Free Markets, Free People

Daily Archives: November 25, 2011


How can government help the economy? End the corn ethanol subsidy

The fixation of government on “alternate fuels” and its use of taxpayer money to subsidize some of them is, at least in one case, having a very negative effect on markets.  Again we have government market intrusion to hold responsible for rising food prices in an era of high unemployment and economic turmoil.

Again, this is Econ 101 stuff.  For a government so full of experts who feel they have the right (based one assumes, in their superior intellect … or something) to decide what we should be using for fuel rather than letting markets decide, they sure have screwed this one up.

Corn is a major food crop.  And, for the most part, markets have kept corn relatively cheap and plentiful.  Enter government and the mandate that ethanol be produced and mixed with gasoline in an effort, one supposes, to reduce the amount of oil consumed.

The result, however, has been to drive up the price of corn and the price of other commodity foods instead. 

Here’s how it works.  The set up:

Powerful agribusiness interests collect a 45-cent-per-gallon tax credit to convert this food crop into ethanol, an unnecessary and sometimes harmful additive to gasoline. Another 54-cent-per-gallon tariff is imposed to keep Brazil’s sugar-cane-based ethanol from entering our shores. Nor does the folly end there. The Food and Energy Security Act of 2007 mandates a massive increase in the production of ethanol by 2022 even though there is no demand.

While there’s no demand, there’s plenty of your money to be had.  And what do producers react too?  Incentive.  So what provides the best return on investment right now?   Corn.  Not for the consumer, but for the producer.  So what do producers of other commodity foods do?  They switch from growing wheat and soybeans to corn.   The result is inevitable:

The lure of free government money reduces the amount of corn available for other uses, primarily as feed for animals. This has a cascade effect, increasing prices down the food chain and for crops unrelated to corn. Farmers might switch from growing, say, soybeans, to corn to get hold of the extra subsidy. That makes soybeans scarcer and drives up their cost. This year, the price of wheat has increased as farmers have switched to corn to take advantage of high corn prices. In either scenario, the price of food increases, and that’s the last thing we need right now.

When the price of feed grain increases, what do you suppose happens to the price of meat?

Want ethanol?  Feel it is a necessary and good thing?   Drop the mandate, drop the subsidy and drop the tariff.   Let the market decide.  If it actually does what its champions claim and actually provide an additive to gasoline that increases performance (a dubious claim at best) and lessens our dependence on oil, that ought to be an easy idea to sell.

The fact is, without the subsidy and the mandate, the market would most likely reject ethanol completely.  And that would conflict with the ideologically driven agenda that our government has put in place – namely it has the responsibility to decide what we should or shouldn’t use to power our vehicles.  Each administration has its own take on how this should be done but make no mistake, this has been something which has survived both Republican and Democratic administrations.

It is another, in a long line of examples, of government intrusion, market distortion and wasting taxpayer money for a product with no demand.  It also has the effect of driving up prices in food in an era of high unemployment.  It is a disastrous policy and the proof is in the distorted markets.

Time to end the whole program and rescind the foolish government mandate.  The effect?  Food prices would again react to market pressures instead of government mandates.   And taxpayer money wouldn’t be used to distort those markets any longer.

Win win as I see it.

~McQ

Twitter: @McQandO


Libya–Welcome to the Post-Gaddafi era

Seems to me to be much like the Gaddafi era minus Gaddafi:

Thousands of people, including women and children, are being illegally detained by rebel militias in Libya, according to a report by the Secretary-General of the United Nations. Many of the prisoners are suffering torture and systematic mistreatment while being held in private jails outside the control of the country’s new government.

The document, seen by The Independent, states that while political prisoners being held by the Gaddafi regime have been released, their places have been taken by up to 7,000 new “enemies of the state”, "disappeared" in a dysfunctional system, with no recourse to the law.

Now I know the apologists for the “new” government will say this is all part of the transition from one era to the next.  But in fact it is not.   It is Libya.  It is now completely dysfunctional, not partially.   And there are no wonderful democratic traditions and institutions to pull it out of the morass either.

Instead, it has devolved into a land area in which tribal feuding is in full swing and armed militias now rule.

Ban Ki-moon also presents a grim scenario of the growing power of the armed militias that control of the streets of many towns, including those of the capital, Tripoli, and the settling of internecine feuds through gun battles resulting in deaths and injuries.

Meanwhile the lawlessness has resulted in the vast majority of the police force not being able to return to work. In the few places where they have been back on duty under experienced officers, such as Tripoli, their role has been restricted largely to directing traffic.

[…]

The scope of escalating strife, inside the country as well as the wider region, is highlighted by the caches of weapons abandoned by the regime and subsequently looted. These include shoulder-launched surface-to-air missiles, known as Manpads, capable of bringing down commercial airliners.

[…]

The report says that “while political prisoners held by the Gaddafi regime have been released, an estimated 7,000 detainees are currently held in prisons and makeshift detention centres, most of which are under the control of revolutionary brigades, with no access to due process in the absence of a functioning police and judiciary.”

Of particular worry was the fate of women being held for alleged links with the regime, often due to family connections, sometimes with their children locked up alongside them.

“There have also been reports of women held in detention in the absence of female guards and under male supervision, and of children detained alongside adults,” says the report.

A number of black Africans were lynched following the revolution following claims, often false, that they were hired guns for the Gaddafi regime. The city of Tawerga, mainly comprised of residents originally from sub-Saharan countries, was largely destroyed by rebel fighters from neighbouring Misrata. The port city had withstood a prolonged and brutal siege in the hands of the regime forces during which, it is claimed, fighters from Tawerga were particularly aggressive and brutal.

The report says that ”sub-Saharan Africans, in some cases accused or suspected of being mercenaries, constitute a large number of the detainees. Some detainees have reportedly been subjected to torture and ill treatment. Cases have been reported of individuals being targeted because of the colour of their skin.”

The document continues: “Tawergas are reported to have been targeted in revenge killings, or taken by armed men from their homes, checkpoints and hospitals, and some allegedly later abused or executed in detention. Members of the community have fled to various cities across Libya.”

Wonderful stuff.  Just gets your freedom and liberty loving bones stirring doesn’t it?  Loaded with weapons and with scores to settle, militias are now out and about carrying out whatever orders the tribal leaders have decided are necessary. 

That’s democracy, right?  Not to mention enough weapons looted to threaten regional security even more than it already has, many of which will most likely reach the hands of Hezbollah and Hamas.

Well done, NATO.

~McQ

Twitter: @McQandO

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