Friday, July 27, 2007

Unintended Consequences

Politicians who pander to their campaign contributors - and that would be all of them - create programs to solve perceived problems and create more problems as a result. Farm subsidies are a prime example:

Ethanol is a new industry that owes its growth solely to Congressional action. Corn growers now get a subsidy of 51 cents per gallon of ethanol they produce. On top of that they enjoy a guaranteed market — Congress has mandated that gasoline manufacturers use 7.5 billion gallons a year, which amounts to a guaranteed subsidy of about $4 billion, courtesy of American taxpayers. And how does this benefit the taxpayer? Less efficient fuel, for starters — ethanol provides less energy than gasoline, generating about 2.5 percent fewer miles per gallon. Ethanol subsidies also contribute to higher food prices, as corn growers reduce the supply of corn for food and plant more of it for fuel. In turn, corn-based animal feed has become more expensive, increasing the price of milk, as well as meat. The price of corn syrup goes up as well, which means that sodas and other sweet goods have also become more expensive. In short, all Americans are seeing higher grocery bills as a result of the ethanol subsidy — thus hurting even those who are too poor to pay taxes.

The subsidies even affect poor people outside the US:

Nor does this stop at the border. The subsidy is exporting trouble. Mexico has seen a tortilla shortage because American corn exports are stymied by the combination of government price controls and decreased supply.

Not only is Mexico suffering, but the United Nations World Food Program, which does a reasonably good job of averting starvation in areas affected by famine, has seen its costs increase by 50 percent because of biofuel programs. That means that fewer people are going to get the food they need.

It is not an exaggeration to say that the U.S. ethanol subsidy could soon start killing people in developing countries. After all, how is corn most helpful to poor people — as a food source or as fuel for an SUV?

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