Weekend Reading: Econobrowser and the Ethanol Challenge in the US

Econbrowser’s Menzie Chinn

Menzie Chinn, while discussing the new appointed Sec. Treasurer Henry Paulson, puts out to a laundry lists of major and mounumental challenges the U.S. economy is facing. His full article, “Does a new economic team mean a new economic policy?“, is worth the read.

the economy has both underperformed along a number of dimensions, and faces serious challenges in the future.

Regarding the past and present:

  • Real compensation has been stagnant.
  • Job creation has been lackluster.
  • Income inequality has been increasing.
  • Federal debt has been exploding and is set to explode further, as the 2001 and 2003 tax cuts are extended.
  • Federal government entitlements-based liabiities have been expanded tremendously by the Bush Administration and Congress(Medicare Part D) even as the Bush Administration attempted to modify Social Security.
  • Tradable sector output share has been declining.

Regarding future challenges:

  • The trade and current account deficits are increasing without seeming end.
  • The determination of interest rates on government debt in the US are ever more in the hands of foreign governments and other actors.
  • The net income account in the balance of payments is set to go into the negative range.
  • High energy dependence exacerbates the problems reserve accumulation in oil exporting countries.
  • The possibility of a “hard landing” for the dollar.

Sobering Look at Brazil’s Energy Independence as a Model for the US

Lessons from Brazil“, TheOilDrum’s Robert Rapier:

Yes, Brazil has in fact “figured it out” with respect to energy independence. But the reason they achieved energy independence is primarily because of their frugal energy usage, not because of ethanol. Increase their energy usage to U.S. levels, and the “energy independence miracle” would quickly vanish. This is the factor that the media and the politicians have overlooked. On the other hand, if the U.S. had the same per capita energy consumption as Brazil, we would be net oil exporters. In fact, our per capita energy consumption could be 11 barrels per person per year – triple the consumption of Brazil – and our production and demand would be in balance. We would be energy independent.