We should always stop to applaud the steps, no matter how small, that Congress makes in the name of economic freedom. So what has the legislative body finally gotten right? Ending its 30-year, $45 billion dollar affair with ethanol subsidies. Subsidizing the corn-based fuel mixed in with gasoline has become simply too contentious.
Why is that important? Because creating any subsidy in the first place creates unforeseen consequences.
Frederic Bastiat, a 19th century French economist, illustrated this point best. Imagine a shopkeep who wakes one morning to find that some rapscallion has broken his windows. Yes, it’s a shame that the shopkeep will have to pay to replace the windows. But, some may argue, that’s a good thing, as it will employ the services of the glazier.
Ah, yes, that’s what is seen. What isn’t seen is the new pair of shoes the shopkeep could have bought instead. Or a fine dinner. Or a nice suit. Instead, the shopkeep is worse off, as he has to spend to get back to the condition he was in only the night before.
Ending the ethanol subsidy will do more than simply save taxpayers $6 billion a year in government payments. Remember, that’s only what we’ve seen (what Congress has shown us).
Farmland that may have been better for wheat or soybean production instead went toward corn production as part of that subsidy. So, yes, the amount of corn we produce may go down, but the production of other commodities will likely rise. That will help lower overall agricultural prices, or at least put a dent in the long-term trend of rising prices.
Also, corn ethanol is a net energy user (it takes more energy to grow corn and refine a gallon of ethanol than that gallon provides). Ending the ethanol fuel subsidy puts corn back on the table, but also leaves more energy-efficient gasoline in its place. Sounds like a win-win for consumers at both the grocery store and the gas pump.
There’s another hidden player that benefits from this too: The environment. According to a report in Scientific American, ethanol may be worse for the environment than petroleum, as it leads to a higher output of greenhouse gases. It’s no wonder that some environmentalist groups have come out against ethanol as a fuel source!
Of course, don’t expect corn production to fall off a cliff. The grain is used as an additive and sugar substitute in a variety of food products.
Most of corn’s production still goes to food. That won’t change.
While it’s a great step in the right direction with a myriad of economic benefits, Congress still has a ways to go. Subsidies on corn itself are still in place. High tariffs on sugar keep the price in the US far higher than in the rest of the world.
Here’s to hoping that Congress ends a few more of its tawdry affairs in 2012.
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