The invaluable Warren Meyer at Coyote blog (one of my all time favs) has a great article up on protectionism and why its something we should be avoiding.
President Obama used a lot of his state of the union address again teeing up what sounded to me like a new round of protectionism. Protectionism is the worst form of crony capitalism, generally benefiting a handful of producers and their employee to the detriment of 300 million US consumers and any number of companies that use the protected product as an input.
The example he uses? Sugar. What industry does it protect and subsidize in the end? The producers of high fructose corn syrup (HFCS). And what does the government tell us about HFCS?
It’s bad for us. Sugar would be preferable.
So why do we continue to use it in place of sugar? Protectionism. Look at the chart he includes:
The chart says it all. With the tariff added, look at the average US cost of sugar vs. the world’s average cost.
As Meyer points out though, that’s not how this gets spun:
Food activists on the Left often point to the use of High Fructose Corn Syrup (HFCS) as one of those failures of capitalism, where rapacious capitalists make money serving an inferior product. But HFCS resulted from a scramble by food and beverage companies to find some reasonable alternative to sugar as the government has driven up sugar prices through a crazy tariff system that benefits just a tiny handful of Americans, and costs everyone else money.
Yup, the usual, convenient and usually wrong whipping boy – “market failure”.
When a tariff is involved, you’ve just moved out of the realm of real capitalism and into the realm of crony capitalism. This has nothing to do with markets failing. This has to do with the usual – government intrusion using their monopoly power of force which then distorts a market and causes users of the product whose price they chose to artificially inflate with a tariff to seek lower cost alternatives.
Remember, the same government that is claiming HFCS isn’t good for you is the one that’s also made it impossible to use a product that it claims is better for you (in relative terms of course):
For the last 10 years or so, HFCS-42 has actually traded at a price higher than the world market price for sugar, but lower than the US price for sugar. There is a lot complexity to prices, but this seems to imply that HFCS would not be nearly as attractive a substitute for sugar if US sugar tariffs did not exist (not to mention subsidies of corn which support HFCS). This can also be seen in the fact that HFCS has not been used nearly so often as a sugar substitute in markets outside of the US, even by the same manufacturers (like Coke) that pioneered its use in the US.
Or, if markets had been left alone, all indications are we’d be using lower cost sugar right now.
Meanwhile the government protects and subsidizes an industry that makes a product it says is worse for you .
More on the Keystone decision and why it was a decision based in politics, not what was best for America
More fallout from the Obama Keystone XL pipeline decision. Read this carefully:
Prime Minister Stephen Harper, in a telephone call yesterday, told Obama “Canada will continue to work to diversify its energy exports,” according to details provided by Harper’s office. Canadian Natural Resource Minister Joe Oliver said relying less on the U.S. would help strengthen the country’s “financial security.”
The “decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market,” Oliver told reporters in Ottawa.
Currently, 99 percent of Canada’s crude exports go to the U.S., a figure that Harper wants to reduce in his bid to make Canada a “superpower” in global energy markets.
Canada accounts for more than 90 percent of all proven reserves outside the Organization of Petroleum Exporting Countries, according to data compiled in the BP Statistical Review of World Energy. Most of Canada’s crude is produced from oil-sands deposits in the landlocked province of Alberta, where output is expected to double over the next eight years, according to the Canadian Association of Petroleum Producers.
“Relying less on the U.S.” “Diversify our markets”. “99% of … crude exports go to U.S.”
Those three phrases shout one thing in unison: The U.S. is an unreliable trading partner.
One more shocking statistic, if we want to talk about safe and secure petroleum supplies in our future – “Canada accounts for more than 90 percent of all proven reserves outside the Organization of Petroleum Exporting Countries”.
In case you missed it that’s OPEC. That’s right the very oil cartel in which we find most of the less than friendly oil exporters in this world.
As Gale Norton points out, this should have been a no brainer:
This seems like a truly simple determination. Iran is threatening to blockade the 20 percent of the world’s oil supply that flows through the Strait of Hormuz. The American economy is struggling from high unemployment. The volatility of oil prices, reflected in periodic spikes at the gas pump, is a threat to productivity. A privately funded pipeline project that would create tens of thousands of jobs while helping stabilize America’s energy supply clearly seems to be in the national interest.
Here we have, next door to us for heaven sake, a supply of oil from a friendly nation which is about as secure as it can get and we do what?
Warren Meyer, writing at Forbes, hits upon some apparent truths:
But local environmental concerns were merely the public pretext for a decision that is much more troubling. Opposition to the pipeline began to rally among radical environmental groups long before any of them had the first clue about the pipeline route. The real goal of these groups was not to protect water along the pipeline route, but to make it impossible to develop new sources of oil in Canada. Unable to stop Canadian oil drilling and tar sand extraction programs, environmental groups are now trying to block any pipeline that is proposed out of the oil producing regions.
