car will go down, not up, in the years ahead? What if they could launch a new industry that creates more jobs for more Americans? What if this would produce environmental benefits, too? Would that not send a message to the markets? And would that not represent the kind of change so many politicians have been promising?

Here’s the deal: Everyone who is not an economic illiterate knows that competition leads to lower prices. But there is no competitive market in transportation fuels. In most parts of the country, you can buy gasoline or you can buy gasoline. And most cars can run on gasoline or gasoline.

It doesn’t have to be that way. There are alternative fuels. And there are automobiles built to burn them. But there is a chicken-and-egg dilemma: Why buy a car that can use alternative fuels if those fuels are not readily available at a local service station? Why devote a pump at a local service station to alternative fuels if there are few customers asking for them?

Elected officials could solve this problem with the stroke of a pen. An “open standards” fuel law would require that all new cars sold in the United States be flexible-fuel vehicles — able to run not just on gasoline, but also on a variety of alcohol-based fuels.

A car that is flexible-fuel capable costs only about $100 more. But if you want to make this transition cost-neutral for the automobile companies, consider a tax break to reward them for making the transition as quickly as possible.

American companies would benefit most — they are ahead of the pack in their development of flexible-fuel technologies. (For example, check out www.chevy.com to see how many flexible-fuel vehicles already are being manufactured by Chevrolet.)

Why not a tax break, too, for anyone who buys a new flexible-fuel vehicle? If people took advantage of the offer, that would energize the economy while also producing environmental benefits because new cars run cleaner than old cars and because ethanol — the most common alcohol fuel — burns cleaner than gasoline.

Right now, most American ethanol is made from corn, but it can be made from just about any starchy crop: sugar cane (already widely used in Brazil), yams and sweet potatoes, to name just a few. And any kind of biomass, including wild grasses, crop residues, fallen leaves and weeds that clog rivers, can be used to make methanol, as can urban trash and coal — two commodities the United States possesses in abundance.

That would be just the start. Americans are innovators and they would come up with a wealth of new ideas. Like what? How about funneling unwanted carbon dioxide into reservoirs covered with algae that would feed on the carbon dioxide (as all plants do), then turning the algae into alcohol fuel? Is that feasible? That’s what entrepreneurs get paid the big bucks to figure out.

Before long, billions of dollars that we are now sending overseas could be going into the pockets of Americans — farmers, auto workers, alternative-fuel producers and investors.

With a variety of fuels competing, the cost of fuel — including gasoline — would go down. OPEC would no longer decide how much you pay to drive your car. A free market would make the decision — as it should.

In 1998, Saudi oil export revenues were $32 billion. Shortly after 9/11/01, they almost doubled to $63 billion. In 2006, they reached $203 billion, and with oil now near $100 a barrel they are still climbing. But fuel competition can reduce this transfer of wealth from American, European and Japanese families to Arab sheiks, Iranian mullahs, Hugo Chavez and Vladimir Putin.

As demand rises from a growing international fleet of flexible-fuel vehicles — because the American standard would soon become the global standard — Third World farmers could rise from poverty by growing crops for fuel and for export.

Memo to candidates promising “change”: What change would be more significant than to energize the U.S. economy, create new jobs, encourage innovation, provide consumer choice at the pump, clean the air, reduce our dependence on foreign oil, protect national security and provide useful assistance to Africa’s poor?

(Clifford D. May is president of the Foundation for the Defense of Democracies, a policy institute focusing on terrorism.)

One Response to The rush to really screw things up

  1. Trip C

    January 31, 2008 at 2:20 pm

    It’s become a ritual: The economy grows sluggish and politicians rush to “do something” about it. What they do almost never has a beneficial economic impact, as any reputable economist will tell you.

    You should have stopped here.

    I don’t think the federal government should be forcing businesses to make this sort of change to their products.

    I understand what you’re saying about the chicken and egg dilemma, but there are other ways for the economy to work this sort of thing out. It may take a while longer than you’d like, but it’s still better than the federal government requiring business to change their products because they think it will be a good idea.