Wednesday, March 12, 2008

Unintended Consequences

Jeff Jacoby tells us how government makes things worse in the Boston Globe (HT: Mankiw):

WHAT DO ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.

Take ethanol, the much-hyped biofuel made (primarily) from corn. Ethanol has been touted as a weapon in the fashionable crusade against climate change, because when mixed with gasoline, it modestly reduces emissions of carbon dioxide. Reasoning that if a little ethanol is good, a lot must be better, Congress and the Bush administration recently mandated a sextupling of ethanol production, from the 6 billion gallons produced last year to 36 billion by 2022.

But now comes word that expanding ethanol use is likely to mean not less CO2 in the atmosphere, but more. Instead of reducing greenhouse gas emissions from gasoline by 20 percent - the estimate Congress relied on in requiring the huge increase in production - ethanol use will cause such emissions to nearly double over the next 30 years.

It seems to me that ethanol subsidies have had exactly the effect that the politicians expected - Charles Grassley is still the Senator from Iowa, right?

On to subprime:

The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers - by pressuring banks to make home loans in "low- and moderate-income neighborhoods." Under the act, banks were to be graded on their attentiveness to the "credit needs" of "predominantly minority neighborhoods." The higher a bank's rating, the more likely that regulators would say yes when the bank sought to open a new branch or undertake a merger or acquisition.

Jacoby ends with a quote from Mark Twain that is as true today as when he first wrote it:

"No man's life, liberty, or property is safe," warned Mark Twain, "while Congress is in session."

1 comment:

Anonymous said...

Vana Blue is now a Publicly Trading Company, I had a great tip for this stock, "VBLU" if you need more info. check out their website,