Jon took me to task for drawing distinctions between Right and Left with respect to energy policy and its role in inflation.

Core inflation -- which measures CPI excluding energy and food, both of which fluctuate to greater degrees -- is a tame 1-2%.

As I pointed out, energy and food are now even more interrelated than before. Prior to a shift in policy that subsidizes corn production for ethanol and other biofuels, the cost of energy from transportation eventually trickled into marginally higher food prices.

Now, though, cropland is being diverted from one use to another. It has a cumulative effect on both food and energy prices because (a) farmers are taking subsidies to grow corn instead of food crops like wheat; (b) the reduced availability of food crops has a snowball effect in animal feeds which drives up prices for meat, eggs, and dairy; and (c) subsidies drive up the net cost of fuel because they require taxes in the first place. This is especially important because yesterday the House Democrats enacted a new tax on oil companies which will be paid (by their own admission) by customers. Senate Democrats are trying to force through the same measure to prevent a filibuster. Whether it passes or not, it will be veoted -- and rightly so -- by President Bush.

Carrie Lukas writes about how present policy hurts the middle class. She writes, "In 2007, twenty percent more acres were used for corn production than in 2006. The greater demand for corn made the price of corn—and products that depend on corn, such as poultry and beef—jump. But since the focus on corn left less land for raising other agricultural products, the price of commodities such as soybeans and wheat also rose to historic highs. If Congress continues to subsidize the production and mandate the use of ethanol, consumer food prices will continue to rise higher."

The EU is also rethinking its biofuels policy. Since the policy was enacted "reports have warned that some biofuels barely cut emissions at all - and others can lead to rainforest destruction, drive up food prices, or prompt rich firms to drive poor people off their land to convert it to fuel crops."

How very progressive!

Yet this is the impetus behind the Democrats singling out and taxing the oil companies. The Left is willing to make taxpayers subsidize "alternative" and renewable energy sources when the middle class is still using petroleum and will be for the foreseeable future -- a point not lost on Steny Hoyer (D-MD) who said the taxes and subsidies won't alleviate pain at the pump: "That may bring down gas prices three years from now, 10 years from now."



They justify this on the grounds that oil companies are profiting from the sale of oil. Yes, they are to the tune of 10%. Compared to other industries, it's a fair and reasonable return. Compared to the government's take, the oil companies are getting shortchanged. On average, state and federal taxes make up 500% more than oil company profits per gallon sold in the US.

Tomorrow, I'll explain why alternative fuel subsidies are a really bad idea and how some alternatives present serious problems for "progressives." And much worse problems for the middle class.

Comments:

Ethanol or not is not the problem, in my opinion. The problem is putting all our energy eggs in the Middle East basket and then turning it over ourselves, thus putting a scare in the market with oil-hence gasoline/ diesel prices shooting up and cost of transporting everything from eggs to oatmeal going up with it. Getting the world's main country several trillion in debt to creditors about as friendly as Mafia loan sharks did not help market confidence that much either. But what do I know?

I live in Oklahoma, one of the major wheat growing states in the nation. I have seen no shift from wheat to corn. With wheat selling for $9 a bushel, I don't think I will this year either. As for corn growing, I also spent the bigger part of last summer in Illinois--traditionally a corn producing state. Yet, I saw a lot of soy beans being grown also. I will have to see some cold, hard facts before I will be ready to accept this as fact.

New tax on oil companies..OH MY STARS...How will they cope with not paying their CEOs millions of dollars, or all their clean ups and past damages for spills they STILL have not paid, or the Royalties. MY STARS. Those poor poor babies, Maybe your average american worker will have to work 2 hours for one gallon of gas to maintain that heated olympic sized pool with the nifty changing color lights.

Corporate Welfare...Anyone, anyone...Bueler...

And every time we go to the grocery store or buy anything, we bring home less and less for more money because of those gas prices.

Read in the paper that heating oil is going to hit 4.00@gal.
Now if I only get Mike to move.

comment by fredo on Feb 28, 2008 9:38 AM ()

You'll be able to live like royalty by going the expat route ... you can always come home for visits ...

reply by amerigobard on Mar 8, 2008 10:10 PM ()

comment by bumpedoff on Feb 28, 2008 9:26 AM ()

My share of US is $8 per day for which I am grateful. Our part of the deal is to have 425,000 seasoned troops prepared to fight for our mutual interests.
I think this is a good deal all the way around.

reply by bumpedoff on Mar 5, 2008 7:13 AM ()

You in poor nations also rely on aid from other nations. Israel gets about a third of US foreign aid even though Israel represents a tiny fraction of the world population.

reply by vladimir on Feb 28, 2008 9:47 AM ()

What little ethanol that can be produced from corn is a drop in the bucket, anyway. However, I think that is a scapegoat by Republicans for the real high cost of oil. We are using all our oil reserves to fuel our war machine; OPEC knows this, so they use it as a weapon to hold us up for oil; in addition, China and India, as they have become more industrialized, are driving prices skyward. Of course, food prices go up when oil prices rise. It costs twice as much to ship that food and twice as much to produce it. It all starts with the war machine. Eliminate that huge albatross, and you will be amazed at what happens to prices at the pump when the US once again can replenish its reserves.