“Sugar Pops” by Edward Robinson, May 2006 issue
Brazil, the largest sugar producer in the world, currently mandates that automobile fuels contain 25% of ethanol. In 2005, half of Brazil’s 382-million-ton sugar cane harvest went into ethanol production (estimates by Datagro, a Sao Paulo-based research firm).
In the meantime, Volkswagen’s Brazilian operation is already manufacturing cars that run on pure ethanol, which costs about 20% less than gasoline…
Uncertainty about whether a disorderly correction is imminent does not justify inaction. That a Category 5 hurricane strikes only once a generation does not absolve the responsible homeowner, living in a flood plain, from putting his house on stilts or investing in flood insurance. For the United States, insuring against a disorderly correction would involve progressively tightening fiscal policy and thus gradually narrowing the gap between absorption and production. The best way for China and other East Asian countries that export to the United States to meet this deceleration in U.S. absorption growth would be by loosening fiscal policy (increasing spending on social security, health care, education, rural infrastructure and the like) and thus stimulating demand at home. With demand growth slowing in the United States and accelerating in Asia, relative prices, in the form of the dollar exchange rate, will tend to adjust. The argument for gradual adjustment starting now to limit the risk of a sharp, disruptive adjustment later is still sound even if an eventual hard landing is less than certain.