I have been thinking about ethanol lately because the hotel with which our office building shares a parking garage seems to be hosting some type of conference that has brought down some people from Iowa. Our garage contains several cars marked as belonging to “Iowa State” or “Iowa Department of Transportation,” and they all sport large bumper stickers proclaiming that they run on ethanol fuel. Good for them. I am glad they are visiting Missouri, where they get ethanol in their gas whether they like it or not. (I am pretty sure they like it.)

This is topical because just the other day the Government Accountability Office released a report recommending that we do away with the ethanol tax credit. The Post-Dispatch’s “Political Fix” has the story here. Now, the bad part is that the tax credit is no longer needed because another government mandate is forcing ethanol on us:

But the GAO said the tax break is no longer needed now that the industry has prospered under a government mandate for ethanol use, called the Renewable Fuel Standard.

So, the ethanol industry “prospers” because of a federal mandate, a federal subsidy, and an additional state mandate. But I guess getting rid of one of them amounts to some progress, at least.

Here is some of the work we have done at the Show-Me Institute about ethanol.

The definition of rent-seeking behavior:

The expenditure of resources in order to bring about an uncompensated transfer of goods or services from another person or persons to one’s self as the result of a “favorable” decision on some public policy.

Ladies and gentlemen, I present to you the modern ethanol industry. The Kansas City Star has a story about how industry representatives now want to require some type of “nation of origin” sticker on all the gas we buy — in an effort to appeal to patriotism, I guess. “Buy American corn instead of evil, foreign oil,” or something like that. Of course, here in Missouri, we are forced to buy gas made with American corn in a 10 percent ethanol blend, because of our state’s obscene ethanol requirement.

I love the response from the oil companies, who know how difficult this proposal would be to implement — and how stupid it is, anyway:

“Growth Energy (the pro-ethanol group) clearly doesn’t understand fuel markets, consumers, supply or demand,” Charles T. Drevna, president of the National Petrochemical and Refiners Association said in a prepared statement.

There is a new gas station not too far from my house that chooses to sell higher ethanol blended gas at lower per-gallon prices. This is not because of the law — rather, it is the market at work. I have not yet chosen to purchase that gas, even though one of our cars can run fine on higher ethanol blends. I may one day choose to buy it; I may not. That is how free markets are supposed to work, rather than passing government mandates to tell everyone they have to put ethanol blends into their engines whether they want to or not.

Here is our case study about the economic effects of the ethanol requirement in Missouri.

The results of a new survey of members of the American Economic Association suggest that the Show-Me Institute is in good company.

The survey finds economists in consensus on several key policy issues:

• 51.6 percent agree: “The U.S. should place more stringent caps on medical malpractice awards.”
• 63.7 percent agree: “Barriers to entering the medical profession should be reduced.”
• 78.3 percent agree: “Government subsidies on ethanol in the U.S. should be” reduced at least somewhat.
• 42.4 percent agree: “State governments in the U.S. should eliminate mandates about what health insurance must cover.”
• 62 percent disagree: “Employers in the U.S. should be required to provide health insurance to their full-time employees.”

Other interesting results:

• 83.3 percent agree: “The U.S. should eliminate remaining tariffs and other barriers to trade.”
• 70.3 percent agree: “The U.S. should allow payments to organ donors and their families.”

The Post-Dispatch has a quick-hitter about a rebuilt gas station in Brentwood that is now offering E-85 gasoline. (I used to fill up at this station all the time when I lived in Brentwood Forest.) Because there is no mandate to sell E-85, the station owners have to include the reduced energy output of ethanol gas in their pricing. According to the story, they are selling it for 20 cents less per gallon.

This is how markets are supposed to work. Our new SUV (just doing my part to get the economy moving) is a flex fuel vehicle. I honestly didn’t think much about that when we bought it, I was much more concerned with making sure my wife and I had the ultimate set of rims. But if a station gives me enough of a price reduction on the E-85 gas, I will certainly consider buying it. This is the nature of capitalism: The government does not tell me what I have to buy; businesses give me a choice. Recent events have probably made people forget about that.

Yesterday, I was privileged to testify at a hearing on Senate Bill 11, proposed legislation that would discontinue Missouri’s ethanol gasoline mandate. If you are wondering why I use the term “privileged” here, I assure you that it has nothing to do with what I said — although I was definitely honored to be invited to testify by Sen. Bartle’s office. For a journalist’s take on the hearing, the News-Leader has the story (link via Combest).

It was a privilege because being at the committee hearing allowed me to listen to a truly wonderful debate among the seven senators involved in the ethanol issue, and larger issues of free markets versus government investment. Sen. Bartle was truly amazing. He expressed the power and beauty of free-market ideals with clarity and passion. One of his best lines was when he said, “This used to be an argument that Republicans had with Democrats. Now it’s an argument a small group of Republicans has with everyone else.” (The only thing I might add to that would be to say, “… a small group of Republicans, and an even smaller group of libertarians …”) It was inspiring to hear his arguments, which I obviously agreed with completely.

