Economic Lessons in Iraq

The idea of sunk cost is very popular in economics, but like so many economic ideas, not so popular among non-economists. By unpopular I don’t mean it’s not liked (as so many other economic ideas are), but rather that it’s just not understood. Amazingly, once this remarkably simple idea is understood, it can revolutionize one’s thinking.

Let’s say you spend $25 on two movie tickets, popcorn and a soda. You settle in to the movie and you quickly realize it stinks. What should you do? Do you leave and accept that you’ve wasted $25? That concept is hard for a lot of people.

Another important economic concept is opportunity cost. What are you giving up by staying in the movie? Would you rather go get ice cream or go to a bookstore or go for a walk? The money you spent on the movie is gone. You won’t get it back if you stay and watch the movie any more than you’ll get it back if you leave. Sunk cost tells us that past costs that are irrelevant to future decisions should be made just that – irrelevant.

The lesson here is important. It can seem kind of silly and trivial when we’re talking about movie tickets, but what if we’re talking about a war? The Washington Post has an article that speaks right to this subject. On discussing the recent decision to end combat operations in Iraq, the Washington Post says,

“America has spent so much blood and treasure in Iraq that it would be wrong to walk away completely, however attractive that may seem politically.”

When so many have died because their country asked them to, it can seem almost callous to call their sacrifice a “sunk cost.” But the antiseptic term aside, it makes no sense for the United States to stay in Iraq simply because we have paid such a price to be there.

In fact, far from being callous or uncaring, recognizing that we have no further need to be in Iraq is the greatest way to honor the ultimate sacrifice made by so many. If we continue to engage, for no other reason than that we’ve been engaging, we face the great likelihood of more deaths. I don’t see how we can honor past deaths by ensuring more. The troops and civilians that have died, I have no doubt, will rest in peace knowing their sacrifice paved the way to ensure that their fellow brethren don't have to die.

There are two popular arguments for continuing combat operations in Iraq. The first, which we just discussed, is that it would be dishonorable to the fallen troops to leave before the “job is done.” The second, related argument is that we can’t leave until Iraq is able to stand on its own. As stated in the same Washington Post article,

"The Iraqi people gave everything for the democratic system, but so far, they have not tasted the fruits."

There is another important economic lesson to be learned here. Economics, despite its depth and breadth, despite its complex formulas and theories, is very simple. In the end, even at the highest, most complicated levels, it always comes back to Econ 101 – supply and demand. Democracy will only take root in Iraq if people demand it. How can we tell if people demand it or not? Stop subsidizing it.

The American presence in Iraq is propping up the government and even democracy. We will never know if the “job is done” unless we leave. Only when the Iraqis have to pay for it themselves, only when it’s not being given to them by someone else, will we find out if they have a true demand for the democratic system.

If we constantly say to ourselves that we can’t leave until the job is done, we ensure we’ll never leave because, as long as we’re there, it will be impossible to tell if the job is done or not. If we pull out and democracy stands on its own in Iraq, then we will know we’ve succeeded. If democracy falls, it means –ignoring other complications – that the Iraqis never valued democracy that much anyway and we were wise to stop fighting for something that wasn’t valued.

If we recognize some important economic concepts inherent in the war in Iraq, sunk cost, opportunity cost and subsidization, the tough decision to end combat operations becomes a little bit easier. Not only is it the economically smart thing to do, it is the most humane thing we could do for our troops and the most honorable thing we can do for the fallen. Finally, and not unimportantly, we owe it to Iraqis to give them a real chance at self-determination.

Obama's Dilemma

The economic recovery has been slow. Obama has engaged in unwise policies that do more to hurt recovery than to help it. However, he has faced an uphill battle from the beginning. Obama certainly didn’t cause the recession, but he hasn’t helped it either. George Bush didn’t cause the recession either, but he too made recovery harder.

War spending and the expansion of government under Bush has driven the U.S economy into massive deficits. One of the best tools to fight against recession is deficit spending, either by cutting taxes or by increasing government spending. The assumption here, however, is that the marginal returns of such spending will be increasing.

If we already have extreme deficits, that in itself becomes a problem and any positive returns that might be gained by adding to the deficit will diminish very quickly.

Thus, Obama is at an immediate disadvantage because he lacks an important tool for fighting recession. We started with a moderate deficit and Obama’s fiscal policy quickly turned it into a serious deficit. Now that deficit spending is no longer a viable option and is quickly becoming a political liability, Obama is faced with the unenviable decision of whether to play smart politics or smart economics. The decision he faces is whether or not to let the Bush tax cuts expire.