As I pointed out yesterday, the “local concerns” had been addressed or were being addressed successfully according to the Governor of Nebraska. And, as Meyer points out, there was no real reason for this decision except:
The Keystone decision only makes sense in the context of a general push to limit energy supply and roll back our industrial economy and all its amazing gifts. Part and parcel of this same effort has been the growing opposition to natural gas fracking. Fracking is an underground procedure that has been used safely and successfully for decades to extend the life of older oil wells. Fracking is one reason that serial predictions of older fields “running out of oil” have been repeatedly incorrect.
Recently, though, fracking has presented the promise of substantially increasing our domestic energy supply by opening up new shale formations previously thought to be impossible to produce. With this new promise, anti-growth, anti-energy environmentalists have suddenly taken notice, and are gearing up to try to kill this exciting (and ironically quite clean) new energy source.
I think he has a very valid point – a point that William Tucker has also written about. This is about stopping progress. This is about a selfish belief that since they have theirs, the rest has no need for more. Here’s Tucker’s description:
It is not that the average person is not concerned about the environment. Everyone weighs the balance of economic gain against a respect for nature. It is only the truly affluent, however, who can be concerned about the environment to the exclusion of everything else. Most people see the benefits of pipelines and power plants and admit they have to be built somewhere. Only in the highest echelons do we hear people say, "We don’t need to build any pipelines. We’ve already got enough energy. We can all sit around awaiting the day we live off wind and sunshine."
And that’s precisely the case with Keystone. Meyer again:
Ostensibly, Obama made the decision to block the pipeline because of concern over contamination of the Ogallala Reservoir, a vast underground water source that makes much of Midwestern agriculture possible. And I am sure there are folks whose concerns are narrowly about the Ogallala or other environmental and NIMBY concerns along the proposed route. But the US has tens of thousands of miles of petroleum pipelines, many cris-crossing this same general area. There is nothing unprecedented or unmanageable about this particular line. Had these routing issues been the actual problem, the Obama Administration could easily have approved the line with conditions or route modifications.
The national security and energy needs of the nation are being held hostage by an affluent elite who have decided, because they can, that enough is enough. And they have the perfect soul-mate/tool to implement their desires in the Oval Office. Don’t forget, this is the guy who said that at some point, “you’ve made enough money”. They couldn’t be more simpatico.
Meyer also asks a question to make a point about the red herring of the route:
Does anyone doubt that had this exact same route been for high speed rail, rather than a pipeline, it would already have been approved and President Obama likely would have been proposing to throw a pile of taxpayer money at it to boot? This despite the fact that high-speed rail almost certainly has more environmental negatives than an underground pipeline. The route has always been a red herring — the real goal is reducing energy supply.
He’s dead right. Also:
The Keystone XL pipeline would have single-handedly carried more energy to the United States than the sum of all the green energy projects funded by the Obama Administration. And it would have done so entirely with private funds rather than the Administrations increasingly ill-fated and ham-handed attempts at venture capitalism with taxpayer funds.
In the case of the pipeline, the Obama administration killed a private infrastructure project that is widely supported, covers its own costs, and requires no taxpayer money. I wonder where Thomas Friedman is — does he still lament our inability to do large infrastructure projects of the kind President Obama just blocked, or does he only support large state-funded triumphal projects? This seems yet another example of what I called the tendency of government to shift capital from the productive to the sexy.
There you have it, all laid out in a neat bundle. A “private infrastructure project that … covers its own costs and requires no taxpayer money”, vs. an environmentally destructive government boondoggle that most oppose and neither the federal or state government can afford?
The choice of this administration is the latter.
Finally, to once and for all put the “route” issue to bed, check out this map. Find Omaha. Yes, that’s right, there are oil pipelines all over Nebraska.
And surprise …the XL pipeline is the second phase of TransCanada’s pipeline plans.
TransCanada won approval in 2008 for the first Keystone pipeline, which carries crude oil across Saskatchewan and Manitoba and through North Dakota, South Dakota, Nebraska, Kansas, Missouri and Illinois. That portion began moving crude in June 2010.
Uh, yes, that’s right … Nebraska. And apparently, at least to this point, everything has operated as expected with no environmental problems. So could these route problems have been handled without rejecting the pipeline in question? Of course they could have.
P.S. I’ll have a lot more to say about fracking (which suffers from the same sorts of attacks by the same sorts of groups) in a post soon.