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One-Program Proof Technocratic Government Does Not Work

August 29, 2011, 9:55 am

Ethanol continues to be one of the dumbest, most costly programs ever engaged in by the Federal government

"Today, about 40 percent of all U.S. corn -- that's 15 percent of global corn production or 5 percent of all global grain -- is diverted into the corn ethanol scam in order to produce the energy equivalent of about 0.6 percent of global oil needs.
Corn prices, now close to $7 per bushel, have more than doubled over the past two years (see chart above). And recent harsh weather, including floods in the Midwest and drought in the South, will likely mean a subpar U.S. corn harvest. That, in turn, will mean yet higher prices for corn, which will translate into higher prices for meat, milk, eggs, cheese and other commodities.
Environmental damage:  check
Fails to meets its goals (of reducing fossil fuel use): check
Raises food prices:  check
Raises gas prices: check
Highly regressive costs that hurt the poor most:  check
Benefits accrue to very a small group of the politically connected:  check
Tags: , , , , , , ,
Category: Energy
  • will

    Our government has some really bad programs. It also has some really good programs.

    A second point: Technocratic liberals have difficulty convincing Congress to, in creating new programs, not just hand out favors to politically connected groups. But libertarians have just as much difficulty convincing Congress to, in ending old programs, not just screw over politically disconnected groups.

    Politics is hard. There are no easy answers. We can play "What would I do if I were King?". I like that game. I LOVE that game. But it's not fair to compare our real-world government to your fantasy libertarian government.

  • caseyboy

    Will, defend your statement that government has some really good programs. Programs that couldn't be done more efficiently and effectively than the private sector.

  • Ted Rado

    Many years ago, in an afternoon, I was able to show that the ethanol program was nonsense, long before the big USG push to mandate its use. The total corn grown in the US would produce about 1.8 million bbl/day ethanol, equivalent to about 1.2 million bbl/d gasoline. Various studies show that about 80% of the fuel value is used in growing the corn and converting it to ethanol. (Some studies show that more energy is consumed than produced). Thus, we destroy the entire corn crop to make 240,000 bbl/d net gasoline equivalent (or perhaps no net production).

    Note also that the true cost of the ethanol must include all of the costs created by its production. For example, all other ag conmmodities go up in price (farmers convert cotton to corn, driving up cotton prices, for example). ALL of these new costs must accrue to ethanol, not just the direct cost. On this total basis, I am sure the true cost of ethanol is over $20/gal (an ag economist need to come up with the true figure).

    The reduction in CO2 emmisions is next to nothing.

    If I could figure all this out in an afternoon (as could anyone else), why does the USG plunge ahead with such idiocy? And to think that many are pushing for more government. Yuk!

    As I have repeatedly pointed out in other posts, wind, solar, and other "alternative energy" schemes are eqally flawed. It would be a blessing if all this was left to competitive private enterprise, where such studiea are routinely done BEFORE embarking on expensive projects. Only the USG is free to fritter away hundreds of billions with impunity.

  • will

    caseyboy: Sulphur dioxide emissions trading. Acid rain is a problem, so the government, listening to the technocratic ideas of economists, creates a new market, giving the private sector the incentive it needs to deal with the problem.

  • http://harries@free.fr blokeinfrance

    @ will
    SO2 trading is probably a crock, because acid rain is another fantasy scare.
    A while back the Norwegians tried to sue the Brits for acid rain damage to their forests, caused by smoke from coal-fired generators. (Bit of geog: Norway is a bit east of UK, over the North Sea. Prevailing winds are westerlies.)
    Trouble was, that tests showed the forests were doing just fine, in fact they liked a bit of sulphur.
    When we have a market in Beryllium emissions or something that life doesn't use do come back and tell us how wise the government is.

  • John Moore

    Will, defend your statement that government has some really good programs. Programs that couldn’t be done more efficiently and effectively than the private sector.

    War-fighting. There are some things you do not want to trust solely to the private sector - even when they can do it better.

  • http://www.ianrandom.com Ian Random

    The whole point of government is to use resources in the least efficient way.

  • MJ

    But it’s not fair to compare our real-world government to your fantasy libertarian government.

    Not fair? I think it's absolutely fair. Every time technocratic enthusiasts like Krugman or Brad DeLong (or lesser beings like Kevin Drum) suggest programs that would expand the scope and scale of government activity, they lean heavily on textbook explanations of how such programs could, in principle, improve economic efficiency and/or whatever they refer to as "equity". The public choice critique is completely ignored, and when programs go completely off the rails, their response is either to blame a feckless Congress in general, or, more often, heartless Republicans.

