Bumper Deficits

In November, I posted about the ethanol subsidies and tariffs that, if allowed to expire, would reduce the deficit by $6 billion. But instead of Do-Nothing deficit reduction, Rich Lowry points out the bipartisan effort to increase it:

[Al] Gore’s ethanol apostasy is a symptom of a left-right coalition that has arisen to expose the former wonder fuel. (The Gore of old insisted that “the more we can make this home-grown fuel a successful, widely used product, the better off our farmers and our environment will be.”) But common sense, even cross-ideological, bipartisan common sense with all the evidence on its side, is no match for Congress’ boundless appetite for expensive favors for powerful lobbies and constituent groups.

Tom Harkin and Chuck Grassley, the Democratic and Republican senators from Iowa, stand at the doors of Congress declaring: Ethanol now, ethanol forever. They have graced the Obama-McConnell tax bargain with an extension of a tax credit for ethanol that costs about $6 billion a year, and with an extension of a tariff on ethanol imports. Ethanol is so uneconomical that Congress supports it three different ways — with a mandate for its use, a tax credit to subsidize it and a tariff to keep out competitors. Rarely are so many levers of government used to prop up one woeful product.

Well – that’s one more reason for me to oppose the tax deal. And it really makes me wonder if the republicans are committed to fiscal responsibility. I guess I’m not the only one, as The Green Conservative has a related test for the Tea Party:

The federal farm subsidy system is straight out of Alice in Wonderland. It’s a world unto itself, a thicket of bewildering programs that comes with a deluxe package of jargon and acronyms that are opaque to anyone except the most dedicated and/or foolhardy farm policy geeks.

The basics: Five crops – corn, wheat, cotton, rice, and soybeans – scoop up the lion’s share of crop payment subsidies, the largest subset in the universe of federal farm subsidies. Between 1995 and 2009, the Big Five crops received $170 billion in payments, out of nearly $247 billion in total farm subsidies paid during that period, according to the Environmental Working Group’s fabulous farm subsidies data base.

That’s a little over $12 billion a year for 5 crops, of which we know from the $6 billion ethanol subsidies, corn is getting at least half. An aside to conservative environmentalists: cotton consumes 25% of all pesticides despite being 1% of US acreage. I personally consider that subsidized pollution.

But perhaps I’m being too harsh. I mean – why cut the deficit when there are special interests and primary voters in Iowa in need of pandering?

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2 Responses to Bumper Deficits

  1. 71LesPaul says:

    True the farm subsidy system is a hot mess. Now, stats about Government aid programs sometimes intermingle tax breaks and direct cash subsidies, and I’m not sure how much of both comprise US farm subsidies. I do think its important for us to not rely on imports for food, so I’m OK with the Government cooperating at some level with food suppliers to ensure adequate domestic supplies. If the subsidy is a tax break for investment in farm equipment or an incentive to cycle crops to reduce long term erosion, I’m probably OK with it. Its a National security issue to be able to produce your own food. But when it comes to subsidizing outright waste in an entire industry by piling debt on the grandkids for political gain today, well then thats just about the most unpatriotic thing politicians could conspire to do.
    In the case of ethanol, it should be a simple analysis. How much energy input does it take to produce a unit of energy output. If it costs two dollars to produce one dollar worth of fuel, well then thats just stupid. Finding a real authority on that is not so easy. You can find dozens of studies on that topic, both pro and con and I’m not sure where the truth lies. If the subsidies are only required temporarily to build the infrastructure to support ethanol production that is a consideration as well. I think you also need to toss in a factor for the inflationary pressure ethanol production exerts on the cost of food in general. Ethanol production reduces supplies of other crops which drives their costs higher. Subsidizing ethanol ends up making the cost of soybeans and wheat higher. Your taxes dollars at work! Twice!
    It seems silly that while so many people around the Nation and around the world don’t have enough food, that we would devote so much land to grow crops intended to substitute a product that is already sitting there in the ground, practically free for the taking. Thats an intangible cost of ethanol that might not make it into the business case.
    Its a complicated subject. I would say in general, when the Government dabbles in the market and picks winners and losers, thats never a good thing. But I’m not totally convinced that market forces alone would be enough to ensure long term American food independence. As for ethanol, if it really made economic sense, private companies would clamor to invest in the industry even without any government assistance. The fact that the industry requires subsidies points out that its probably not worth it on its own.

    • Drae says:

      Driving up food prices is a point The Green Conservative makes in his piece. It’s worth a read.

      My biggest problem with ethanol is we could be using other crops for a biofuel instead of food crops, and those crops would have a greater return in cost benefit analysis than those which were seeing from corn.

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