The Washington Post has an editorial today urging Congress to end corn ethanol subsidies. The subsidies cost $6 billion, and their value in encouraging corn ethanol use is questionable in light of other government requirements.
What the Post editorial does not say is that these kinds of subsidies, and other government programs that seek to encourage or discourage other forms of economic activity, distort the market and have a much broader ripple effect than Congress typically intends. If government subsidies encourage a farmer to grow corn when he otherwise would grow something else, the result will be an outflow of government money and, because the farmer is not growing the other crop, less competition and therefore higher prices in the market for that other crop. If the subsidy encourages maximum production of corn, the farmer may use special fertilizers and other forms of chemicals to increase yield that may have an unexpected environmental impact. The farmer may buy otherwise unnecessary types of equipment and build otherwise unnecessary silos or other structures, thereby making him and his farm economically dependent on the continuation of the subsidy and increasing the risk of an unsustainable debt burden and foreclosure if the subsidy is ended.
Once subsidies are started, they are difficult to end. The alliances that caused the subsidy to be created in the first place grow stronger as subsidy money flows in and part is then contributed to politicians to encourage them to keep the subsidy in place. In the case of the corn ethanol subsidy, the alliances presumably would be between farming states, large corporate agricultural concerns, and groups seeking to end our dependence on foreign oil. Any effort to eliminate the corn ethanol subsidy — or any similar subsidy — therefore would likely face very stiff political opposition. Occasionally, however, forces coalesce that make the elimination of such programs possible, such as happened when President Reagan was elected and Depression-era farm commodity price support programs were ended.
For anyone serious about deficit reduction, a careful examination of government subsidies, tax breaks, and other methods of interfering with the economy would be a good place to start. We don’t need the government to pick winners and losers and to waste our tax dollars in doing so.