High corn prices for ethanol are good for the U.S. farmer, but...
How Biofuels Could Starve the Poor
By C. Ford Runge and Benjamin Senauer
From Foreign Affairs, May/June 2007
Summary: Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.
C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.
(The article is here.)
By C. Ford Runge and Benjamin Senauer
From Foreign Affairs, May/June 2007
Summary: Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.
C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.
(The article is here.)
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1 Comments:
There is a good lesson in this circumstance that is taught at every reputable economics school - actions have consequences. And usually more than just the next consequence. Economics teaches us to not just look at the next consequence, but the third, fourth, fifth and so on, consequence of our decisions.
Too often, our elected leaders and policy advisors only talk about the very next thing that is going to happen. Call it 're-elective myopia' - or promote the immediate issue that will help ensure re-election. We jump on ethanol wagon without considering the following consequences. Soon, the price of E85 exceeds the price of gasoline because we didn't think to consider increased prices in other commodities that rely on corn due to a squeeze in supply due to ethanol production.
The same thing happens with taxes. The DFL Legislature in Minnesota has proposed somewhere in the neighborhood of twelve new taxes or increases in existing taxes. But, due to 're-elective myopia', did anyone stop to consider what people might do to avoid these taxes - such as moving out of state, curbing purchasing, or other deleterious effects? Typically, politicians believe that taxes doesn't change a person's behavior, but it does. People and capital generally flow on the path of least resistance. When a tax becomes too burdensome, people will avoid that activity that kicks in that tax. Call it the law of supply and demand.
And so, now we see the same thing with corn. Demand rises, supply drop and prices skyrocket.
Larry Pogemiller's solution to this situation is to raise your income taxes (taking money out of your right pocket), and giving you 'corn price relief' (placing the dollar in your left pocket) and tell you 'see? I just gave you relief'.
Sadly, or thankfully, market economics doesn't operate on the same 're-elective myopia' philosophy as we see in the corn market today.
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