Ethanol?

The Senate voted yesterday by a large margin to cut off subsidies for ethanol, the fuel made from corn. This measure was attached to a bill unlikely to get passed, and president Obama has said that he will not support cutting off the subsidies at this time. Nevertheless, the vote seems like the beginning of the end for a bad policy.

The original idea was that the USA would have its cars run on fuel made from corn. In order to promote this, subsidies were put in place and a tax was levied on imported ethanol. This made domestic producers secure that their market share was safe and profitable. Of course, the main effect was the unexpected one: corn prices soared. As a result of the higher corn prices, meat and other products which depend on corn also rose in price. Oil usage may have declined, but the amount spent on subsidies almost made up for the resulting savings. This year, due to crop failures elsewhere, merican corn producers are getting extremely high prices for their crops which results in even more price rises for the corn based food products. So, the government is subsidizing those who don't need it and the main effect is to make food prices higher.

Ending ethanol subsidies will save well above 100 billion dollars over the next ten years. That number could be as high as 200 billion bucks. In our current budget situation, the greatest likelihoood is that these subsidies will soon end. Let's hope so! We could save trillions by switching the emphasis to using natural gas for vehicles.