FrankRep
04-12-2008, 04:51 PM
Shortages and Inflation Result from Government Intervention
The John Birch Society (http://www.jbs.org/)
April 11, 2008
ARTICLE SYNOPSIS:
Rice prices have risen 50 percent in two weeks causing concern that inflation and food shortages in emerging countries will result in riots. However, the rice shortage is only part of a food crisis that has been caused by the world’s move to biofuels in a misguided effort to reduce dependency on fossil fuels and lessen carbon emissions.
Follow this link to the original source: "Rice jumps as Africa joins race for supplies (http://www.ft.com/cms/s/0/4813b3c4-0250-11dd-9388-000077b07658.html?nclick_check=1)"
COMMENTARY:
U.S. and other governments’ subsidies for biofuels may be causing a butterfly effect that is impacting food supplies around the world. As farmers switch from growing food to the higher earnings of crops for biofuels, food shortages have created inflation worldwide. Riots and other social unrest may also result.
(The butterfly effect refers to the idea that a butterfly’s wings might create a tiny change in the atmosphere that eventually causes a tornado or some other cataclysmic upheaval elsewhere. The analogy is used in chaos theory to show how small initial conditions may result in huge effects.)
Michael Grunwald writing in Time Magazine (http://www.time.com/time/magazine/article/0,9171,1725975,00.html) stated: “The growing backlash against biofuels is a product of the law of unintended consequences. It may seem obvious now that when biofuels increase demand for crops, prices will rise and farms will expand into nature. But biofuel technology began on a small scale, and grain surpluses were common. Any ripples were inconsequential. When the scale becomes global, the outcome is entirely different, which is causing cheerleaders for biofuels to recalibrate.”
Grunwald continued: “Someone is paying to support these environmentally questionable industries: you.”
Last year fewer than 2 percent of U.S. gas stations offered ethanol, and the country produced 7 billion gal. (26.5 billion L) of biofuel, which cost taxpayers at least $8 billion in subsidies.
In December, President Bush signed a bipartisan energy bill that will dramatically increase support to the biofuel industry while mandating 36 billion gal. (136 billion L) of plant-produced fuel by 2022.
The principal presidential candidates have declared their support for the biofuel industry. Hillary Clinton’s plan would require all stations to offer ethanol by 2017 while mandating 60 billion gal. (227 billion L) by 2030. Barack Obama criticized her, not for her plan, but “for failing to support ethanol before she started trolling for votes in Iowa's caucuses.”
John McCain initially opposed ethanol but changed his mind in time for this year’s primaries.
In the meantime, the Financial Times reports (http://www.ft.com/cms/s/0/b0798c96-02a9-11dd-9388-000077b07658.html) that the European biodiesel industry will soon ask the European Commission to take legal action against U.S. producers, claiming that “unfairly subsidised American production is undercutting it in the EU market.”
The U.S. government currently gives a subsidy of $1 per U.S. gallon for biodiesel that is blended with conventional diesel. American producers blend their product with low-cost biofuel coming from countries such as Argentina, thus benefiting from the tax breaks and permitting export to Europe.
Brazil also is threatening to sue the U.S. federal ethanol program in the World Trade Organization. The U.S. government pays producers a 51 cent subsidy per U.S. gallon and protects them from international competition with steep tariffs.
The lesson we learn is that when government intervenes it causes more problems than it solves. How much better to let free markets develop products based on good economic sense. Free markets reward good ideas, while bad schemes fail.
SOURCE:
http://www.jbs.org/node/7722
The John Birch Society (http://www.jbs.org/)
April 11, 2008
ARTICLE SYNOPSIS:
Rice prices have risen 50 percent in two weeks causing concern that inflation and food shortages in emerging countries will result in riots. However, the rice shortage is only part of a food crisis that has been caused by the world’s move to biofuels in a misguided effort to reduce dependency on fossil fuels and lessen carbon emissions.
Follow this link to the original source: "Rice jumps as Africa joins race for supplies (http://www.ft.com/cms/s/0/4813b3c4-0250-11dd-9388-000077b07658.html?nclick_check=1)"
COMMENTARY:
U.S. and other governments’ subsidies for biofuels may be causing a butterfly effect that is impacting food supplies around the world. As farmers switch from growing food to the higher earnings of crops for biofuels, food shortages have created inflation worldwide. Riots and other social unrest may also result.
(The butterfly effect refers to the idea that a butterfly’s wings might create a tiny change in the atmosphere that eventually causes a tornado or some other cataclysmic upheaval elsewhere. The analogy is used in chaos theory to show how small initial conditions may result in huge effects.)
Michael Grunwald writing in Time Magazine (http://www.time.com/time/magazine/article/0,9171,1725975,00.html) stated: “The growing backlash against biofuels is a product of the law of unintended consequences. It may seem obvious now that when biofuels increase demand for crops, prices will rise and farms will expand into nature. But biofuel technology began on a small scale, and grain surpluses were common. Any ripples were inconsequential. When the scale becomes global, the outcome is entirely different, which is causing cheerleaders for biofuels to recalibrate.”
Grunwald continued: “Someone is paying to support these environmentally questionable industries: you.”
Last year fewer than 2 percent of U.S. gas stations offered ethanol, and the country produced 7 billion gal. (26.5 billion L) of biofuel, which cost taxpayers at least $8 billion in subsidies.
In December, President Bush signed a bipartisan energy bill that will dramatically increase support to the biofuel industry while mandating 36 billion gal. (136 billion L) of plant-produced fuel by 2022.
The principal presidential candidates have declared their support for the biofuel industry. Hillary Clinton’s plan would require all stations to offer ethanol by 2017 while mandating 60 billion gal. (227 billion L) by 2030. Barack Obama criticized her, not for her plan, but “for failing to support ethanol before she started trolling for votes in Iowa's caucuses.”
John McCain initially opposed ethanol but changed his mind in time for this year’s primaries.
In the meantime, the Financial Times reports (http://www.ft.com/cms/s/0/b0798c96-02a9-11dd-9388-000077b07658.html) that the European biodiesel industry will soon ask the European Commission to take legal action against U.S. producers, claiming that “unfairly subsidised American production is undercutting it in the EU market.”
The U.S. government currently gives a subsidy of $1 per U.S. gallon for biodiesel that is blended with conventional diesel. American producers blend their product with low-cost biofuel coming from countries such as Argentina, thus benefiting from the tax breaks and permitting export to Europe.
Brazil also is threatening to sue the U.S. federal ethanol program in the World Trade Organization. The U.S. government pays producers a 51 cent subsidy per U.S. gallon and protects them from international competition with steep tariffs.
The lesson we learn is that when government intervenes it causes more problems than it solves. How much better to let free markets develop products based on good economic sense. Free markets reward good ideas, while bad schemes fail.
SOURCE:
http://www.jbs.org/node/7722