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Reduced corn production makes increased ethanol content in fuel worrisome

A new report has been published that looks at the tense negotiations between the White House and automakers over CAFE standards that would push fuel efficiency to 54.5 mpg by 2025. According to the report put together by the House Oversight and Government Reform Committee, the Obama administration "openly played automakers off of each other to gain a tactical advantage over the industry." 
 
"The inevitable product of this reckless process was a pair of rulemakings that reflect ideology over science and politics over process. … Americans will be forced to drive expensive, unpopular and unsafe automobiles mandated by the Obama administration," stated the report.
 
However, representative Elijah Cummings (D-Maryland), rejected the report stating, "Any allegations that the White House is seeking to weaken the auto industry are simply ridiculous — this is the White House that saved the auto industry from its near-collapse."


"Japan is angry. Feel like they have been screwed." -- Toyota
 
The report also features notes from auto manufacturers involved in the negotiation process with Washington. The notes show that foreign automakers particularly were unhappy with the process and felt that the rules were jilted in favor of Detroit automakers. Despite misgivings, most foreign automakers agreed to the deal. Handwritten notes in the report from Toyota stated, "Japan is angry. Feel like they have been screwed."
 
Automakers maintain that the new requirements would add about $2,000 to the cost of the average vehicle by 2025 or roughly $3,000 when costs from the 2012 to 2013 fuel efficiency rules are figured in. Automakers felt pressure to agree to the Obama administration's fuel economy standards over fears that California would enact even stiffer efficiency ratings if they turned Washington down.
 
While fuel-efficiency standards are set to increase in the coming years, the White House is working hard to get more ethanol into the nation's fuel supply to help reduce the need for foreign oil. However, the U.S. is currently in the middle of a corn shortage. Ethanol in the U.S. is primarily produced using corn. Corn production in the U.S. has fallen drastically due to drought, and livestock producers fear that increasing the ethanol content in gasoline will result in even less corn being available feed, therefore, raising prices of feed and food supplies.


Severe drought conditions have obliterated this year's corn crop [Image Source: MSNBC]
 
The Detroit News reports that over 180 members of Congress are calling on the Obama administration to waive increased ethanol requirements in fuel. White House spokesman Jay Carney said, "The EPA has made clear that they're working closely with the Department of Agriculture to keep an eye on yields, and they will evaluate all the relevant information when assessing that situation."
 
EPA spokeswoman Alisha Johnson said, "We are in close contact with USDA as they and we keep an eye on crop yield estimates, and we will review any data or information submitted by stakeholders, industry and states relating to the RFS program."

Sources: The Detroit News [1], [2]



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RE: More exploitation and abuse of consumers
By Ringold on 8/13/2012 10:05:54 PM , Rating: 2
quote:
However, I do think regulation and government oversight is a necessity in many/most.


I'd agree there, ground rules are good to have, and regulators that are independent and not captured by industry are key too.

quote:
Second, states like Israel have proven you that government run can institutions like universal health care effectively and cost efficiently without corruption.


It's an open question how much the worlds health systems rely on the research that biotech firms fund on the backs of their American profits, but I'll make this point too: Switzerland strikes a good balance with universal coverage and market competition. It's also relatively easy for smaller nations that are fairly ethnically homogenous to run things cleaner. Things that Sweden gets away with tend to fall apart in largely multi-ethnic democracies.

quote:
Thirdly, much of the poor management issues you cite in government can be found all over the market, from consumers to corporations.


Yes, but capitalism is the nearly undisputed king of economics, now and since the forerunners of Adam Smith, because on the average free market actors do a less bad job then government hacks. Again, because the money tends to come out of their own pocket, and those pockets aren't bottomless.

quote:
Poor management (and corruption) led to the collective failure of hedge funds, over leveraging of assets, and lending to unqualified borrowers which caused the financial crisis we just experienced (don't *you* watch the news?)


What? That's a complete rewrite of history. Hedge funds collapsed, but to my knowledge not a single hedge fund got tax payer money. Further, they were no where near the root of the problem. Lehman Brothers did not CAUSE the problem, they were the canary in the coal mine warning us of the rot and looming disaster in the underlying credit market. Any economist not tied to a political campaign on the left or a politically-motivated organization, even liberal economists, can tell you what happened. The sub-prime market essentially did not exist until the government mandated its opening via acts like the Community Reinvestment Act, which forced banks to lend to the poor. Then, in a classic example of how to inflate an asset bubble, Fannie Mae, Freddie Mac and the FHA, all understood to have the implicit backing of the Treasury and therefore by extension the credit of the United States, started throwing hundreds of billions of dollars at the market. So banks, obviously, piled in, underwriting loans and selling them on to the government agencies, or to other banks, pension plans etc who insured them with the government. This was all egged on a bit by artificially low interest rates; I don't necessarily blame the Federal Reserve, as inflation wasn't showing a problem, thanks to low import prices. But in retrospect, the Fed helped fuel the bubble as well.

