Why Ethanol Subsidies Are Bad

I’ve posted on this before, but via James Hamilton comes this interesting tidbit of information.

To be sure, there are many factors influencing food prices. But to me it’s natural to begin with the element that represents a deliberate policy choice on the part of the United States. I refer to America’s decision to divert a significant part of our agricultural production for purposes of creating a fuel additive for motor vehicles. USDA Chief Economist Joseph Glauber predicts that 4.1 billion bushels, or 31% of the entire U.S. corn crop, will be devoted to ethanol production for the 2008/09 season.–emphasis added

Gee, does anyone think that devoting 31% of the U.S. corn crop, 4.1 billion bushels, won’t increase food prices here and abroad? This could be one of our worst green mistakes. In fact, it sort of reminds me of the Corn Laws back during the Irish Potato Famine.

Records show Irish lands exported food, even during the worst years of the Famine….Cecil Woodham-Smith, an authority on the Irish Famine, wrote in The Great Hunger; Ireland 1845-1849 that,

…no issue has provoked so much anger or so embittered relations between the two countries (England and Ireland) as the indisputable fact that huge quantities of food were exported from Ireland to England throughout the period when the people of Ireland were dying of starvation.

Ireland remained a net exporter of food throughout most of the five-year famine.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Dave Schuler says:

    I think it’s far more likely to raise meat prices here.

  2. Triumph says:

    Also worthy of mention is the tariff on biofuel imports that acts as an additional subsidy. Brazilian ethanol (which is produced using less carbon inputs) carries something around $0.50/gal subsidy.

    Bush–for some unknown reason–continues to resist Lula’s entreaties to open the market. For all of Bush’s talk about the “promise” of ethanol and ending an addiction on “Middle East oil” you would think that it would make sense from his point of view to make it easier to buy biofuels from one of our allies.