Tuesday, December 29, 2015

To Your Benefit—or at Your Loss?

The purpose of any economic exchange is to better one's position, whether a person buys or sells something for money or barters for something else. This is the essence of free market capitalism, where all economic transactions are voluntary because they are of mutual benefit. They are all “win-win” situations in the minds of the participants.

By contrast, when a government compels an economic transaction, it is always “win-lose” because one side gains when a loss is inflicted on the other, as evidenced by the fact it wouldn't voluntarily agree to it. This is the essence of a planned economy, where an elite in government is believed better able to decide what is best for everybody than allowing people to determine that for themselves. It is assumed that some losses are inevitable—and are usually blamed on capitalism—and that government must ameliorate this by managing (distributing) the losses, and benefits, for the greater overall benefit of society. This may include benefiting the environment.

The idea that an aggregation of win-lose transactions can somehow produce an economy superior to one of win-win transactions is ludicrous. It is all the more so when one realizes that initial losses produce secondary ones in the same way that benefits of free markets produce secondary benefits for society. And this includes benefiting the environment.

Take ethanol, for example. Initially it was supported because it was widely claimed the world was running out of oil—now shown to be untrue because technology has proven there will be no shortage for thousands of years, if ever. So now it is being argued that ethanol is important because it reduces air pollution and global warming and promotes jobs in the ethanol industry. It is even said to be competitive with gasoline.

Farmers raising corn and manufacturers producing ethanol benefit from federal and state subsidies. The losers are the taxpayers, who pay not only through direct taxes for the subsidies but through higher costs for fuel and electricity (due not only to ethanol but to the government's effort to eliminate coal in the production of electricity.) As a result, people have correspondingly less money to spend on other things. Those would-be benefits are foregone, lost without being seen. The beneficiaries of ethanol (and wind and solar) subsidies spend their subsidy money, but much of it goes for farm machinery and labor to raise more corn for ethanol and build more solar panels and wind farms, rather than things that are more useful in society. Thus losses of mandated energy inefficiency beget secondary losses in inefficient industries, just as the efficiencies of free markets beget secondary benefits in more useful and efficient industries that would come about if the money for them were not preempted by the requirement for inefficient fuels.

Another class of losers from ethanol is the consumers of corn as food, primarily poor people in Latin American countries. The use of corn in ethanol tripled in three years, and the World Bank report noted that biofuels forced global food prices up by 75% — far more than previously estimated. More U.S. corn now goes for ethanol than is consumed as food. The World Food Program, the United Nations' Food and Agriculture Organization, and the Organization for Economic Cooperation and Development have formally called for all G20 nations to drop their biofuels subsidies and mandates because of the adverse impact on food prices around the world.

How inefficient is ethanol? First we must recognize two unbreakable laws of the universe. The first law of thermodynamics (conservation) states that energy is neither created nor destroyed, but only changes form. The second law (entropy) distinguishes between useful energy that can perform work and useless energy that cannot, and “some fraction of useful energy irreversibly becomes useless every time energy is converted from one form to another,” explains T.A. Kiefer. “Together, these two laws declare that the amount of useful energy that can be recovered from a system is always less than the energy that was put into the system. Every transaction, process, or conversion pays an energy tax, which is why it is impossible to construct a perpetual motion machine. The ratio of energy-out to energy-in is a critical parameter in evaluating energy sources.”

A key measure, then, is the energy return on investment (EROI), a ratio of energy from a new fuel to the energy consumed in producing it. An EROI of 1:1 would mean that the useful energy produced by the new fuel would exactly equal the energy needed to produce it. Kiefer writes:

A civilization is itself a high-order physical and biological organism that has tremendous overhead costs and can spare only a fraction of its energy to assimilate new energy. A study of historical US economic performance over the last century has found that economic recessions are linked to primary energy EROIs dipping below a critical threshold of 6:1. This value represents the minimum energy quality an industrial civilization must have to sustain a modern, energy-intensive quality of life. Another macroanalysis found that an EROI of 3:1 is the bare minimum quality a raw energy feed-stock must have to overcome all the production costs and conversion losses and still deliver positive net energy to modern civilization. A 3:1 EROI thus also represents a critical tipping point. To put these values in biological terms, a modern industrial civilization is very energy-hungry, and if undernourished on a diet of foods with lean EROIs below 6:1, it becomes catabolic, eating into the fat of its savings and the muscle tissue of its infrastructure to replace the missing calories. As long as EROI remains below 6:1, industrial civilization is locked into a death spiral where an ever increasing fraction of its economic output (GDP) is spent on energy at the cost of eroding standard of living. At EROIs below 3:1, the food is so poor that digesting it into fuel takes more energy than it returns, and full starvation sets in. The only way out of this hunger trap is either to find higher-EROI energy or to decay into a preindustrial civilization with lower energy needs. The bottom line is that a healthy modern economy must be fed by hearty primary energy sources with a collective EROI above 6:1. [Incidentally, the EROI for coal is 30:1]

