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.