Wednesday, May 14, 2008

McCain Free Trade and Ethanol

Ethanol provides an interesting lesson in government subsidies, why they cause problems and why free trade works better. It's understandable how in the late '70's ethanol subsidies started. There was an interest in finding energy alternatives, and the idea of corn based ethanol held promise. Today there is still a desire to find clean energy alternatives, and ethanol still holds promise. Yet these subsidies, even if well intentioned, create more problems than they resolve. Problem number one, subsidizing corn based ethanol creates an obvious focus on corn. However, the promise ethanol now lays in numerous sources such as switch grass, sugar, or a host of other natural products. Pushing corn slows the development of ethanol from these alternate sources. Second, subsidizing corn ethanol creates an unnatural shortage of corn. Hence food prices rise; not only corn based products, but the cost to feed farm animals increases making the price of meat and dairy products increase too. The working class and those already struggling financially are hurt the most as the price of necessities increase.

Finally, the last problem with ethanol subsidies is they are hard to illiminate. Senator McCain made a very gutsy decision to be the only candidate to go into the Iowa primary stating that he opposed ethanol subsidies. Telling farmers that it is no longer good economics to regulate and subsidize corn ethanol is hard, but necessary. Eliminating these subsidies will help with food prices. It will help allow other sources of ethanol to develop, and will even allow the US to purchase cheaper ethanol from other countries such as Brazil who has plenty. Regulation and subsidies are often well intended, but as is the case with ethanol, problems often arise when free trade isn't practiced.

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