After decades of study and experimentation and continuously refined commercial production, the scientific literature consensus for corn ethanol EROI is a lowly value of 1.25:1. Even worse, there is no net gain in liquid fuel energy—the ethanol produced contains energy barely equal to the input fossil fuel energy. The small energy profit is contained in byproducts, principally high-protein biorefinery leftovers called distillers’ dry grains and solubles (DDGS) that can be used as cattle feed. More than $6 billion a year in direct federal assistance to corn growers and ethanol refiners since 2005 has served only to reduce a nonexistent foreign dependence on animal feed protein supplements. It should be pointed out that the corn ethanol EROIs published in the literature and discussed above are not for a pure corn ethanol life-cycle, but for a hybrid lifecycle involving both fossil fuel and corn ethanol where fossil fuel provides much of the input energy. A proper corn ethanol EROI would be calculated using corn ethanol as the exclusive energy source to make more corn ethanol, but no example is available today. This is telling. It will be shown...by lifecycle analysis that making corn ethanol is a negative energy-balance process that consumes more than five-sixths of the energy invested. Civilization would get six times more output energy from the fossil fuel diverted to make corn ethanol if it were instead used directly as fuel.”

Ammonia, which is made from natural gas, is second only to plastic in consumption of industrial energy in the U.S., and 80 percent of ammonia is used in making fertilizer. Use of fertilizer is the main reason for the six-fold increase in corn production in recent decades, without which ethanol would be more easily recognized as uneconomic. Kiefer writes, “Modern intensively farmed corn, with its huge appetite for fossil fuel-based ammonia and agrichemicals, is making a large, net negative contribution to the nation’s energy budget ….Biofuels can never be cheaper than nor replace fossil fuels while fossil fuels comprise the bulk of the energy invested to make them....Applying ammonia fertilizer to any crop intended for biofuel is an indefensible waste of energy.”

Hosein Shapouri, an employee of the U.S. Department of Agriculture, has produced a study of ethanol showing a small net benefit from ethanol. But Howard Hayden, a Professor Emeritus of Physics from the University of Connecticut and Adjunct Professor at the University of Southern Colorado, notes that Shapouri et al “use the most optimistic figures: the best corn yield, the least energy used for fertilizer, the least energy required for farming, the most efficient distillation techniques, the most residual energy (in the form of mash); and in general the most favorable (but still credible) values for any and all aspects of [ethanol] production.” Even so, Hayden says that, using Shapouri's numbers, the net average power available from the ethanol of one acre of corn would be enough only to keep one 60-watt light bulb burning continuously for one month.  To keep that bulb burning for a year would require 12 acres of corn—an area larger than nine football fields.

Puny though that energy gain from ethanol would be, even that is controversial. A thorough study done by Cornell University Professor David Pimmentel, who also chaired a U.S. Department of Energy panel to investigate the energetics of ethanol production, found Shapouri had left out many energy inputs. These include farm labor, farm machinery, repair of farm machinery, energy to produce the hybrid corn, and irrigation. Pimmentel also says Shapouri gives an extravagant credit for distillers dry grains (DDGS), which are used for animal feed as a substitute for soybean meal. Pimmentel says, “We went back to the soybean meal, and examined how it’s produced, and the energy that is required to produce it. Instead of giving [distillers grains] a 40 to 60 percent credit as the pro-ethanol people do, we found that the credit should be more like 9 percent. They [pro-ethanol researchers] are manipulating the data again.” Incidentally, soybean meal has 49 percent protein content compared to 27 percent for DDGS. 

