Stupidity, or political expediency?

Lynne Kiesling

I handed out the Washington Post story on biofuels that Mike posted on Wednesday in one of my classes, and it was very timely, as they were presenting case studies of proposed biofuels investments. The one thing I went out of my way to point out to them was an appalling, shocking example of flimsy and incorrect economic logic:

Don Endres, the chief executive of VeraSun and owner of 20 percent of its shares, grew up on a farm in Watertown, S.D., where his father and grandfather raised corn. His brothers are still farmers.

Endres says ethanol plants aren’t to blame for high corn or food prices. He notes that the corn used to make ethanol isn’t the kind that people eat anyway.

AAARGH! Does he fail to understand the principle of substitutability? Let me say this slowly and clearly: different crops compete for the use of scarce land. Ethanol plants, and the subsidies that make it more attractive to build them, increase the demand for a type of corn. That makes it more profitable for farmers to plant that corn, and to do so they reduce their plantings of soy and corn for food (for both humans and livestock). That reduction in supply, in combination with global economic growth that increases food demand, raises prices.

Thus Mr. Endres is entirely incorrect. Ethanol plants do contribute to high food prices, despite their use of non-food corn.

And he’s not alone in making this fallacious argument. I’m sitting here listening to NPR’s Morning Edition, which just did a story about this question (I’ll post the link when it’s available), and one of the contributors to the story was Iowa Senator Charles Grassley (who is himself a farmer). Not only did he make the same incorrect argument as Mr. Endres, he even went one further and bit into a kernel of the corn used for ethanol, to show how inedible it is!

Politics really is just theater, isn’t it? Sadly, my taste in theater tends toward Shakespeare and Tom Stoppard, not toward self-aggrandizing gimmicks.

Here’s my question: are folks like Mr. Endres and Senator Grassley really that economically illiterate, really that stupid? Or are they hoping that everyone else is that economically illiterate, and that they can use this fallacious argument for their own political expediency? In either case, I find it shocking.


9 thoughts on “Stupidity, or political expediency?

  1. Hi Lynne,

    I stumbled onto your comments and share your frustration. I do not know whether it is politics or economic stupidity. I guess I lean toward the latter and assume that maybe we need to take the time necessary to teach them some basic economics. What appears almost intuitive to those of us with a economic backgrounds may need to be explained over and over again. Of course, after a certain period of time, if folks continue to keep making the same silly arguments then we will know for certain that such comments are nothing more than sheer politics.

  2. Hi Lynne,

    I stumbled onto your comments and share your frustration. I do not know whether it is politics or economic stupidity. I guess I lean toward the latter and assume that maybe we need to take the time necessary to teach them some basic economics. What appears almost intuitive to those of us with a economic backgrounds may need to be explained over and over again. Of course, after a certain period of time, if folks continue to keep making the same silly arguments then we will know for certain that such comments are nothing more than sheer politics.

  3. Hi Lynne – You are partially correct on your post above, but mainly your facts are incorrect. There are many other factors to the high price corn than the ethanol industry. To say ethanol has not had an impact would be not be correct, however demand for corn, primarily in developing countries is having a greater impact today.

    The corn used for ethanol is the same corn that is used to feed cattle. Less than 10 percent of that corn is actually processed into food products, primarily as sweetners for junk food. The majority of the corn grown in the United States is not for human consumption, and what is used has to be processed.

    This past year, the United States produced an additional 2.6 billion bushels of corn from the previous year. Increased ethanol demand required less than 5 percent of the addition corn supply. That means that there was more than 2 billion bushels of additional corn supply from the year before. I doubt that the 5 percent needed for ethanol is responsible for all the increase in corn. The market is driving the cost of corn, and in this case, the desire to produce more beef in China and India is the biggest driver.

    The second market driver would be predicting how many more ethanol plants will be starting up this year. Based on what I am reading, it is hard to determine that based on the industry’s market conditions but it is certainly slowing down. If history holds true, the country will have a larger corn supply next year based on increased yields without have to increase any acres. My point is that our corn supply will continue to increase (without more acres), greater than what the demand for ethanol will be. I would anticipate corn prices coming back down.

    Now – what do you suggest for higher gas prices. That is having the biggest impact on our economy.

  4. Yes, Politics really is just theater. But, I observe that many people don’t routinely think very many (if any) iterations beyond time-step 1 of system behaviors, never mind our genetic blindness when dealing intuitively with non-linearities. Even if the politician knows better (a big “if”), then he knows that most people won’t or can’t think these things through. His point is made, and politically that may be enough. If he knows this, then he is quite cynical, and I’m cynical enough to think the might know it. But I don’t see it as a matter of academic economics as much as just dealing with complexity and change, how real-life things and beings move through time. Of course, that *is* economics at an abstract level. What it’s *not* is economic equilibrium.

    As I’m fond of saying, “Facts Don’t Matter” (in politics).

  5. Actually, I think the more universal resource that must be mentioned to such people is human time. That way they can’t come back with some silly remark about ethanol from tree groves.

  6. Lynne, I think that it’s self-deception (“I can’t be responsible for starving people”) and politics — drawing attention away from the problem. I heard a podcast with Prof Duffy at Iowa. He claims that poor people are suffering from insufficient income, not high prices. He’s not an idiot — he’s obedient to his paymasters.

  7. Lynne, I think that it’s self-deception (“I can’t be responsible for starving people”) and politics — drawing attention away from the problem. I heard a podcast with Prof Duffy at Iowa. He claims that poor people are suffering from insufficient income, not high prices. He’s not an idiot — he’s obedient to his paymasters.

  8. Steve,

    You didn’t read what I said carefully enough; I said that the ethanol-based demand for corn contributes to, not is the sole determinant of, the high food costs globally.

  9. Steve,

    You didn’t read what I said carefully enough; I said that the ethanol-based demand for corn contributes to, not is the sole determinant of, the high food costs globally.

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