    The textbook explanation should in fact be the standard that programs are measured against, since this is the rationalization that is most often given in support of them.

  • Russ R.

    I'm usually the first one to argue that governments are wasteful and inefficent. But for the fun of it, I'm going to take the opposite side in this debate...

    Some really good government programs that could not have been done more efficiently and effectively by the private sector:

    1. A typical answer: The Interstate Highway System - Modeled after the German autobahn (the strategic and commercial value of which became abundantly obvious to Eisenhower during WWII), the Interstate system has improved transportation efficiency immensely, at a relatively low cost. I'm not saying it's perfect, but I don't see how it could ever have been created by the private sector.

    2. A less obvious answer: Global Positioning System - This is as close to the textbook definition of a "public good" (i.e. non-rivalrous and non-excludeable) as I can come up with. I can't imagine how a for-profit enterprise could have done anything comparable.

    3. An answer I'd never considered before: The Passport - Without this government-issued identifying document, good luck traveling internationally. Would anyone argue that private sector passport programs would be more effective?

  • steve

    @ Russ R.

    1. "I don’t see how it could ever have been created by the private sector."

    Are you saying no major roads existed before the 1950s. Many of the highways, particularly in the built up sections of the country like the east and around Chicago were simply following existing roads.

    A counter factual can't be proven of course but I would argue the difference would be your statement of "at a relatively low cost". Rail already criss-crossed the country without the ongoing subsidy of highways. Maybe it would still dominate instead of semi-trailers. It's hard to say.

    However, one thing you can be sure of is that business men will find a way to get their goods to market even if they have to pay for it themselves. Another thing you can be sure of is if they don't have to pay for it they won't. Hence, the dominance of subsidized highways.

    2. Satellite systems have been launched by private interests before. Irridium by Motorolla for example. DirectTv as well, although I don't think it is world wide like Irridium.

    The fact that government launched a GPS system simply insures that private industry won't. It is not evidence that private industry can't or wouldn't without it. As mentioned with roads, if a business man doesn't have to pay for something he won't.

    3. You are correct. Passports are solely a function of governments. In governments absence, I consider it unlikely that private companies would give a hoot about passports or borders at all for that matter.

    Would a bar care that you were only 20 and not 21 if it wasn't required by law? Unlikely, I doubt they would care about age at all if they didn't have to. That is about how much private enterprise would care about whether you were a Mexican or not if you wanted a bus ticket from Mexico City to Dallas.

    What if the U.S. stopped issuing passports while all other countries remained the same. No doubt some accomodation would be made for americans. Drivers license, birth certificate, etc. What if all government documents were eliminated in the U.S. Then I suspect a utility bill or bank statement would due. The world simply cannot afford to stop doing business with the U.S. It might be a different story if Moldova stopped issuing government documents.

  • Will

    @MJ: Short response: You're right, Coyote is being fair to ethanol subsidies. But he's not being fair to technocratic liberalism. Technocratic liberals do not support ethanol subsidies.

    Long response: Technocratic liberals have 3 different sets of opinions.

    First, they have opinions on specific bills and programs, like ethanol subsidies. Specific bills and programs should, obviously, be compared to specific alternatives. Coyote and Krugman/DeLong both agree that ethanol subsidies are bad.

    Second, they have opinions on specific politicians. Specific politicians should be compared to specific politicians. Democratic politicians support many bad programs like ethanol, but Republican politicians support many bad programs like ethanol as well. Figuring out which one is less bad is a difficult project, involving analyzing many different programs. There are no one-program-proofs.

    Third, they have opinions on broad philosophies for how the government should be run. These should be compared to broad philosophies. Ethanol subsidies, as they currently exist, are not part of any of the debater's broad philosophies.

    What Coyote is arguing is that if you try to implement technocratic liberal governance, bad programs like ethanol will result. This is true unless you, personally, control Congress. But equally, unless you control Congress, trying to implement libertarianism will result in many bad programs. That's why his argument is unfair.

    @steve: Rail track construction was, of course, heavily government-subsidized in the 19th century. It's very difficult to find data on real libertarian governance, positive or negative, because it's basically never been tried.

    On satellite systems, you ignored the public goods point of view. GPS is free, since the marginal cost of GPS is zero. Private businessmen would have to charge for it at above the marginal cost to make a profit, meaning some potential benefits would be wasted.