Cellulosic ethanol, produced from wood, switch grass, and harvest wastes is even more uneconomic than corn ethanol. Cellulose can be broken into fermentable sugars using concentrated acid and explosive steam, but this one step consumes as much energy as exists in the final ethanol. Thermodynamic analysis shows cellulosic ethanol is at least three times more difficult to produce than corn ethanol and has an EROI far below 1:1.

Biodiesel and other liquid biofuels have shortcomings that require “hydrotreating” to change the hydrogen-carbon ratio, remove all oxygen, and change the molecular structure to make them compatible with high performance engines and existing fuel infrastructure. Hydrotreatment greatly increases the cost and releases 11 tons of carbon dioxide for every ton of hydrogen added.

Algae is even worse. According to the Argonne National Laboratory, it takes 12 times as much energy and 2.6 times as much fossil fuel energy to put a gallon of algae diesel in a gas station pump as a gallon of petroleum diesel—and that's without counting hydrotreatment.

Kiefer's research is based on “an extensive literature survey of recent and reputable sources emphasizing U.S. government agency data published in official reports and university studies published in peer-reviewed scientific journals. Since 2008, a new generation of more rigorous studies has dramatically undermined the na├»ve assumption that biofuels are inherently clean and green.”

He writes: “Compared to the petroleum fuel lifecycle, the corn ethanol fuel lifecycle consumes 3.5 times more fossil fuel, more than triples Greenhouse Gas emissions, increases water use by three orders of magnitude, adds environmental costs from agrichemical runoff while still suffering those associated with crude oil, and competes with food cultivation for cropland acreage and associated agricultural production capital and resources.”

Finally, Kiefer provides here an extensive list of studies for his assertion, “New, more thorough studies that consider the full fuel creation and combustion lifecycles are now showing cultivated liquid biofuels to be more damaging to the environment and causing the release of more CO2 and other greenhouse gases and pollutants per unit of energy delivered than fossil fuels.”

Tuesday, November 24, 2015

Thanksgiving: Obama Fails to Learn Pilgrim's Lesson

In anticipation of the Thanksgiving holiday, PBS television tonight featured “The Pilgrim,” a story of the founding of Plymouth colony and the first thanksgiving. It is a slick program with many interesting facts, especially about the immense starvation during the early years. But this two hour program, despite all its scholarship, failed to mention the real lesson to be learned here, namely, what ended the starvation. That was private property rights, assigning land “to every man for his own particular,”—after which the governor wrote years later, “any general want or famine hath not been amongst them since to this day.” PBS hasn't learned this lesson any more than Obama. And a great many other people don't know about this important lesson either.  So we present our previous Thanksgiving Day message again here:    

President Obama has failed to learn the simple basic lesson that the Pilgrims, who established the tradition of Thanksgiving Day in 1623 (not 1621, as often claimed), learned the hard way. The bounteous harvest they were gratefully celebrating on that day was preceded by years of starvation. They arrived in mid-December 1620, and half of them died the first year. Though the Indians helped them survive, the colonists were chronically short of food, and their numbers continued to dwindle.

Under the Mayflower Compact, which governed the colony, “all profits and benefits that are got by trade, working, fishing or any other means” were community property in the “common stock” of the colony. And “all such persons as are of this colony are to have their meat, drink, apparel and all provisions out of this common stock.” People were required to put in everything they could—they were forbidden from growing their own food—and to take out only what they needed. It was a policy of “from each according to his ability, to each according to his need,” centuries before Karl Marx seduced millions of people with those words.

The communal system was such a failure that in the spring of 1623 the Pilgrims feared they would not survive another poor harvest. “So they began to think,” wrote the colony's governor William Bradford, “how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. At length, after much debate of things, the Governor (with the advice of the chiefest among them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves....And so assigned to every family a parcel of land.....This had very good success; for it made all hands very industrious, so as much more corn was planted then otherwise would have been by any other means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content.”

Far from making the people “happy and flourishing,” the communal system, wrote Bradford, “was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort.” Not surprisingly,“young men that were able and fit did repine [complain] that they should spend their time and strength to work for other men's wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignity and disrespect unto them.”

Under the circumstances, there was little incentive to produce food. Severe whippings were tried to induce greater production, but they did little more than increase discontent.

The social disharmony, along with the food shortages, disappeared once the concept of private property was introduced and people could keep whatever they produced, or trade it away as they saw fit. In 1647 Bradford was able to write “any general want or famine hath not been amongst them since to this day.” Such was the success of the new system that in 1624 the colonists began to export corn, trading it for beaver pelts, other furs, and meat.

