See The Inflation Tax
by Ron Paul

Steve

Once you’ve taken co-products into consideration this refinery will be able to produce ethanol for a little less than a dollar a gallon (without subsidies.)

You ignore the fact that requiring rent seeking to get biofuels used shows that biofuels cost consumers more then the fuels they replace. The idea that requiring the use of more expensive biofuels will mitigate the price of crude oil is laughable on its face.

Only a biofuel true believer could combine biofuel mandates + more expensive biofuel + lower fuel economy from biofuel and conclude that the result will be cheaper fuel or crude prices.

Dan

That, plus the entrance into the market of some more fuel-efficient autos, will help to mitigate oil prices in the near future (the next year, or two.)

The only real world economics that apply to ethanol production is rent seeking behavior by politically connected special interests.

Ethanol output is growing because ethanol use has been mandated. If ethanol made any sense from an engineering or economic standpoint it would not require mandates.

The only thing ethanol does is transfer money from everybody else in the United States to ADM and Corn farmers.

Ethanol will not fix the problem. Ethanol, and similar rent seeking energy mandates, are going to make the situation worse.

The need to travel is not as “elatic” as some models have predicted; but, the real world of economics did just what could be expected. It brought a substitute. There will be a large glut of ethanol within a year, and prices will plummet. It’s going to work out. It’ll just take a while.

1. The highest retail gas price in recent history was around 1980/1981, and was about $3.10 in today’s dollars.
2. The current average around the country is about this level now.

So this is a huge problem right? Well it doesn’t appear to be, and I have a couple of suggestions as to why…

1. In the past 27 years we have undoubtedly seen tremendous improvements in the overall efficiencies related to oil whether it be production, refinement, consumption or use. This being the case, the same price 27 years ago would have less effect today because we are using oil more efficiently (NOTE: This will probably be true 30 years from now as well, and will certainly be helped along by higher prices).

2. In 1980 the average per-capita income for the U.S. was $9,500. In today’s dollars that is about $25,500. But our actual per-capita income is now around $36,000. This means that in inflation adjusted terms, per-capita income has grown more than 40%, which would mean that gas consumption is likely a lower % of overall household expenses anyway. BTW…if you object to the use of per-capita income, even something like median household income (which get us closer to reflecting the impact on families) has grown in inflation-adjusted terms, by less (only about 17%) but it has still grown. This would suggest that retail gasoline prices would have to increase by 17-40% (from current levels…that’s about $3.63 to $4.34 per gallon) to begin having the same effects/impacts as they did in 1980/1981.

I think that these are possibly two key reasons why higher gas prices are not affecting people in anything more than a psychological way (“Arrgghh! These damn gas prices!”)

Finally, let’s face it, when push comes to shove, you’ll know gas prices are a real problem when people actually start giving up the lattes and lunches out and other various discretionary spending to accomodate for the higher prices of a less discretionary good (transportation fuel). Most people don’t seem to be doing this yet.