Just like the famous series of debates referenced in the title of this blog entry, though, all the senators involved did a great job of arguing their points. Having just read the new Andrew Jackson biography, I am aware that while history has glorified Daniel Webster for his speeches, the other participants (Benton, Livingston, and Hayne) all acquitted themselves well as a new nation tried to determine its future course. In the same way, the members of the committee that supported the ethanol mandate (i.e., all of them) made excellent arguments about how the mandate supports Missouri business, benefits drivers with competition, and more. I don’t agree with those arguments, but Sen. Stouffer and others, from both parties, did a fine job in making them.

While the outcome failure of this bill is essentially preordained, Sen. Bartle had the courage to bring it up, and demonstrated intensity in debating it. The members of the committee also skillfully argued for their constituencies. I think many of them agreed with much of what Sen. Bartle said, but decided that an exception should be made for ethanol. If this is an indication of the quality of debate we are getting in Jefferson City now, I may have to reverse my support for term limits. …

Frequent visitors to this blog know that I have a thing or two to say about renewable energy, specifically ethanol. I don’t care for ethanol, even if my friend Willie Nelson loves. It drives up the costs of gasoline and food and makes our cars less efficient. It attracts large government subsidies, and those new corn commercials are starting to get very annoying.

I figured it was only a matter of time until some sort of scientist would muster proof that ethanol = bad. Finally, the Royal Society of Chemistry’s Energy & Environmental Science journal has published a study ranking alternative energy sources in terms of their relative abilities to address problems with “global warming, air pollution mortality, and energy security,” and “other impacts of the proposed solutions, such as on water supply, land use, wildlife, resource availability, thermal pollution, water chemical pollution, nuclear proliferation, and undernutrition.”

Surprise, surprise — ethanol finished dead last.

Hopefully, these findings will not fall on deaf ears. And, if you haven’t read it by now, here is the Show-Me Institute’s ethanol study. Still looking for more ethanol fun? Why not try searching for “ethanol” on Policy Pulse and seeing what pops up?

Oh, and if you didn’t already know, today’s blog title comes from Thomas Dolby’s classic ’80s hit “She Blinded Me With Science.”

Tell me, which is worse: a cartoon camel that encourages kids to smoke, a creepy clown that encourages kids to eat unhealthily, or an anthropomorphic letter “e” with a green mustache that encourages kids to use an inefficient fuel source that drives up the costs of food and fuel?

Sure, the latter of the three isn’t pure evil, but he still makes me uneasy. Edgar the “E” Man is the new mascot for EPIC, the Ethanol Promotion and Information Council. With a round short body, an inflatable mustache, and a hat that looks like it was stolen from Luigi, Edgar travels the land promoting ethanol to all the impressionable little minds that need molding. Yes, there is a form you can fill out to have Edgar appear at your party. He even has a Facebook account.

Is it possibly taking things to far to use an inflatable letter “e” to promote ethanol by manipulating children? Before you know it, we’ll see Eli the Eminent Domain Eagle and Karl the Tax Kredit Kangaroo. I just pray that Chester Cheetah, Captain Crunch, and the Stay-Puft Marshmallow Man can form some sort of mascot union, and keep Edgar the “E” Man out.

Although a few free-market ideals have been coming from Jefferson City recently, one in particular caught my eye — a bill having to do with ethanol. The Richmond Daily News reports on a bill in the works that, if passed, would remove the ethanol mandate from Missouri law. The article makes many great points, the best of which is its citation of the Show-Me Institute’s ethanol study.

Ah, now there’s a thought — living in Missouri without a ethanol mandate. Already, Missourians are getting a glimpse of this eventuality every time the price of gasoline prices drop below the price of ethanol. Hopefully, we are on our way to having a choice of whether or not we want ethanol in our engines.

*Former Show-Me Institute intern Pat Eckelkamp contributed this terrible pun of a title.

So, gas prices have sure gotten low lately. I’m showing my age here, because they are the lowest I’ve seen them since I started driving. And the best part about gas being so cheap is the fact that it is no longer required to include an ethanol blend.

According to Missouri’s ethanol mandate, if gasoline prices drop below those of ethanol prices, then retailers are no longer required to sell the ethanol blend. The Kansas City Star covers the story here. Well, this is good news for Missourians. No longer will our engines be clogged with this substance that drives up the costs of gasoline and food and makes our cars less efficient.

Be sure to read the Show-Me Institute’s study of ethanol. Hopefully, gas prices will stay low — not only for the sake of my wallet, but also for the sake of Missouri residents who are no longer forced to purchase ethanol.

