28 January 2016

Shortsighted Analysis

Cruz is right. Legally mandating that a certain percentage of fuel used be ethanol is a bad idea for several reasons: 
First, mandating ethanol means more land must be plowed to grow corn for fuel. The Department of Energy estimates that if corn ethanol replaced gasoline completely, we'd need to turn all cropland to corn -- plus 20 percent more land on top of that. 
Second, requiring ethanol fuel raises the price of corn -- bad news for consumers who must pay more for food. [Emphasis added.]
For someone who claims to be a pro-market libertarian, Stossel is being incredibly dense with his point that requiring ethanol will increase the price of corn.  In the short run, it’s likely that the price of corn will increase, but it in the long run it will likely revert to normal levels.  Put simply, markets respond to incentives.  If corn prices go through the roof, more people will look into growing corn in order to capitalize on the higher prices.  As supply increases, prices will drop, and the market will correct itself to a more stable price level.

What’s concerning about Stossel’s point, though, is that a libertarian is arguing against a policy on the basis of price stability.  Any libertarian with a basic knowledge of American political history in the 1970s would know that price stability was the main reason for Nixon enacting wage and price controls.  As such, libertarians embrace price dynamism as a feature of the marketplace, as it enables the rapid dissemination of information based on a single signal: price.

Thus, Stossel’s complaint about government regulation being bad for consumers makes about as much sense as complaining how a drought in Iowa is bad for consumers.  Sure, there might be a sharp, immediate jump in prices, but the market will sort it out eventually.

The root of the issue, though, is that Stossel still fancies himself as a consumer advocate, and he clearly believes that the market is better at taking care of consumers than the government.  The problem with this entire approach is that it assumes that consumption is the purpose of life, which is why consumers need an advocate.  While consumption (whether of food, drink, entertainment, etc.) is a fact of life, it is not the purpose of life, nor is it the basis of economic success.  Production and capital are the basis of economic success; excess consumption is the result.  As such, it is simply ass-backwards to approach any economic question from the perspective of consumption.

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