The progressive argument for a larger state has, for over a hundred years, rested in part on the premise that smart people at the top in government can better optimize the allocation of resources and make better investment choices.
This premise always has been ludicrous. Government officials have neither the information nor incentives to perform this function, and lacking such, decisions always get made based on political rather than economic or other objective functions.
Ethanol is such a great example, it will almost be a shame when its mandates and subsidies are repealed. As a reminder, corn-based ethanol production get the trifecta of state sponsorship -- mandates for its use, subsidies for its protections, and stiff tariffs to prevent lower-cost imports.
The result is a classic government fail. The economic subsidies benefit only a small number of the politically connected, while hurting the great mass of humanity, even outside the US, through higher food and fuel prices. Because ethanol takes as much fuel to produce as it provides, it does nothing to change the amount of fossil fuels we use. And as a result, it does nothing to affect CO2 production and in fact has a number of environmentally negative effects, particularly in land and water use.
I am reminded of all this by these staggering figures, via Carpe Diem
"U.S. ethanol refiners are consuming more domestic corn than livestock and poultry farmers for the first time, underscoring how a government-supported biofuels industry has contributed to surging grain demand.
The U.S. Department of Agriculture estimated that in the year to August 31 ethanol producers will have consumed 5.05 billion bushels of corn, or more than 40% of last year’s harvest. Animal feed and residual demand accounted for 5 billion bushels."
As Mark Perry shows in his blog, US ethanol policy has also pushed corn prices up from $2 a bushel in 2007 to over $8 today.