To the People

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or TO THE PEOPLE.

Monday, April 09, 2007

Ethanol Poised to Destroy World Economy

The US government's embrace of ethanol as a solution to reducing fossil fuel dependence will likely go down as one of the biggest economic policy blunders of the modern age. The reason is so obvious that only the government could fail to grasp it: ethanol will cause wide-spread inflation. Ethanol is corn-based and as demand for ethanol rises, so do corn prices. As corn prices rise, so do the prices of anything that contains corn or high fructose corn syrup, which is ubiquitous. The price of corn-fed meat also rises. Finally, as corn fetches high prices farmers stop growing other crops to replace them with corn, and so those prices rise as well. So while next year's corn crop is expected to be the biggest in 60 years, the cotton crop in the South will be the smallest in 30 years and soy and other crops will also be greatly reduced.

Welcome back to the 1970s. Ethanol-induced inflation is already rearing its ugly head, according to this article in today's WSJ [subscription only].
The U.S., too, is seeing some stirrings, with food costs rising 3.1% in February from the year before -- a rate one percentage point higher than in mid-2005. Economists say U.S. food prices are expected to rise faster than the general rate of inflation this year. Wholesale prices of meat, poultry and eggs have already increased.

If the trend continues, U.S. consumers are likely to see higher prices at the supermarket for everything from milk to cereal to soda pop, since corn is used to feed livestock and make high-fructose corn syrup, a key ingredient in many soft drinks. A spokesman for the National Chicken Council, a poultry-industry group, recently testified to a congressional subcommittee that Americans should expect higher chicken prices because of what the group described as "the ethanol crisis."
More here. Competitive Enterprise Institute has a great paper here that points out the massive land costs of ethanol. A NY Times article here reports on environmentalists' concerns about the fuel. When CEI and Earth Policy Institute agree on something, you know it has to be indisputable. Yet the government fails to see the glaring fluorescent light and Bush continues to push ethanol, even talking about it in the SOTU.

Labels: , ,