  • Russ R.

    @ steve:

    1. re: Interstate Highway System: "Are you saying no major roads existed before the 1950s. Many of the highways, particularly in the built up sections of the country like the east and around Chicago were simply following existing roads."

    There were certainly roads, some were even privately financed, built, owned and operated, and I don't doubt that the private toll-roads operated effectively and profitably. That's not what I'm arguing.

    The difference between a single road and an efficient network of roads lies in well-organized "top-down" coordination. If route planning were left to chaotic "bottom-up" processes you'd end up with all sorts of inefficent bottlenecks and redundancies. For example, compare road networks in unplanned cities (London's hub-and-spoke network) vs. planned cities (mid-town Manhattan's grid network) and it's pretty obvious which is more efficient.

    Or, for a continental scale example, see the current US railroad network, which was developed "bottom-up"... freight cars can take days to get across the Chicago hub choke-point, when it should take only a few hours, all because of inefficent routing and track capacity constraints. (That said, it's worth noting there's a fundamental difference between road and rail traffic... road traffic consists of millions of autonomous, uncoordinated units travelling on highly flexible routes with countless interchanges, whereas rail traffic is a relatively small number of highly coordinated "trains" of units traveling on rigid routes with few interchanges. As such, road and rail efficiency comparisons are always going to be a bit apples-to-oranges.)

    2. re: GPS "Satellite systems have been launched by private interests before. Irridium by Motorolla for example. DirectTv as well, although I don’t think it is world wide like Irridium."

    Please see the following link: LEARNING FROM CORPORATE MISTAKES: THE RISE AND FALL OF IRIDIUM Short summary... Iridium went bankrupt within a year of its launch.

    Compare the differences between GPS and Iridium models:

    GPS: Broadcast only, non-rivalrous (no capacity constraints), free to users.
    Iridium: Send & receive, capacity constrained (bandwidth limitations), expensive for users.

    Result: GPS = remarkable success. Iridium = collossal failure.

  • steve

    @will

    You are correct many of the rail lines (but not all) were subsidized (mostly through land grants). Thats why I said ongoing subsidies.

    GPS is not free, it is simply paid via taxes instead of fees to business. Granted, the military wanted it so it is probably true that the government would have done its own system even if business had beat them to the punch. Thats not evidence that government does it better.

    @Russ R.

    1.)
    "compare road networks in unplanned cities (London’s hub-and-spoke network) vs. planned cities (mid-town Manhattan’s grid network) and it’s pretty obvious which is more efficient."

    It isn't so obvious to me that hub and spoke is less efficient. Grids are prettier and easier to understand on a map, but thats not the same as efficient. City planners themselves don't seem to agree on what is efficient. Washington DC was a completely planned city and it doesn't use a grid.

    In short, I can't tell which is more efficient. For what it is worth, airlines use a hub and spoke system, and they aren't impeded by the problem of actually building roads. Something to do with efficiency I think. Of course, the airlines task isn't the same as those of a motorist so it doesn't really prove it's more efficient. I am simply contending that neatness isn't a proxy for efficiency.

    By the way, it takes hours longer to get across Chicago in a car during the day compared to the middle of the night. The choke points get overwhelmed in both planned and unplanned systems by subsequent growth.

    2.)
    Yes Irridium went bust, DirectTV didn't. Neither result cost me a dime.

    GPS was launched with taxpayer money and never faced a market test. It is not clear if the cost of satellites could have been succesfully charged to early adopters. Maybe, Maybe not.

    A counterfactual can't be proven of course, but I will point out that it is just as easy to perform triangulation from cell phone towers as it is to do it from satellites. Satellites do have the advantage of covering oceans and wilderness though.

    Government supporters constantly point to things government does and business doesn't as proof that government does it better, or worse that business wouldn't do it at all so government must.

    All this proves is that business men won't pay for something they don't have to. In fact, it is often the business men themselves lobbying government to pay for things with taxpayer money so they don't have to. I am not accusing the average business man of being a libertarian.

  • chuck martel

    Why are we assuming that the Interstate Highway System is a 100% positive? Millions of acres of productive land has been covered with asphalt and concrete. Impassable artificial rivers now separate neighborhoods and neighbors that had enjoyed close relationships for many decades. High-speed by-passes have made ghost towns out of once thriving commercial centers while newer developments have taken place adjacent to interstate access. While some may consider it a boon to be able to jump in their car at any time of day or night and head across the continent, this convenience comes with costs that are both known and unknown.