Once Again, Government Defies Economics

Campaigning in Missouri Valley, Iowa, yesterday, President Obama announced yet another government spending program — this time designed to inflate meat prices in Midwest swing states. “Today the Department of Agriculture announced that it will buy up to $100 million worth of pork products, $50 million worth of chicken, and $20 million worth of lamb and farm-raised catfish,” Obama explained to reporters in front of a drought-stricken cornfield.

“Prices are low, farmers and ranchers need help, so it makes sense,” Obama explained. “It makes sense for farmers who get to sell more of their product, and it makes sense for taxpayers who will save money because we’re getting food we would have bought anyway at a better price.”

None of this makes sense. In fact, Obama’s move only harms American consumers while protecting a corrupt federal program.

A drought is currently driving down corn production. The shortage of feed is forcing livestock producers to slaughter animals early, putting downward pressure on meat prices in the short run and guaranteeing shortages and higher prices next year. But nature is not the biggest factor in this crisis — the government is. Specifically, the federal government’s ethanol mandate, which requires that 13.2 billion gallons of corn-based ethanol be produced in 2012.

Thanks to the ethanol mandate, more than 40 percent of the nation’s corn crop now goes into the production of a useless fuel that hardly anyone would buy if the government didn’t require it. That’s up from just 17 percent in 2005, before the mandate went into effect. Only 36 percent of the corn crop now goes for feed, and 24 percent goes for food.

Obama could solve this problem instantly by suspending the federal ethanol mandate — something his EPA actually can do unilaterally and legally. Instead, Obama will buy up meat — a move that meat producers say won’t help them much anyway. “It doesn’t solve the problem of having enough affordable corn next summer,” industry analyst Steve Meyer told Reuters. “Without changing the ethanol program, nothing can be done,” he said.

The higher corn prices caused by the mandate and the drought have also driven up the price of ethanol by 33 percent since May, which means — again, thanks to the mandate — higher gas prices at the pump. Nationally, the average price of a gallon of gas rose 16 cents in July, an all-time record hike for that month. Prices rose an additional eight cents just last week. Gas is already more than four dollars a gallon in California and is expected to go higher.

Hailing from the corn-producing state of Illinois, Obama has always been a supporter of special government benefits for ethanol producers. But even environmentalists rejected ethanol long ago, when scientists established that it actually increases carbon and smog emissions.

To recap, government is driving up the cost of food, animal feed and gasoline, and Obama’s solution is to drive up meat prices as well. Obama could eliminate the entire problem overnight and reduce carbon emissions were he to waive the ethanol mandate in a time of drought. Instead, he is creating a new spending program to mollify livestock producers, who, were it not for the ethanol mandate, would be able to make an honest living without his help.

Last week, Obama said he wants to do for other industries what he did for General Motors. If by this he meant waste taxpayers’ money to preserve a lousy status quo, then bravo and mission accomplished.

2012-08-29 03:09:53

Source: http://www.sutton-associates.net/blog/2012/08/15/once-again-government-defies-economics/