How would the free market phase out gasoline-powered vehicles?

[Juan]

I’m too lazy too look it up but I remember reading somewhere that in Brazil using ethanol as fuel is something the military came up with. That is, the project was half pork, half ‘justified’ by the paranoid way of thinking that the military excel in, the rationale being, as always, ‘energy independence’, national defense and other statist myths.

Hm. http://www.washingtonpost.com/wp-dyn/content/article/2006/08/19/AR2006081900842.html (I didn’t read the rest of the article though.)

Brazil’s military dictatorship launched the national ethanol program in 1975, when about 90 percent of its fuel consumption depended on foreign oil. The government offered subsidies to sugar cane growers and forced service stations in every town of at least 1,500 people to install ethanol pumps. By the early 1980s, almost all new cars sold in Brazil ran on 100 percent ethanol.

But as the decade progressed and the military government was replaced by democracy, oil prices plummeted and the subsidies granted to ethanol producers were eliminated. Sugar processing plants turned from ethanol to edible sugar, creating a shortage of supplies at service stations. The auto industry, which had dedicated itself to ethanol-only cars, stopped producing them almost entirely.

[TheScott]

I was thinking about this question earlier today. I think it’s always useful to take a “societal” problem and try to backtrack to the government regulations that may or may not be responsible for it. My thinking on this started from the following site http://running_on_alcohol.tripod.com/ where the authors claim that they make their own ethanol in their backyard for about 60 cents (1 dollar cost to make the ethanol and 40c profit from selling the remains for feedstock). Why is ethanol not then cheaper than gasoline? Surely an industrial application could support even further cost advantages. I’m planning on making my own ethanol in order to confirm that the economics are in fact true. Luckily I own a small farm and by pure coincidence a flex-fuel Ford Ranger…

This got me thinking about what regulations might be at work. The first is clearly taxes. Once taxes are added then the cost goes up. One such tax is the alcohol tax. Even though pure ethanol is fine in your car it is illegal to produce it because you can also drink it. You must by law denature the alcohol (render it poisonous). That adds cost.

Consider also the difference between corn for food and corn for fuel. Corn for food is high quality. It requires good water, good soil, good seed. Corn for fuel can be lower quality. Here’s where subsidies muck things up. Subsidies incent farmers to grow fuel corn on land that is better suited for food corn. The result is that lower quality arable land that might support fuel grade corn is left unproductive.

I don’t think this sufficiently explains the economics but I’m sure there is more involved.

On to oil. One for the oil monopoly is that oil is subsidized by our foreign service and defense department. Consider how much oil would cost if the terrorists were not kept at bay by US forces. A significant amount of your tax money ends up keeping the price of oil down. This is not to say that oil is the “reason” for our foreign policy but it is no doubt a result.

Another free market impediment is regulation of automobiles, fuel transport and fuel stations. One can’t simply roll out a new automobile or new infrastructure. There are serious regulations that need to be met. All of these work to enforce the status quo.

One wonders why GM killed the EV1. It is simple to say that it wasn’t economic to produce but hard to refute the fact that demand existed. Possibly the economics of the labor unions prevented GM from innovating. Possibly they were just short sighted. Hard to say. Capitalism makes no claims on the varying abilities of people who run companies.

An interesting article to read is: http://www.setamericafree.org/Rnichols.pdf. This is written by an ex Ford engineer and details the history and viability of methanol which appears to be a very viable fuel which can be derived from (now cheap) natural gas. The most interesting part is where methanol was about to displace gasoline. The gasoline industry in the nick of time derived a reformulation that allowed it to meet emmissions standards. I think most people are unaware that we really came that close to a multi-fuel economy.

Anyway, I guess the advice to the questioner would be to examine the government interference that created the conditions in the first place. Austrian theory suggests that in many circumstances where the solution looks to be a new regulation that in fact you will find a preexisting regulation that would accomplish the same end and in better fashion.