The easy political decision is to pander to the politically motivated, class-warfare mentality that Obama has perpetuated and end the tax cuts. This appeases those on the left who feel a sense of injustice that the “rich” don’t pay their “fair share” (we won’t tackle the validity of such a mindset here, but rather simply accept that that’s how they feel), and it also reduces the deficit (assuming of course that the added tax revenue won’t be spent – a dubious assumption).

Therefore, it must be awfully tempting for Obama to take the easy road and play politics and validate many people’s baseless outrage at the “rich” while at the same time claiming to be fiscally responsible by reducing the deficit.

The other path that Obama could take would be the politically unpopular but economically sound route of keeping the tax cuts. This would be a very hard political decision because it would mean that Obama would have to acknowledge that the tax cuts by Bush was a good policy (one of his few), something that is anathema to Obama. Also, it would mean Obama might sacrifice some of his political points from the left, even though he would be advancing the correct economic policy. I doubt Obama would think it a fair trade off to lose votes on the left but gain respect from the right.

A tax hike in a recession is unquestionably bad policy, uniformly decried by economists. It creates negative incentive for businesses and investors, precisely the types of people who play a key role in getting us out of recession. There is a time that raising taxes might be the best economic policy, as it might have been in the 1990s. We are certainly in a different place than we were in the ‘90s. Just because it might have been good then, doesn’t mean it’s good now.

Obama is certainly in a no-win situation. Deficit-inducing stimulus spending has been ineffective, in part because we started with already moderate deficits. Therefore, continued spending isn’t a viable solution. It must be very tempting for Obama to raise taxes, but it would be precisely the wrong prescription.

Obama must get us out of this recession now. That will entail keeping the Bush tax cuts and stopping runaway spending. There is no overnight solution so Obama must stop looking for one. If the government will rein itself in and keep taxes low and stop interfering in the market, businesses and banks just might venture out onto the playing field again. That is the first step that has to take place. Everything else is moot if investment and lending aren’t nurtured. The best way for government to do that is to reduce uncertainty by staying out of the way.

Once the economy can start growing again, there will be less need for increased government spending and the tax revenue will be up due to increased consumer spending. The deficit problem, ironically, will solve itself if we stop trying to solve it.

Obama could do the self-serving thing and let the Bush tax cuts expire, thus lending weight to irrational and self-defeating attitudes about class-warfare, and causing real harm to the economy and delaying recovery, or he could do the economically smart and necessary thing and reap the political benefits.

Unfortunately, Obama has proven to be short-sighted and more concerned with appeasing his political masters (unions) than he has been about stabilizing the economy, healing partisan rifts and moving the country forward. Therefore, unfortunately it seems that Obama’s Dilemma won’t be a dilemma to him at all.

Nigeria Sees the Light

Nigeria announced plans to privatize its power grid. This is great news for the country because currently blackouts are extremely common and more the rule rather than the exception. Private households and business get most of their power from running their own diesel generators which are noisy, dirty, smelly and expensive.

The privatizing of the power grid is a win on all fronts for Nigeria if it plays its cards right. It must be very accommodating and not let politics get in the way. Previous privatization attempts in the telecom industry have failed due to corruption and lack of necessary infrastructure that private firms need to operate successfully.

Foreign direct investment (FDI) is perhaps the greatest booster of economic growth for any developing nation. Nigeria is at a point where the marginal returns on investment could be exponential. There is a huge market for energy in Nigeria, so any company that is able to capitalize on that demand stands to see a huge return. This is good news because it means both the people of Nigeria and the power companies will win.

The people demand reliable energy and as such, will be willing to pay for it. Right now, since energy is heavily subsidized by the state, demand is way way up and people don’t value the power they use. People leave lights on all day simply because it’s so cheap. This puts added strain on an already feeble state-run grid.

By privatizing it, costs will likely go up, but this would be much more efficient as people would be forced to value the energy they use, thus conserving much more, which will keep pressure on prices to stay low.

Since Nigeria is ripe for investment, the competition to take over the power will be strong. There is already interest from companies from Cananda, Ireland and India. If the government commits to improving infrastructure, which could come easier with a reliable power grid and the increased revenue that results, the power companies could be even more successful.