This past Friday I attended a conference on the economics of ethanol and got insulted by one of the speakers. Now, I was not personally insulted — but, in response to previous speakers who criticized the ethanol industry, the head of the National Corn Growers Association began his remarks by ripping think tanks. I think he said, paraphrasing, “When I grow up, I want to work at a think tank so I can just chuck spears instead of having to catch them.” He then accused the Cato Institute of being a tool of the oil industry, and of just repeating big oil’s talking points. So that was fun. …

The conference itself was awesome. It is organized by the Weidenbaum Center at Washington University, which must have had some passing knowledge of my contribution to the debate, because they sent me an invitation. Speakers included Jerry Taylor of the Cato Institute, Max Schulz of the Manhattan Institute, Jason Henderson of the KC Federal Reserve, and numerous other economists and professors. Some of them didn’t even hate ethanol, and a few of them actually liked it, stunningly enough.

I can’t do the all-day conference justice in a single blog post, so I’ll focus on one of the widely discussed points: Ethanol exists primarily as a policy industry, not a market industry. This was the primary idea presented by Jason Henderson. As a policy industry, the entire ethanol industry is built on government policies that support it, rather than on market forces that demand it. Without friendly government laws, the industry would be dramatically smaller. There are many problems with this, but when you are trying to be neutral, as Mr. Henderson was, the main issue is that those same policies that support the industry can change overnight — and then your industry ceases to exist (or becomes a lot smaller).

I might suggest that the plaintiffs’ trial bar is in a similar situation, in that its success or failure can dramatically differ depending on which party is in charge at the time. All industries are, at some level, deiven by policy in our regulated economy. But it is not hard to see how demand for clothes, or food, or books, or many other things, will still exist no matter whether the government tries to help or hurt an industry. But without government price support and mandates, there would be almost no demand for ethanol, and the potential gains — even if you accept the most optimistic estimates by its most ardent supporters — are so small that government support is really not adding much of a net benefit to our country. This is particularly true in comparison to nuclear power, which is also heavily subsidized but has such a positive upside for meeting our energy needs that those subsidies have a much greater public good potential. (But, yes, changes to nuclear policy need to be made, too.)

If Americans used ethanol at the levels required to truly wean us from foreign oil (which does not really need to happen, but that is another post), than the issues affecting food prices and availability really would be a serious concern, rather than having only the more minor effects seen recently. The lack of any real demand for ethanol was the central focus of the gentlemen from the think tanks, and while the corn growers hate to hear this, it’s the truth. So, why the hell do we give millions of dollars a year to ethanol blenders and corn growers? I think you all know the answer. Missouri’s mandate that all gas sold within the state contain 10 percent ethanol is the biggest joke of all.

In the interest of being fair — which I am not required to do, but will try anyway, because I am a wonderful person — there are two decent arguments for subsidizing ethanol. The first, which is accurate but misplaced, is the fact that growing more corn for ethanol has caused more farmland to be devoted to production, and reduced payments that the government makes to farmers for leaving their land fallow. While this is a positive thing, it does not follow that just because we have two bad policies (farm policies in general, and ethanol mandates specifically), that we need to continue both of them because one of those bad ideas makes the other slightly less bad.

The other legitimate argument really is better. Supporters say that corn ethanol is just the bridge to future biofuels with much more potential, like cellulosic ethanol. This may be true, and in the end it might work out that this has been money well spent. I don’t think that will be the case, as I trust the market to pick better options than government bureaucrats would, but I’ll admit that this is a decent argument in favor.

At the Show-Me Institute, we love ethanol. More to the point, we love writing and blogging about the lunacy of America’s — and Missouri’s — ethanol policies. Here in Missouri, one of the most prominent critics of the state’s E-10 ethanol mandate has been SEMO Professor Michael Devaney. He was published back last month in the Southeast Missourian, with another great article on the subject. This is another in a series of ethanol articles he has written for the paper.

I love his summary of the situation we are in when it comes to the government getting involved in places that it has no business (as if that were rare):

No one is smart enough to predict with certainty which of these technologies will ultimately prevail, least of all politicians who are easily influenced by powerful special interests. It is more certain that American taxpayers will continue to subsidize corn ethanol regardless of the outcome.

Of course, I would be remiss if I did not take this opportunity to link to our own case study on this issue.

We have a new winner in the easiest-to-write blog post title contest. I deserve no praise, and am certainly no genius, for combining the corporation “Bunge” with the verb “jump.” Nonetheless, I simply must point out a great post by David Nicklaus over at Mound City Money concerning recent comments made by Bunge CEO Carl Hausmann about Missouri’s ethanol mandate. Check out the entry, and the comments, as well as the Show-Me Institute’s own contribution to the debate on ethanol. The highlight of Mr. Hausmann’s talk is clearly:

“I believe very much in free markets. … I hate government mandates, including biofuels.”

Beautiful.