It may simply be true that oil is just cheaper. In which case the gasoline car “problem” is solved by growing aggregate aesthetic demand. We sell more blue shirts than red shirts because the color blue has a greater marginal utility than red to more people. In the same way, “green” cars will sell more when they have a greater marginal utility than regular cars. There is nothing inherently wrong with environmentalists advocating to build this demand among constituents so long as it does not happen through forceful means, and certainly nothing wrong with environmentalists pooling their money to build a new car company from scratch…

[1billion]

@laminustacitus

Where there is a demand, the market will faciitate a supply in ways that are often so genius and innovative that none prior, otherthan futurist writers, could have predicted. As of now, there is little demand fof an oil-substitute for such fossil fuels are extremely efficient and are still in enough supply that there is still enough to last in the short-term without its price skyrocketing; however, once such factors begin to chance than there will emerge a demand for alternative fuels that the market can accomidate. Its economics 101.

I remember from reading East of Eden a part where a townsman who was deemed crazy said that one day horses will no longer fill the streets but the streets will be filled with cars, which in that time was a new technology.

[Frediano]

How would the free market phase out the planet Jupitor?

I guess before asking that, I should demonstrate that it would or should. I mean, other than expressing my unsubstantiated opinion that it would or should.

regards,

Frediano

[Frediano]

@CShirk

The same way that gas stations got their start. This site may help give you a starting point. The gas station came into existence during the early 20th century through the spontaneous order of the market. There was a demand which was constituted in a source of supply. Originally people would just use buckets. Then they started using underground pumps. It simply went from there. Hydrogen stations can, and should, originate the same way.

It’s interesting to note that originally, gasoline was a waste by-product of refining oil. Before the automobile/ICE, there was no real market for it. It couldn’t be burned in a lamp, it couldn’t be burned as a safe fuel. And, there was alot of it created as a side effect of refining oil for other actual market uses. The original oil fields were lousy with it, it spilled over oil fields like a hazardous nuisance. The ICE came along just in time to create portable waste disposal units for all that gasoline. Why, instead of paying to get rid of it, folks would actually line up and pay something for the privelege of hauling it away. A BBL of oil goes in one end of a refining operation, and continuity demands that a bbl of something come screaming out the other end, from asphalt to bunker C and eventually to WD-40 at $90/gallon. If they could convert it all to WD-40, they might, but then, WD-40 wouldn’t be $90/gallon. TOday, there is some nominal control over gasoline yield, but it is surely not 100%. Refining operations and prices are driven by getting rid of all the ‘stuff’ flying out of our refineries.

All of it, at whatever price it takes to get rid of it. Or else, it collects up at the refinery. A refinery can’t just make ‘gasoline’ out of oil…which has an interesting corollary…

So, an interesting question is, how did the free market phase in gasoline? It wasn’t constructivistly phased in.

regards,

Frediano

[ama_gi]

I’m glad you guys took the time to post on this. It’s interesting being able to see this from multiple perspectives.

Thanks guys.

[Frediano]

@CShirk

The same way that gas stations got their start. This site may help give you a starting point. The gas station came into existence during the early 20th century through the spontaneous order of the market. There was a demand which was constituted in a source of supply. Originally people would just use buckets. Then they started using underground pumps. It simply went from there. Hydrogen stations can, and should, originate the same way.

There was a demand – the original demand was, ‘get rid of thegasoline, find a market for it’

Gasoline came first, as a waste product of refining oil. A market demand for it came second, after the ICE/auto industry was created.

Another odd example; Teflon. Accidental byproduct of research into refrigerents. Railroad tanker car on hot day sitting in Delaware sun. Researchers open up the tank, expecting refrigerent to flow out, instead found ‘goo.’ The goo had interesting characteristics. The goo became ‘Teflon.’

There is an implicit bias in the question, ‘how would the free market (constructivistly) do X.’ The bias is, that events occur because of constructivist planning in our economies. The only honest answer is “nobody knows in advance.” That is the entire point of free markets. We aren’t that smart that we are able to construcivistly do everything, only some things.

regards,

Frediano