It really only takes one industry to be successful with its investments in Nigeria before other industries seek to capitalize on the positive gains that come from reliable power and infrastructure. FDI begets FDI and growth has the potential to take off.

Business leaders in Nigeria say a lack of reliable power is one of the biggest obstacles they face, and if that problem can be solved, the business environment in Nigeria could explode.

The main lesson here is that state-run, command-and-control policies never work, and make much needed growth almost impossible in developing countries. Market forces are what are needed to create the proper incentives and send the signals that investors and customers need to operate effectively. We have seen this in China, as their growth can be directly attributed to market-based reforms, and if Nigeria proceeds smartly, we will likely see them rise to prominence and wealth in Africa, something that continent desperately needs.

Something's Fishy About Regulating the Ocean

Icelandic Fishing Dispute Sparks Trade Wars

Iceland, Britain and the EU are all parties to a fishing quota agreement on how many fish each country can harvest from the ocean. Iceland and the Faroe Islands unilaterally raised their quota which seriously angered the other parties. There is talk that the mackerel population will be wiped out, the fishing industry will suffer and people will lose their jobs. Countries like Norway are closing their ports and refusing to trade. There is talk of a mackerel war, similar to the cod wars of the 1950s and 1970s.

This story is a gold mine for economic lessons. There are things we can learn about the negative incentives created by common property, the escalatory nature and negative economic effects of protectionism, why cartels are never very stable, the unsustainability of using regulations and quotas in place of a market, and how all of these problems can be solved or avoided if property rights are assigned.

Let’s look at each of the issues in more detail.

The root of this whole mess is because the ocean is an economic public good, that is, it is non-rival and non-excludable. In other words, just because I am using the ocean, it doesn’t preclude you from using the ocean. Also, anybody and everybody that wants to use the ocean can – nobody is excluded. These two properties create very bad incentives. Since the fish in the ocean are a finite resource and nobody owns them, the incentive is to catch as many as you can before the other guy catches as many as he can. The result is a mad rush to over-fish the oceans. We are seeing exactly this. Such a system is clearly not sustainable and the fears that the mackerel population might be wiped out are justified.

In response, Norway is closing its ports to Icelandic ships, thus voluntarily giving up the clear benefits of Comparative Advantage, and the EU and Scotland are considering similar action. This doesn’t make any sense. Protectionism is never a good idea and retaliation for protectionism is equally as folly. It’s unfortunate that politics dominate a country’s actions, rather than sound economic policy leading the way.

From Struan Stevenson, the senior vice-president on the European parliament's fisheries committee,

"That is what I am actually suggesting now. We should use that as threat. We should follow the example of the fishermen in Peterhead. We should threaten to close all the EU ports to Faroese and Icelandic vessels, block all imports from these countries, and show them that we mean business."

There is no question that blocking trade would hurt Iceland and the Faroe Islands, but it would also hurt the EU. I have never understood the policy of actually hurting your own country’s economic well being simply to make a political point.

Quite frankly none of this comes as a surprise, as it was set up to fail from the beginning. Rationing, quotas and resource boards are about the most inefficient way allocate resources.

From the article,

“If maintained, said WWF Scotland, the combined 2010 mackerel quota would result in the fish being exploited 35% above the scientific recommendation set by the International Council for the Exploration of the Sea, and spell a "death sentence" for precious fish stock.”

The scientific recommendation set by the International Council for Exploration of the Sea? How much more bureaucratic can you get? Command-and-control never works. No central planning commission could ever possibly have enough information to know what supply and demand of mackerel looks like, the appropriate number for each country to harvest, the best way to achieve these quotas or how sustainable such a system can be. Only the market, through the signals sent by prices and dispersed information could possibly allocate everything efficiently and sustainably. Unfortunately, a market only works when there is private property.

Since the ocean isn’t private property, it seems we are left with inadequate solutions like planning and control boards. So why then, and how, does this commission fail to achieve a sustainable outcome? Why did Iceland break from the quota agreement?

Well, the agreement between nations on how much fish to catch is basically a cartel. Each nation assures every other nation that it will set a limit on fish and stick to it. The only problem is that the incentive to “cheat” on such a system is strong. By nations agreeing to limit how much they catch, they are basically agreeing to limit their profit by leaving valuable fish in the ocean. As such, it is very tempting for other nations to seize on the vulnerability of their counterparts and “snatch up” the extra fish, thus increasing their own profits. We have seen Iceland and the Faroe Islands do exactly this.

