Ethanol may be a good idea. And it may not be.
The last place I would look for an intelligent attitude on ethanol is government, state or federal. I read nothing in either the American or the Iowa Constitution suggesting government should have anything at all to do with energy, and our founders got it right.
Let me suggest the free market is the best allocator of goods and services in an economy. When suppliers and consumers of energy meet in a free market, prices and quantities are determined by supply and demand. This arrangement gave America the greatest economy in the history of the world, and it still performs for us on a daily basis.
Most unfortunately, state and national politicians have caved in to special interest lobbies, lobbies that are not working for the common good, but for private gain. By simply eliminating all subsidies and regulations for energy producers (and consumers) of every stripe and style, the marketplace will quickly determine how much ethanol will be produced and what price consumers will have to pay for it. There is no way the government can make that allocation better.
But what about pollution, I hear a voice in the back of the room ask.
You are correct – pollution is an externality producers do not have to take into their financial considerations, because the negative effects land on others.
The correct way to deal with an externality is to either make it easy for the people who are negatively impacted to sue for damages in a civil court, or to tax it. That’s why class action suits are allowed, and that’s why a carbon tax is the most efficient and effective way to reduce carbon emissions. If you don’t believe me, there’s a Nobel Prize winner you can talk to.
Government should never pick winners and losers, it should remain neutral. To do otherwise creates economic distortions that profit a few, but hurt everyone else.
Ethanol is no exception.