How often do I agree with Paul Krugman? Not. Very. Often. But – here is that blue moon moment.
Ignore the snarky dig relating to the fact that President Bush is a recovering alcoholic. Read on and see why we have lost our collective minds by putting ethanol in our tanks.
Increased demand for the grain helped boost food prices by 4.9 percent last year, the most since 1990, and will reduce global inventories of corn to the lowest in 24 years, government data show. While advocates say ethanol is cleaner than gasoline, a Princeton University study this month said it causes more environmental harm than fossil fuels.
“We are mandating and subsidizing something that is distorting the marketplace,” said Cal Dooley, a former U.S. congressman from California, who represents companies including Kraft Foods Inc. and General Mills Inc. as president of the Grocery Manufacturers Association in Washington. “There are no excess commodities, and prices are rising.”
Innovation and creativity to cut back (or better control) our use of fossil fuels? I’m all for it. Ethanol, however, is not the answer, for a myriad of reasons.
I agree that ethanol is a poor substitute for fossil fuels, and probably does not do anything for the environment. It may even make things worse. But there is an incredible benefit to the following that is being ignored my most everyone:
Scarce resource plus high demand spells higher prices. But the resource is only scarce for the time being. Those high prices should attract more suppliers into the market, dropping the prices dramatically. And the most likely new suppliers will be in developing countries who are basically shut out of the market now because of high tariffs and agricultural subsidies in rich countries (e.g. the US and the EU).
If the market were left undistorted by government intervention with respect to the PRICE and the SOURCE of grain, the current push for more ethanol should translate into higher incomes for poor farmers. Developing nations would be able to rise out of poverty.
And despite the immediate effect of either being neutral or worsening the environment (depending on who you believe) it’s uncontested that richer countries have cleaner environments. At least on some level, therefore, the environment stands to gain.
“We are mandating and subsidizing something that is distorting the marketplace”
Don’t all subsidies have a distorting effect on the marketplace?
It was heartening to hear McCain said he opposed subsidies for ethanol, which he made in corn friendly Indiana.