What will be the response by other nations? Well, in addition to the trade wars, don’t be surprised if other nations increase their quota as well. Now that Iceland and the Faroe Islands have shown that they’re willing to collect extra valuable resources, other nations will race to collect as many as they can before Iceland gets them all. The cartel is broken so all bets are off.

Clearly this is a losing situation all the way around. The oceans are being over-fished and trade wars are resulting. Nobody wins. The frustrating thing is that the solution is so simple – property rights! If property rights are established, fishing no longer becomes a race to the bottom because it would be in each individual’s (or nation’s) best interest to ensure sustainability. Right now, the incentive is to get as much as possible before everybody else does and it’s all gone.

If property rights were created, people would no longer be free to fish to exhaustion. Only the property owner would be able to fish to exhaustion, but he would never do that because he would have customers that would be willing to pay to get his fish. If he runs out, he loses his customers. Through sustainable practices such as these, we can ensure that as long as there is demand for mackerel (or any resource), there will a supply ready and waiting.

And this solves every problem mentioned above. Obviously the incentive to overfish is eliminated, therefore there will be no quotas, regulations or control panels, therefore nobody will have the incentive to cheat, therefore nobody will enact retaliatory protectionist policies, therefore there will be no trade war.

Okay, well that all sounds good, but how in the world do we assign property rights to the ocean? Are we going to fence off sections of the ocean? Even if that were possible it would surely be a case of the solution being worse than the problem. But there are several viable solutions including a form of electronic fencing, a permit system similar to cap-and-trade, Individual Transferrable Quotas (ITQs), a deposit-refund system similar to that of soda bottles, and even assigning property rights to the fish themselves.

The body of literature on this idea of assigning property rights to the ocean is vast, and the ideas for how to do so are too numerous to go into any detail here, so I offer below a brief list of just some of the great ideas on this issue, and to give an idea on the robust consensus among economists.

The Privatization of the Ocean

Let’s Homestead the Oceans

Why Oceans and Waterways Should Be Privatized

Want To Prevent Piracy? Privatize the Ocean

Law, Property Rights, and Air Pollution

Healing Our World: The Other Piece of the Puzzle

For a New Liberty

Water Privatization

Property – The Great Problem Solver

For Whom the Road Tolls

9 Day, 100 Km long traffic jam in China

While freeways don’t technically meet the economic definition of a public good, they often suffer from many of the same symptoms. What happens when something is free to use by everybody that wants to use it? Congestion.

This is extremely evident in China as they are experiencing a traffic jam that has lasted for nine days and extends over 100 kilometers. What is the best way to deal with congestion? The typical response is to expand the size and scope of roadways by adding routes and lanes. Does this work? If it does, why do will still suffer from congestion? If we expand our roads it might temporarily ease frustration, but we’ve all seen our highways quickly fill up again. Now what do we do? Expand again? Surely we can’t expand forever right? There must be a better way.

Why doesn’t road expansion fix the problem? Congestion can be looked at as simple supply and demand. The roads are the supply and our wish to get from point A to point B is the demand. If we simply widen our roads, we are just increasing supply, while doing nothing to alleviate demand. In fact, by supposedly making travel easier by relieving congestion, road expansion basically reduces the marginal cost of a car trip, thus making it appear “cheaper”, thereby increasing demand for driving.

As you can see, expanding the supply of roadways leads to an equal (or more) increase in demand at the same time. How many resources do we waste by paying for construction and maintenance of an ever-expanding system of roads while gaining nothing in return? And this is to say nothing of the enormous opportunity cost of being stuck in traffic for hours on end (or days in the case of China!).

Surely there must be a better way. Why are roads so congested in the first place? Well, quite simply because they are free to use. Technically speaking, we pay for them through taxes, driver’s license requirements and fees, and gasoline and maintenance costs for our cars, so driving is not “free”, but people think at the margins. All that matters is what does the NEXT TRIP cost? Beyond the small cost of gasoline, a car trip is virtually free.

And since everybody that wants to can drive on the road at anytime, people who may not really value driving do so anyway simply because it’s free. So what’s an economist’s solution to this problem? Tolls. A lot of people don’t find the idea of monetizing such things as driving very appealing, but the fact remains that tolls are the most efficient and effective way of allocating scarce resources like road space and people’s time.

Tolls, right off the bat, make substitutes like public transportation, walking or biking relatively cheaper, thus reducing demand for driving. Also, tolls ensure that only those who truly value driving continue to do so; those who are only driving simply because it’s free are immediately weeded out.

