April 25, 2008
Ethanol
A friend of this blog sends a link to the NY Sun:
“I don’t think anybody knows precisely how much ethanol contributes to the run-up in food prices, but the contribution is clearly substantial,” a professor of applied economics and law at the University of Minnesota, C. Ford Runge, said. A study by a Washington think tank, the International Food Policy Research Institute, indicated that between a quarter and a third of the recent hike in commodities prices is attributable to biofuels.Last year, Mr. Runge and a colleague, Benjamin Senauer, wrote an article in Foreign Affairs, “How Biofuels Could Starve the Poor.”
Ethanol subsidies are great.
They are great because they present a perfect example of what is wrong with government interference. This story has it all -- I dearly hope our grandchildren will ridicule us for this, when they read of this idiocy in their textbooks.
I'll concede that it is conceived to deal with a real problem and promote a public good: heart full of good intentions. It would be better to produce more energy domestically, to ship less oil around the world in big ugly tankers. And less pollution would be an advantage.
But the decision to take it out of market forces is where it all goes wrong. In the market, millions of customers, suppliers, marketing people and product engineers decide what best fills the need. People would try many different things, creating winners and losers. In the land of Ethanol, however, the decision is made by two powerful politicians.
Sens. Chuck Grassley and Tom Harkin may not be philosophical soulmates, but they both represent the great State of Iowa. They both have seniority and the power it confers. And they both receive a lot of funding from "Big Ag." I'm not saying that either of them did anything wrong, illegal, immoral or even untoward. It sounded like a good idea, it would help their state, it was desired by their donors -- what's not to like?
In the years since, the bloom has fallen off the cornstalk. It turns out that Ethanol is inefficient, produces more CO2 than gasoline, and that the subsidies have distorted the food markets. Any kind of market mechanism would have trimmed the capital going into this until these issues were better resolved. But government doesn't care so much about results (cf. education) so the project continues.
The waste of money is not the worst thing -- the worst thing is all the real solutions and development that is crowded out. Every week I read about a breakthrough in solar, or biomass, fusion, geothermal. But all these technologies must compete with subsidized corn-based ethanol production.
So many government decisions are loaded with emotional baggage. Abortion, health care, education and the environment arouse powerful feelings, and many people let their emotions take over when discussing them. But -- other than Senator Grassley -- nobody gets too choked up about Ethanol. Non-Senators can discuss the benefits and pitfalls of subsidies rationally.
It represents a good opportunity to educate people on the dangers of state intrusion into free markets.
UPDATE: Insty links to the Sun article and has a lot more on the connection with VP Gore which interested my original emailer.