Monday, January 24, 2011

Bad ideas in government last forever

If ever there was a bad idea for a government policy, support of ethanol would rank right up there. It is contributing to rising grain prices which are rippling through the rest of the economy, yet it is not achieving any of the environmental benefits it was supposed to.
About 40% of U.S. corn production is used to produce feed for animals. As corn prices rise, beef, poultry and other prices rise, too. The price squeeze has already contributed to the bankruptcy of companies like Texas-based Pilgrim's Pride Corp. and Delaware-based poultry maker Townsends Inc. over the past few years.

This damage coincides with a growing consensus that ethanol achieves none of its alleged policy goals. Ethanol supporters claim the biofuel reduces U.S. dependence on foreign oil and provides a cleaner source of energy. But Cornell University scientist David Pimentel calculates that if the entire U.S. corn crop were devoted to ethanol production, it would satisfy only 4% of U.S. oil consumption.

The Environmental Protection Agency has found that ethanol production has a minimal to negative impact on the environment. Even Al Gore, once an ethanol evangelist, now says his support had more to do with Presidential politics in Iowa and admits the fuel provides little or no environmental gain.
Yet the government continues its mandates on ethanol blends in gasoline. Plus the farmers get tax credits for blending ethanol into gasoline.

Yet with concerns about rising food prices, increased recently by fears of what the floods in Australia will do to wheat prices, the United States is increasing the amount of our corn crop that is devoted to ethanol. Check out this chart from the WSJ of the trend in the percent of our corn crop going to ethanol.
Does this make sense? Perhaps if all the dreams of how ethanol would provide cleaner energy. But all evidence is contrary to that. Yet our subsidies and tax credits for ethanol continue. And the price of food goes up. The perfect government program - bad in all its effects, yet continuing to be mandated and subsidized by the federal government.