Also, tolls can help the flow of traffic not just the quantity. By charging a higher toll during peak traffic hours or when coming into downtown for example, we can more effectively manage traffic congestion. Simply by making some roads more expensive than others to drive on, we can change the incentives that people face and thus change their behavior.

Finally, tolls are excellent because they put revenue back into the roads themselves. That is, tolls pay for the maintenance and construction necessary for their upkeep, thus reducing the burden on taxpayers or ensuring that tax money can be diverted into other areas – for instance public transportation.

The incentive as it exists now is to stretch tax dollars as far as possible so roads often aren’t maintained adequately and needed repairs and maintenance are put off until they become critical. If it costs the same to resurface a road If there are 10 potholes or 1,000 potholes, it only makes sense to wait until there are 1,000 potholes.

Also, there is no market system to decide which roads get priority for maintenance. A city might simply have a list and repair the roads in order, regardless of actual need or demand of those roads. A toll system sends market signals so we can immediately and easily know which roads are being used actively and which roads are in need of repair and in which order. Since drivers are now paying customers, it’s just bad business to have poor quality roads so potholes and other damage will be fixed quickly and effectively.

Toll roads are a win for everybody. They encourage the use of alternate transportation, they reduce congestion, they raise revenue and they ensure high quality roadways. And remember, the important aspect of toll roads are the market signals and incentives created by them. Toll roads do not have to be privatized, for-profit enterprises. They can still be run by the city with all revenues going back into the road system itself, while still reaping all of the benefits.

If you think this isn’t important, or is the wrong tactic, just ask a person caught in that Chinese traffic jam if they would have minded paying a small toll if it meant they wouldn’t be stuck in traffic for nine days.

Economic Pie War: Rich vs. Poor

Profit is not a bad word. The rich are not evil. Government’s job is not to take from the rich and give to the poor. Similarly, the rich did not get rich by taking from the poor. The rich are rich because they provide a valuable service that somebody is willing to pay for. Yes, people give their money to the rich. Too often, this is the only side of the equation that gets reported by liberal politicians and the media. The other side is that people give their money to the rich in return for a service. It is a mutually beneficial transaction that makes both parties better off. Nobody is stealing from anybody else. The rich are not becoming rich at the expense of the poor. Rather, both parties are becoming richer.

If the government tries to redistribute wealth, the moral hazard is twofold: First, the poor come to expect to be given things, thus removing their incentive to work hard and create wealth. Second, the rich become disinclined to produce extra because the money they make from their extra work will just be taken from them anyway. This removes their incentive to work hard and create wealth.

Nobody is made better off if we villianize the rich and take from them to give to the poor. If you remove the incentive to produce, wealth will not grow. Just because money was taken from a rich person and given to a poor person does not make the poor person better off.

In economics, we refer to the economy as a pie. There are two problems economics tries to solve: How to maximize the size of the pie, and to understand how that pie gets divided up. If we focus on wealth redistribution, we are solely focusing on the second aspect: how the pie gets divided. We can cut the pie so one person gets 90% and the other person gets 10%, or we can divide the pie 50/50. One person wins, but one person loses. No matter how the pie is divided, you must take from one person to give to another and the pie never gets any larger.

In fact, if we continually take from the rich – the producers - as mentioned before we remove their incentive to produce in the first place. We know that the poor won’t step up and produce because either they don’t know how or they have been “conditioned” to expect things to be given to them. Thus, by focusing only on how to divide the pie, not only does it not get bigger, it very well could actually shrink because nobody wants to produce.

If instead we focus on how to make the pie larger, even if the original distribution is 90/10, the real number making up that 10% is greater. Economics is no longer a zero-sum game but becomes a nonzero-sum game. We can enrich the poor not by taking from the rich, but by encouraging the rich to produce and sell and hire, thus creating and providing valuable services and products that people are willing to pay for.

This can be accomplished by keeping taxes low, keeping the bureaucratic red tape to a minimum and making sure entrepreneurship is encouraged and rewarded.

Let me illustrate it another way. In economics, we often play a game to illustrate the lunacy of class jealousy. Imagine you were given $100. The $100 is yours. The only catch is that you must split the $100 with another person. Since the money is yours, you can split it in any way you want (50/50, 60/40, 90/10 etc.), but if the other person doesn’t agree to the split, you both lose everything.

