Ethanol Bust
The Crumbling Allure of Ethanol
By Daniel Muniz

Ethanol has certainly lost its luster these days. Once touted as the cure for America’s addiction to oil and the solution to the world’s problems, corn-based ethanol is now being scorned by many segments of our economy who once embraced it. Even the media whose infatuation with global warming help prompt this surge toward biofuels is now quietly downplaying the shockwaves that are reverberating across the country and around the world.

Today, there is a growing backlash amongst an increasing number of grumbling politicians.

But there was no misunderstanding because the mathematics was always clear and simple. Instead, it was the ignorance and the naivety of our politicians and from the media that created many of the misconceptions. The press and the politicians love simple solutions to complex problems and that was exactly what ethanol promised. Regrettably, there were too many unrealistic expectations involved.

In the beginning, farmers were thrilled that the federal government was plowing billions of dollars of corporate welfare into promoting the use of ethanol even though deriving it from corn was the worst possible choice to create this alternative fuel from. Currently, the most efficient way to process ethanol is from sugar cane and the cheapest way to get it would be to import from other countries. That option was immediately taken off the board with stiff tariffs. Nobody wanted to interfere with the enormous subsidies that would be needed to make ethanol a reality.

Corn was the natural alternative because farmers always need a huge demand for their crops in order to obtain a better price. However, the tragic flaw to this plan is that corn was already being used for other things. Before the government went hog wild for corn, it was consumed as food for humans and for livestock.

Make less of it available and the price goes up. That is a simple application of the economic law of supply and demand.

And the outcome has been harsh because there certainly is a lot less of it available to feed a hungry population.

Feed costs have skyrocketed for any kind of livestock such as chickens, turkeys, cows, pigs, etc. All of a sudden, trade organizations were under the gun to pressure politicians to find a way to divert less corn away from ethanol. It didn’t take long for farmers to turn against each other. It is one thing to help a fellow farmer but it is something totally different when he starts taking food out of your mouth (or out of your cow’s mouth).

Corn, especially corn sweeteners, is also used in great quantities by soft drink manufacturers and by other food producers. Now big corporate conglomerates are striking back because of the spike in costs.

Even hunters are joining the anti-ethanol chorus. Farmers are starting to tap into certain hunting grounds to plant a crop of corn. In fact, today represents the greatest agricultural expansion since World War II.

And finally, a high corn cost is now hurting the people who rely on it as a staple. Across the border into Mexico, the price of tortillas is seriously affecting an impoverished population who use their meager financial resources to subsist on it. Mexico is going through a dramatic change. Tequila producers are destroying their agave cactus farms to grow corn. However, the additional cornfields are not destined to alleviate Mexico’s food shortage but to cash in on the huge demand that subsidized ethanol has created in the United States.

As a result, politicians are quickly changing their tune.

Reality is beginning to sink in because no longer are many of them demanding that every single kernel of corn be diverted to ethanol. Caps are now being attached to amendments to slow the rush to ethanol. There is now a realization that there a lot of different industries rely on corn.

However, the real culprit is the federal government.

There is absolutely nothing wrong with financing research because our civilization needs it. The problem is when the government goes beyond the research and makes policy decisions that interfere with the free market. It artificially created a non-existent demand that disrupted the mechanisms of free enterprise, which is disrupting our food supply.

The free market established an equilibrium on corn and all the industries responded fairly well to it. Supply and demand smoothed out the wrinkles which resulted in favorable conditions for everybody. And whole country benefited from the market forces that resulted in low prices for feedstock and human consumption.

And the reason that gasoline worked has so well for generations is because the free market made it cheap and plentiful. Unfortunately, when the government began micromanaging our petroleum products, (dictating where to drill, where to build refineries, where to store it, etc.), the result was a highly sensitive industry that was unable to respond to sudden changes in market conditions.

The same thing is happening with ethanol. Our government is micromanaging our energy policy.

If ethanol is indeed the solution for America’s energy needs, then the free market can sort itself out and make it cheap and plentiful. Instead of picking the worst of all worlds, like corn, the free market will find a way to make a biofuel economical and efficient.

The best thing that the government can do is just to stay out of the way. It needs to allow market forces to take their course. And most important of all, our government needs to stop providing corporate welfare because if there is money to be made out of biofuels, entrepreneurs will find it.

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