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Thirty Years of Living on the Dole Ends for the Ethanol Industry

Convincing the federal government to end wasteful spending programs is usually about as easy as getting a crocodile to sit still so he can have his teeth brushed. Once the government starts subsidizing some kind of private interest or industry, those who benefit from this largesse will do everything in their power to keep those handouts coming. Because there is no money to be raised or votes to be gained in ending a government program, these efforts usually succeed, and the wasteful spending then continues indefinitely. But surprisingly, after almost thirty years of subsidization, the ethanol industry has now lost its government meal ticket, as Congress has finally decided to end its assistance to an industry that hardly needs help anymore, if it ever did.

While the Tea Party movement has been stalled in many of its goals in bringing fiscal sanity to Washington, getting rid of the ethanol subsidy, which had grown into a $6 billion per year mega-handout, was one area that they have been successful at. Keeping with the cost-cutting mood of the times, every 2012 Republican presidential candidate ultimately expressed their opposition to this subsidy program. In the past, ethanol assistance had been popular in mid-western farm states, but when polls before the most recent Iowa caucus showed voters were more concerned about cutting the deficit and curbing government spending than they were about continuing this program, it probably sealed ethanol’s fate. It was certainly interesting that one powerful Republican congressman who supported the ending of the subsidy actually mentioned how inappropriate it was to have a program like this that only benefited large agribusiness corporations instead of smaller farmers, which is not the sort of opinion one would expect to hear coming from a spokesman from that party in particular. But on this issue, the Tea Party was able to use its influence to move the Republicans in the direction of not just smaller government, but more responsible government, and for this they deserve the heartfelt congratulations of all American taxpayers regardless of their political stripes.

A Success Story?

While many may not be aware of it, at the present time the ethanol industry is actually thriving. Higher oil prices have helped keep it competitive as a fuel source, and the EPA’s requirement that mandates a certain amount of ethanol be added to all gasoline has been a boon to the industry. Ethanol has also grown into a popular and important export crop, generating over $1 billion in trade revenue in 2011 alone. Because of this success, many are pointing to the situation with ethanol as a success story that proves the government’s ability to make a positive contribution to the economy with its spending programs.

But is this conclusion justified? In order to answer this question in the affirmative, we would need to establish two things. First, we would need to show that without government subsidies and involvement, ethanol would never have become the behemoth that it now is. While it is a conclusion that will bring howls of protest from those who think government spending is always bad, in fact there is ample reason to believe that without government assistance, the ethanol industry would never have been as successful as it has been if it had been left on its own. Anything that starts out from speculation will likely benefit from any kind of investment help it can get, and only blind ideology would lead anyone to believe that money from the government is somehow tainted in a way that money from private investments is not. Money is money, and there is no reason to conclude that government aid was anything but helpful to this industry – and the EPA’s Renewable Fuel Standard requirements have obviously boosted the industry in a big way as well.

But when evaluating the utility of government funding for a particular interest or industry, the second question that must always be answered is this: by essentially using its dollars to pick winners from among a group of potential contestants, does the government actually hurt the economy in the end by turning would-be losers into undeserving winners? In other words, would the workings of the free market have led to a different – and better – outcome if things had just been left alone? In the case of ethanol, the answer here seems to be yes, we all would have been better off if the government had stayed out of things.

Why do we reach this conclusion? Mainly for three reasons. Number one, one of the primary initial justifications for the promotion of ethanol, that it is good for the environment, has turned out to be false. When you factor in all of the fossil fuel energy that is used to grow, harvest, manufacture, and transport this product to places where it can be used as fuel, and then factor in the amount of pollutants it releases into the atmosphere in comparison to those released by the fossil fuels burned for fuel in pure gasoline, it turns out the environmental benefits of ethanol are illusionary. Rather than cutting down on carbon emissions, ethanol in the end actually adds more carbon pollutants to the atmosphere than it saves, meaning that ethanol is helping to destroy the environment rather than save it. An ancillary of this result is that because so much time, energy, and money has been put into propping up ethanol, it has made things harder for those who would like to improve and develop other alternatives to run our vehicles that likely would be superior to ethanol, such as biodiesel and hydrogen. So not only would a hands-off approach by the government have saved taxpayers tens of billions of dollars, but it also would have increased the likelihood that research and development into cleaner and more efficient alternative fuel products and technologies would have been much farther along by now.

There is one other problem with the subsidies to ethanol, and that is their effect on food prices. Because they were going in most instances to corn farmers, they were helping to artificially expand demand for corn, which of course has led to an increase in the price for a vitally important source of calories and nourishment. Corn is obviously one of the staples of our food supply, since it is used to make so many different products as well as being used as feed for farm animals, so the higher price of corn has rippled down through the food supply and down through our entire economy. Higher food costs have caused the greatest suffering among poor people in developing countries and have probably led to an increase in hunger, poverty, and starvation worldwide.

Of Bungles and Boondoggles

Those who choose to believe that government money only has negative effects are guilty of ideological overreach. This would be an especially ironic argument to make in online forums, editorials, and comment sections since it is a well-known fact that the internet was developed largely through research and development funded by the Department of the Defense.

Nevertheless, government involvement in the economy does cause a distortion in the marketplace because it is tilting the rules of the game in favor of interests that may not be deserving of such support. The thirty-year long program of subsidization that helped the ethanol industry take off seems to be a prime example of an instance when government handouts have benefited an economic interest that was not worthy of receiving this kind of assistance. While it may be unfortunate that the EPA mandate that requires ethanol to be blended with gasoline continues to exist, we should still all be glad that an unfortunate and ultimately wasteful government program is finally coming to an end. This is a step in the right direction, and hopefully more steps will be coming soon.

©2012 Off the Grid News

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