I find this OT discussion compelling, because it has been otherwise relevant to most of us, because it has been mostly thoughtfull and not dogmatic. More thoughts and questions below.
On Saturday 12 July 2008 16:56:53 Christopher Erickson wrote: > 3. I have seen the dollar steadily eroded against the Euro > and the Pound over the past two years and the gradual slide > is continuing. However those aren't the core currency > relationships involved here. OPEC nations and the oil > markets don't trade based on European currencies. A detail > breakdown of the trade deficit, as always, is an important > factor here too. I'm wondering about the economics of biofuels and the euro vs. the dollar in the context of beer. In the past year the cost of domestic beer from smaller "craft" breweries has increased almost as fast as the cost of gas. The cause has largely been attributed to Congress' last energy bill and the ethanol incentives therein. (This policy has also been blamed as part of the reason for increase in domestic food prices as well as crisis-level price surges in poorer nations, but lets examine this in the context of beer.) The economic incentives to produce corn for ethanol has displaced barley and hops production enough to double the hops prices and increase the cost of barley used to produce malt. The effect is greater for smaller breweries who don't purchase the market share of an Anheiser-Busch and can't lock in long term prices. It also has greater effect on craft breweries who pack more ingredients into a barrel of beer than say a typical "American Pilsner", like Miller and much much more than a "light beer" product. So average prices have gone from the mid to upper $20 range per case (like the mid to upper $2 range for a gallon of gas) to the range of $36-42 per case (think $3.50 - $4.20 a gallon for gas). In the meantime a weak dollar, relative to the Euro, should be driving up the price of imported beer. It hasn't. In fact, imports that used to sell for $45/case are now selling for $35/case making high priced imports cheaper than their domestic counterparts at a time when the purchasing power of the dollar should be driving up their cost. Some of this can be attributed to the increased mechanization of the European beer industry and a concerted effort to penetrate US markets that have become more interested in higher quality beer largely the result of the domestic craft beer industry. More US consumption means lowered overall cost of importation. In other words the Europeans have figured out a way to make beer of qualities equal to, or exceeding moderate to expensive domestic brews like Victory and Omegang, with methods and costs more comparable to producing Miller Lite. This isn't a hallmark of American manufacturing in the last 40 years. While unions are largely blamed for the demise of the US steel industry, more had to do with management inertia. Iron ore was mined in the west, shipped eastward thousands of miles for smelting in the Great Lakes "rust bucket" cities, and hundreds of miles again for processing the ingots in places like Pennsylvania. Then the processed products were shipped again to factories in Detroit and those who had moved to the south for cheaper labor. (I smile painfully when I hear workers in the south complaining of losing jobs and industry to overseas factories, forgetting that they were once the cheap labor that destroyed our jobs in the northeast. When the race is to the bottom, you often forget how deep that pit can get.) Japan, on the other hand mined, smelted, processed and manufactured within the same region, managing to increase market share and profits while increasing the overall compensation of workforce. In response the US steelmakers first complained of dumping, then blamed unionized workers, then decided to close up shop and invest overseas. The oil industry is doing the same thing, except globalization in 2008 is different from globalization in 1978, and we don't have a foreign industry doing a better job. The "domestic oil companies" are multinational and foreign oil companies. In other words, why aren't they plowing their profits back into refining, other efficiencies, and coming up with serious investment in alternatives to fossil fuel. Which brings me to the comment below.... > > 4. More refineries would be good but that wouldn't be near > enough. We need to come up with a system of great tax > incentives to promote new research in alternative energy as > well as tax credits for meaningful residential, commercial > and industrial "green" efforts. It is much better to save > a watt than to needlessly throw one away and have to make > more. We also need to open ANWR, re-start off-shore > drilling, re-enable growth in nuclear energy (along with > better safety and disposal technologies), start seriously > developing "clean coal" technologies and better LED > lighting technologies to replace both incandescent *as > well* as fluorescent lighting. Not to mention an effective > national effort to replace wasteful nighttime lighting that > throws a lot of our generated electricity into the sky > instead of onto the ground. This not only wastefully > throws away precious generated energy, it also confuses > many birds and insects and endangers their survivability in > the process. Not to mention denying the vast majority of > Americans the incredible experience of a majestic starry Fossil fuel has always been finite and we have known this forever, while doing our best to ignore it. Is it really in our best interest to drill in difficult areas with high risk to get to a relatively little bit of oil? Would it take longer to get these areas in production than it would take to convert to non-oil based energy? Would the promise of these new areas encourage us to further ignore a put off the inevitable? I have heard the arguments of those who say we need this oil to buy us time to develop alternative energy. I'm not buying. What did we do when the 1970s fuel crises should have spurred us to develop alternative energy? We would do the same if conditions changed and we could could pretend that we had plenty of oil again. These painful energy costs are just what we need to drive us from complacency and start doing what we need to do about alternative energy and conservation. Think of the things we did in the middle of the last century. We have the capacity to put forth that effort again, but will we? It may truly be the end of the "American Century" folks, or will we start a cooperative effort to regain our position in the world? My 2 cents. 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