Acton Institute Powerblog

One More Reason the Government Shouldn’t Subsidize Ethanol

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Excerpts from Clifford Krauss’ article in the New York Times (cross-posted at SchansBlog.com)…

The ethanol boom of recent years — which spurred a frenzy of distillery construction, record corn prices, rising food prices and hopes of a new future for rural America — may be fading.

Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records. But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace…

–> Of course, markets can suffer from gluts and bubbles, but such problems are much more likely in the face of government planning, regulation, and intervention. Central planning doesn’t work because central planners lack the knowledge and motives to do it effectively. This is not a correctable deficiency in central planners. Thus, better central planning is unlikely. (At least, that’s what the data say overwhelmingly.) Nonetheless, faith in central planning– or interest by interest groups in using it to promote their own ends– continues apace…

While generous government support is expected to keep the output of ethanol fuel growing, the poorly planned over-expansion of the industry raises questions about its ability to fulfill the hopes of President Bush and other policy makers to serve as a serious antidote to the nation’s heavy reliance on foreign oil.

–> Uhhh…and that’s not to mention the limits of ethanol (even at its peak, it could only provide a small fraction of the total demand) and its energy and economic inefficiencies.

“If Congress doesn’t substantially raise the renewable fuel standard,” Mr. Brady said, “then this is not just a short term problem but a long term issue, and there will be more of a shakeout in the industry.”

–> Right…What’s “the answer”? More regulation and subsidies. That’s a great answer if you’re in the business; it’s a bad answer if you’re anyone else.

Eric Schansberg Dr. Eric Schansberg is a Professor of Economics at Indiana University Southeast in New Albany where he has been on faculty for 17 years after earning his Ph.D. in Economics from Texas A&M University. Dr. Schansberg is the author of Turn Neither to the Right nor to the Left: A Thinking Christian's Guide to Politics and Public Policy, Poor Policy: How Government Harms the Poor. He is co-author of Thoroughly Equipped, a 21-month Discipleship Curriculum, and he is the editor of SchansBlog. Eric has been married to Tonia for 13 years and is the proud father of four boys—two by adoption and two the more conventional way. Their family is active in K-TAG—the Kentuckiana Trans-racial Adoption Group.

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