Like in all asset bubbles, the house of cards eventually came apart. But again, this crisis had nothing to do with the "free market;" look at the % of home loans being originated right now and who buys them. The vast majority? Still being bought by GSE's. There's nothing free about a market that, without government diktat wouldn't even exist, and that is totally dominated by government activity. That's like saying there's a free market in law enforcement because, hey, we've got both city cops AND county sheriffs! Nonsense; banks have just been conduits of government policy that was playing to our national cult of home ownership.

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You fail to recognize that many of these issues have their roots in the free market.


I just pointed out what any of a thousand articles penned by economists on both sides of the isle can confirm; the recent crisis with which you refer was created by government mismanagement of the housing sector, not banks doing so themselves. Note that the CRA was created because banks didnt want the risk of subprime mortgages, thus requiring the CRA to be forced to lend to the poor and those with iffy credit. Look at the banks in China that have people worried too: It's not the loans the banks made freely that give people pause, but the loans the government forced the banks to make to crony-capitalist state-backed firms.

quote:
The market lobbies to soften or eliminate regulation viewed as an impediment to immediate profit growth.


Companies have every right to petition their government as the rest of us, sure. That companies can capture regulators at times is a bad thing, yes. But so are these clowns at the EPA whose mission seems to of been destroying the coal industry.

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The government may accept bribes and kickbacks, but it's the market who's making the bribes and kickbacks.


Ah! I see. Blame the moral failures on the other guy.

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You might even accuse the White House of making a mockery of capital structures- but GM and Chrysler failed to protect their capital structures in the first place.


How is that an excuse for violating property rights? Starting to devolve in to playground-style arguments of "they did it first!" to make the actions of the left somehow excusable.

Long story short, dig past the surface and a lot of "market failures" are because someone in government decided to stick their toes in the water. You'll have to dig MUCH deeper than the recent banking crisis to find genuine market failure. I'll also point out that many people in countries like Sweden have politically evolved on the left so far that it makes American liberals and Democrats look like the stone-age communists they are, because Sweden had a crisis, with government spending as a % of GDP hitting 80% at its peak I believe, before coming to realize they were destroying themselves. Now the country pretty much accepts that some degree of free market competition is necessary almost everywhere. We just haven't collapsed here in this nation yet, and the left is too polarized, blind and uneducated to learn from others mistakes or from history.

Fun side note: Sallie Mae has inflated the exact same sort of bubble in the education market. It's driven costs up, and students have loaded up on debt, exactly how home prices and debt levels soared in the housing market. And this scares the crap out of politicians.


By nolisi on 8/14/2012 1:10:20 PM , Rating: 2
I'm not going to respond to everything because A) you do make some decent points, and there's no need to extend the debate it by arguing minutiae and B)you keep either missing key points in what I'm saying, or make glaring errors - which is what I'll focus on.

quote:
Yes, but capitalism is the nearly undisputed king of economics, now and since the forerunners of Adam Smith, because on the average free market actors do a less bad job then government hacks.


For the most part yes- but in invoking Smiths name, I'm forced to remind you of a few things:
1) he warned against giving the market too much power
2) he advocated government protection of the poor
3) he advocated progressive taxation

quote:
The sub-prime market essentially did not exist until the government mandated its opening via acts like the Community Reinvestment Act, which forced banks to lend to the poor.


Complete and utter bull- this is a complete rewrite of what the CRA did (I've heard this before). The CRA did mandate loans in poor communities- but it did NOT force banks to make risky loan options available to unqualified borrowers, or loan out more money than borrowers could afford.

First- it's ridiculous to think that an act created in 1977, and whose provisions were weakened in the subsequent 30 years had this kind of an impact.

Secondly- most banks that made sub-prime mortgages available were NOT subject to the CRA:

http://www.businessweek.com/investing/insights/blo...

http://blogs.wsj.com/marketbeat/2009/05/29/did-the...

Banks willingly went for subprime loans to open up new markets and enhance profit potential, period. Most opinions otherwise ignore the crucial fact that CRA backed loans had historically low levels of default to begin with, and most subprime loans that the did default were outside of CRA regulation.

I even heard the argument that the relaxed standards of the CRA eventually "spread to the rest of the market."

Again- the market choose to go the direction of least resistance, the government didn't force them to. Markets typically go for LCD because it's cheap and fast, not because it's safe and economically viable long term (the essential problem with being completely profit driven).

quote:
How is that an excuse for violating property rights? ...to make the actions of the left somehow excusable.


It's not an excuse. But if you're looking for one- they asked for help. Or did you forget that part? Maybe you'll suggest that government forced them to take bailouts? They did have another option.

quote:
Ah! I see. Blame the moral failures on the other guy.


As for this- I'm not suggesting that we blame one guy or the other (you're actually the one suggesting that). I actually acknowledge that both sides of the equation are to blame in cases of corruption. But by focusing the blame on "government corruption" you (and others) completely dismiss the idea that the market are some how culpable in the process as well.

And secondly- my rudimentary (sarcasm) knowledge of problem solving suggests that you solve the root of the problem. The root of the problem is the market players profit motive- that's what makes the bribes possible in the first place.

Lastly- while the official may be a part of the government- many of our governmental officials came from the market in the first place. Where do you think the influence is going to come from?


"Young lady, in this house we obey the laws of thermodynamics!" -- Homer Simpson














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