In 1624 the Pilgrims took a further step in property rights. The system of assigning land “to every man for his own particular” had certainly increased the production of corn, but the assignment was drawn by lot yearly. Thus there was not much incentive for making improvements to one's tillage when someone else might draw that land next year. The men requested of the Governor “to have some portion of the land given them for continuance, and not by yearly lot....Which being well considered, their request was granted.”

Jamestown, the first permanent English colony in America, established in Virginia in 1607, had an experience similar to the Pilgrims at Plymouth. Early years of starvation were followed by converting to a system of property rights and a free market, which brought abundance. Under collectivism, less than half of every shipload of settlers survived the first twelve months at Jamestown. Most of the work was done by only one-fifth of the men, to whom the socialist system gave the same rations as to the others. During the winter 1609-10, called “The Starving Time,” the population fell from 500 to 60.

But when Jamestown converted to a free market, there was “plenty of food, which every man by his own industry may easily and doth procure,” wrote the colony secretary Ralph Hamor in 1614. Under the previous system, he said, “we reaped not so much corn from the labors of thirty men as three men have done for themselves now.”

We should not underestimate the significance of the experiences at Plymouth and Jamestown. Property rights and free markets were truly revolutionary and fundamental to capitalism. Without them, all the wealth, progress and human betterment that followed could not have occurred. According to Sartell Prentice, “In England, meanwhile, farming 'in common' continued to be the general practice for another hundred years. Not until the second decade of the seventeen hundreds did 'setting crops for their particular' begin to be slowly accepted in England—and decades were to pass before the new practice became sufficiently widespread to provide an adequate food supply for the population.”

Even today, centuries later, there is still inadequate understanding of the importance of property rights and free markets. A recent BBC poll of 29,000 people worldwide found only 11 percent think free-market capitalism is a good thing. One-quarter of those polled said capitalism is “fatally flawed.”

There is no shortage of people who want a political system that gives them the fruits of other men's labors, as at Plymouth and Jamestown. And there is an abundance of politicians willing to accommodate them at the expense of other men's property. The result is repetition of the collectivist systems (socialism, fascism) that have failed in the past, and no end to the discontent and resentment they engender. But people can be seduced to try them again and again by lofty idealistic statements, eloquent messages of hope, and promises that can never be kept. All of which allow the covetousness of other people's property—whether for personal gain or altruistic, collectivist aims—to masquerade under noble-sounding phrases.

When Barrack Obama was campaigning for the presidency, he promised to redistribute other people's wealth for the collective good. In a short but spirited dialog with a small businessman, “Joe the plumber,” Obama argued that society would be better off if Joe's taxes were increased and the money distributed more widely to those less well off. What is this but a denial of Joe's property right to his own money and a repetition of the socialist distribution schemes that were so disastrous at Plymouth and Jamestown?

Once he was president, Obama came up with a health plan that would require everyone to buy health insurance—as though people's money was not theirs by right but, rather, was part of the “common stock” of community property, to be allocated by the leader for the collective good! And, just as at Plymouth, people who did not cooperate would be punished—not by severe whippings as was done there, but by the more civilized penalty of seizing their property (money) through fines if they refused to buy health insurance.

Contrast the government inflicting pain and penalty to force compliance compared to the benefit and satisfaction—even happiness—from market transactions, which people undertake without force or penalty in order to enhance their lives and are far more effective than socialistic distributions.  Obama said, "We are fundamentally transforming the United States of America." He is indeed, wiping out the fundamental principles that allowed America to prosper.

Obama claimed, "This is our moment, this is our time to turn the page on the policies of the past, to offer a new direction." Yes, he is “turning the page on the policies” of property rights and free markets. But the direction he is offering is not new but old. It is the ancient system of four centuries ago, before property rights, those basic rights which are still denied in varying degrees in many countries that have never discovered free-market capitalism, much less embraced it—and whose standard of living reflects that fact. And those countries comprise a large share of the 89 percent of the world's people who do not think capitalism is a good thing—but who look with envy on America's success and demand we redistribute a share of our wealth to them.

"Generations from now,” Obama said, “we will be able to look back and tell our children that this was our time." Yes, and they will be the worse for it—and damn you for it!