How do you split it? Do you split it 50/50 because that’s “fair”? Do you even care about fairness and only split it 50/50 because you think the other person cares about fairness, and might reject the deal if he doesn’t get half? Remember, the money is yours and the other person is entitled to nothing – anything they get is nothing short of a gift.

How would you split it? Or better yet, pretend you’re the other person. What deal would you reject? Would you reject it if it’s less than 50/50? Why? What if it were 99/1, would you reject it then? Why?

Unfortunately it seems a lot of people would reject the offer if they were only offered $1. Does this make any sense? Why would you willingly make yourself worse off (if you accept, you’re better off by $1) and deprive the other person of their gains too? Do we really resent the person that has $99 so much just because they have more, even though we were never entitled to anything and we’ve improved our own situation? Do we resent that person that has gained more than us so much that we’re willing to forgo our own gains and take away their gains? Are we really willing to turn a win-win situation into a lose-lose simply because of some false sense of class warfare? How does that make sense?

We must rid ourselves of this idea that the rich steal from us and they don’t pay their “fair share”. Such simplistic ideology might make us feel good, but who is really happy wallowing in self-misery and blaming others while preventing mutually beneficial positive gains? Can a class-warfare mentality really make us feel that good? Impossible!

Once we stop and analyze these beliefs for what they really are, it quickly becomes apparent that they are illogical, irrational, self-defeating and destructive. How ironic that these same people, who by their attitudes create so much damage, blame the rich for destroying the economy. Unfortunately a lot of people would rather sit around and blame others rather than take responsibility and truly examine issues for what they are.

Remember, we all win when we strive to increase the size of the pie rather than quibbling about how it’s divided.

There's Whiskey in the Car-o

New Biofuel Developed from Whiskey Byproduct

This is a great breakthrough and could go a long way towards making alternate energy more viable.

Too often politicians, in their zeal to “do something”, encourage or promote ideas that aren’t economically sound or have very serious unintended consequences. Ethanol fuel is a neat alternative to oil, but are the costs worth it? The market price for a gallon of ethanol is about the same as a gallon of fossil fuel, but ethanol requires massive amounts of nitrogen and incredibly vast swaths of land to grow the corn.

Opportunity cost tells us that the more corn that goes for fuel, the less goes towards food, driving up prices around the world. This is especially damaging because corn is often a cheap staple for developing countries. If the price rises too high, many people will not be able to afford to eat at all.

The obvious political solution to this is to simply cap prices, but that comes with its own set of economic troubles. For instance, if prices were simply capped, some corn producers might not find it in their interest to continue producing and simply leave the market. Reducing supply when corn is already scarce would be a disastrous unintended consequence. In economics, unfortunately you can’t have your cake and eat it too. Resources are scarce and opportunity costs are everywhere. In order to gain one thing, you must give up something else.

I admire the effort to free ourselves from fossil fuel, but it must done in an economically smart way. Spain, who literally bankrupted its economy, provides a great example of the dangers of trying to sell out to alternate energy.

That’s why this new breakthrough is so encouraging. By being able to turn the byproducts of whisky distillation into fuel, we have a jump on the game. To use ethanol or solar or wind energy, massive amounts of capital and land must be consumed. The entire process must be built up from square one which is a huge reason alternate energy is not yet cost-effective.

With this new energy, called biobutinol, the capital for producing it already exists in massive quantities. Since it’s an unwanted byproduct of an already commercially viable industry, there is no need to invest in capital or use scarce resources in its creation.

According to the researchers, the new fuel provides more output power than does gas and could be easily used in existing cars without expensive retrofitting as is required for ethanol. Since it’s basically already commercially viable and can be used in existing cars, there is no need to completely overhaul our network.

Electric cars and biofuel cars are not catching on in large part because the entire infrastructure would need to be completely replaced if these energies are to become viable. The expense of such a drastic change is not yet justified.

This new biobutinol is encouraging indeed. It takes the waste from one industry and turns it into a cost-effective, valuable product in another industry. Talk about turning lead into gold. Of course this isn’t a total solution and it’s still a new and largely untested product so there is much yet to be seen, but it’s at least an encouraging tidbit and a step in the right direction.

Alternate energy is a good thing – a great thing – but it’s not a magical solution to our economic problems. We should encourage research in this area and celebrate its successes, but we should do so cautiously with our feet grounded. Let’s not sell out our entire economy to reach some utopist goal if we have to give up much more than we gain.