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Monday, April 28, 2008
Senator Kay Bailey Hutchison :: Townhall.com Columnist
Undoing America's Ethanol Mistake
by Senator Kay Bailey Hutchison
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With unemployment at 10.2%, what will happen by the end of Obama's first term?



The Nobel Prize-winning economist Milton Friedman once said, "One of the great mistakes is to judge policies and programs by their intentions rather than their results."

When Congress passed legislation to greatly expand America's commitment to biofuels, it intended to create energy independence and protect the environment.

But the results have been quite different. America remains equally dependent on foreign sources of energy, and new evidence suggests that ethanol is causing great harm to the environment.

In recent weeks, the correlation between government biofuel mandates and rapidly rising food prices has become undeniable. At a time when the U.S. economy is facing recession, Congress needs to reform its "food-to-fuel" policies and look at alternatives to strengthen energy security.

On Dec. 19, 2007, President Bush signed into law the Energy Independence and Security Act. This legislation had several positive features, including higher fuel standards for cars and greater investment in renewable energies such as solar power.

However, the bill required a huge spike in the biofuel production requirement, from 7.5 billion gallons in 2012 to 36 billion in 2022.

This was a well-intentioned measure, but it was also impractical. Nearly all our domestic corn and grain supply is needed to meet this mandate, robbing the world of one of its most important sources of food.

We are already seeing the ill effects of this measure. Last year, 25% of America's corn crop was diverted to produce ethanol. In 2008, that number will grow to 30%-35%, and it will soar even higher in the years to come.

Furthermore, the trend of farmers supplanting other grains with corn is decreasing the supply of numerous agricultural products. When the supply of those products goes down, the price inevitably goes up.

Subsequently, the cost of feeding farm and ranch animals increases and the cost is passed to consumers of beef, poultry and pork products.

Since February 2006, the price of corn, wheat and soybeans has increased by more than 240%. Rising food prices are hitting the pockets of lower-income Americans and people who live on fixed incomes.

While the blame for higher costs shouldn't rest exclusively with biofuels — drought and rising oil costs are contributing factors — the expansion of biofuels has been a major source of the problem.

The International Food Policy Research Institute estimates that biofuel production accounts for between one-quarter and one-third of the recent spike in global commodity prices.

For the first time in 30 years, food riots are breaking out in many parts of the globe, including major countries such as Mexico, Pakistan and Indonesia.

The fact that America's energy policies are creating global instability should concern the leaders of both political parties.

Restraining the dangerous effects of artificially inflated demand for ethanol should be an issue that unites both conservatives and progressives.

As a recent Time cover story pointed out, biofuel mandates increase greenhouse gasses and create incentives for global deforestation. Continued...

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About The Author
Senator Hutchison chairs the Senate Republican Policy Committee and is representing Texas in her third full term in the Senate.
Another great economic truth...
...which was left out of this article is that you can always tell a good idea by how much private capital is drawn to it. Sure, many good ideas go unfunded. That's not because they aren't good ideas, but because there is a limited amount of capital to go around, and the most attractive ideas are funded first, as they should be. The govt plundering capital through confiscatory taxation further drains this pool of potential capital, leaving more good ideas to languish. What govt does when it subsidizes ideas that private capital has found unattractive, is to remove the very capital that is needed to fund thousands of good ideas, in order to fund one that dropped off the list. Ethanol is just such an idea. It's time is not yet ripe. It may prove to be unnecessary in the relatively near future as other, presently unimaginable or nascent, technological breakthroughs make alternatives more attractive as investments.

In short, if it was such a good idea it would be sufficiently attractive as a profit maker to attract the necessary capital on its own merits. The amount of capital invested in it from private resources is a reliable indicator of how mature or attractive a business is. Ethanol does not merit special attention because a body of politicians declare it to be a good idea. Politicians have a positively dreadful track record picking winners in the marketplace. Let them put their own, private, money (they seem to have plenty of it) where their mouths are, and leave my money alone!

High oil prices aren't so bad
The corn lobby is an obvious culprit, but the sugar lobby sucks, too. With inflated sugar prices, producers have no desire to produce sugar-ethanol, because the fuel market is more competitive and less sheltered than their current arrangement.
Hockey Goon makes a good point:
"...True ethanol has less BTUs than gas, but it is also much higher octane - higher compression ratios woudl easily make up the differance (why do you think dragsters use alcohol instead of gas?)."
Galltegfa writes:
"China and India are offering the $100; why should the oil cartels take $60 (or less) from us? ...We have oil, natural gas, coal, shale oil, nuclear materials. In fact, now that oil is commanding such high rates, ...the US is now the world's #3 oil producer...."
Another problem that might develop: if Americans expect to pay $60/barrel for oil, domestic producers will sell it abroad for $100/barrel. The demand in Asia will keep prices high regardless of domestic supplies. It's not such a bad thing. Though lefties exaggerate the human causes, global warming is happening, and petroleum is ultimately a non-renewable resource anyway. Oil will get more expensive, and the market will bring about alternatives. Cars will get smaller, and trains will handle more freight. The demise of SUVs and F-350s (plummeting resale values) will be one benefit. Aside of the rudeness of taking a "commanding" view at the expense of others (like using a booster-seat at the movies), these strap-on male secondary sexual characteristics (brawniness) just add to the caricaturization of masculinity in Western society. Keeping real men preoccupied with toy trucks and vicarious thrills from spectator sports diverts all that testosterone away from the things that men do best--building a strong civilization, innovating, and kicking some intellectual butt.
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