Thoughts That May Or May Not Count

I'm intrigued by how seemingly irrational people are, generally speaking. One of the biggest movements that we're seeing right now is with "good" marketing. It's done under a few different labels - green marketing, sustainability, corporate social responsibility, etc. And some of the stuff that we're seeing is genuinely helpful. At the very least, these movements are helping raise awareness of a lot of issues, and giving a bit of a voice to the well-intentioned, but often foolishly guided, fringe groups that have been trying to save the earth for years. The New York Times has an interesting little article that's talking about how people are planting trees so that they feel good about driving SUV's and flying around the world. Some folks, myself included, think that it's pretty silly for people to justify their continued poor behavior by doing some good to offset it.

While it's sort of silly to delude yourself into thinking that planting a tree will offset that Dell computer that you bought, or that vacation to Tahiti, it's more or less done at an individual level, and I'm not all that concerned about that. What I'm much more afraid of is foolish policy. One current trend that we're seeing is the ethanol boom, in particular with corn. While it's good that we're looking at ways to wean ourselves from the dependence on petroleum, most folks in the know think that the use of corn is a political move, rather than a scientific one. Corn is expensive to grow. And the corn that is grown has established purposes - specifically as food for both humans and livestock. So, when corn is taken out of the food supply chain, and converted over to the energy supply chain, you end up increasing the price of food, not just nationally, but to some extent globally. So, while E-85 is probably a good thing, using corn for E-85 may not be so good. Many people prefer the use of grasses for this, though grasses just don't produce enough of the starches that are needed to convert grains into fuel. Perhaps more efficient processing can make grasses viable.

Unfortunately, much of our national policy has been focused on corn, likely for the support of states that are ag heavy. It just seems that we're letting a little bit of technology come into play, but we're still at the mercy of our very inefficient political system. Interestingly, the countries that seem to be in a good position for this shift may be countries like Brazil, who produce a lot of sugar cane, which is much more efficient in the conversion process. This could eventually evolve into a modern day Triangle Trade, where sugar is converted not into rum, but fuel, and instead of slaves... well, the analogy isn't perfect.

Interestingly, at the policy level, I'm generally laissez-faire. I like the idea of letting the market sort itself out. However, at some levels, agency theory has to kick in. Different parties will have different goals. As such, incentive structures (i.e. policy at large) have to be adjusted so that goals of multiple parties are aligned enough to make change meaningful. In that sense, you can't just let the market decide because markets aren't frictionless. And even beyond that, there is inertia in the system - people have a preference for the status quo. There has to be some level of intervention in the system. Unfortunately, these visions are often left to people who are in bed with an inefficient system. So, our alternative to address the principal-agent problem is subject to a principal-agent problem.

Ultimately, I don't think that we can ever correct many of these problems. However, many of the problems can be made moot. Certain things can change the rules of the game. The one that comes to the forefront is technology. And after that is the grass-roots change in behavior that pushes up from the masses. Technology can make many of the questions irrelevant by making the topic not worthy of debate. And grass-roots change can make the questions irrelevant by mandating a de facto change in the system.

-Chairman