Mises Wire

A
A
Home | Blog | The many evils of ethanol

The many evils of ethanol

March 1, 2008

This MSNBC article notes how the price of wheat is being driven up not just by the devaluation of the dollar, but by "increased demand" for ethanol.

The article fails to mention that the demand for ethanol has not just magically increased on its own, but has increased only because massive government subsidies have made it more relatively attractive. Nor does it mention that ethanol is also now much more attractive to farmers because it receives fat subsidies that wheat-growing does not receive.

The result has been massive distortion in the market, causing a flight from other grains into corn, producing smaller supplies and thus higher prices for the other grains such as hops and wheat.

Corn for food has become much more expensive as well, and in Mexico the price of tortillas has skyrocketed because in the North American market, corn is now being grown for (subsidy rich) ethanol and not for food.

On top of all of this is the fact that it takes 5 gallons of water to produce 1 gallon of ethanol. So, the demand for water in arid western states has spiked.  This will likely impact the farmers themselves less than city dwellers (since farmers have priority on water through comfy arrangements with governments), but it will likely lead to higher urban water prices and many more lectures from politicians about conserving water. 

Of course, if the government were not meddling with the corn market to begin with, there would be much more water to go around, and food would be cheaper. Ethanol has never been economical or environmentally sound, but ethanol subsidies are an easy way to buy votes.  If one ever needs proof of the latter, one need only drive through Nebraska where the many billboards and ads proclaiming the messianic power of ethanol are enough to make a believer of any politician.

Follow Mises Institute

Add Comment