A good example why subsidies are rubbish

Subsidies are dumb, they distort the market and in general encourage that which should not be encouraged…like biofuels.

Five years ago, rural America was giddy for ethanol.

Backed by government subsidies and mandates, hundreds of ethanol plants rose among the golden fields of the Corn Belt, bringing jobs and business to small towns, providing farmers with a new market for their crops and generating billions of dollars in revenue for the producers of this corn-based fuel blend.

Those days of promise and prosperity are vanishing. 

Nearly 10 percent of the nation’s ethanol plants have stopped production over the past year, in part because the drought that has ravaged much of the nation’s crops pushed commodity prices so high that ethanol has become too expensive to produce.

A dip in gasoline consumption has compounded the industry’s problem by reducing the demand for ethanol.

The situation has left the fate of dozens of ethanol plants hanging in the balance and has unsettled communities that once prospered from this biofuel.

“It’s a more somber mood,” said Todd Sneller, the administrator of the Nebraska Ethanol Board. “The growth opportunity that existed some years ago is still out there in theory, but the reality that it’s going to take an awful lot of time, money and political battles to realize that opportunity” is causing consternation.

There wasn’t a growth opportunity..there was subsidies…take those away and the business is ironically un-sustainable.

 


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  • JimboBug

    Subsidies are all about Government picking winners – and Government is notoriously bad at picking winners.
    Economics is quite clear that, if there is a problem whereby a product causes an externality that is not priced into its cost base then, the answer is not to subsidise a preferred alternative but to tax the product and therefore price it in. This will make the product more expensive for consumers so it is only fair to use this tax income to provide a cut in other taxes paid such that the average person is no worse off. It is then for the market to decide whether the product is economically viable as is or whether an alternative can be found that doesn’t do the damage and therefore attract the tax.
    This, however, assumes that politicians are both intelligent and not corrupt – both of which appear to be limiting factors.

  • Ronnie Chow

    All this goes to show how stupid people are .

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