Ethanol and Inflation

Don Surber of the Charleston Daily Mail blogs that Heather Stewart of the London Observer has covered the story that Al Gore's fight against global warming is now starving the third world. Heather Stewart notes that America's thirst for environmentally friendly biofuels is driving up food prices around the world as farmers use corn for ethanol rather than food.

In February, Gold Bug Howard S. Katz blogged that

"In 2005, Archer, Daniels, Midland (the world’s largest processors of soybeans, corn, wheat and cocoa) persuaded the U.S. Congress to vote a subsidy of 51¢ per gallon to convert corn to ethanol. This means that, when you put 10 gallons of gas in your car these days at a pump price of $2.25/gallon, you are actually paying $2.76 for the ethanol gallon. You pay $2.25 at the pump, and another $0.51 is taken from you by the Government...the manufacture of ethanol from corn is not a very efficient process. It takes a lot of corn to make a small amount of ethanol. David Pimentel (professor of agriculture at Cornell) estimates that it would take 100 percent of the country’s corn crop to increase the fuel supply by 7%...With this extra demand for corn, the price of corn started to rise, and between August 2006 and January 2007 the price of corn almost doubled (from $2.20/bu to $4.20/bu)."

Katz also pointed out that the increasing corn prices would filter into meat prices since corn is a key foodstuff for cattle. As well, he noted it is pressuring the cost of food Mexico.

Serber reminds us to:

"not blame the United States because Zimbabwe, which once exported food, must import it thanks to Robert Mugabe's racist seizure of farmlands."

Of course, third world governments are corrupt, and naive, left wing idealists play into government interventionists' and inflationists' hands.

Surber adds:

"Last month, food prices rose 4% nationally....Corn product chips, tortillas, enchiladas, will go up 25 to 30% at the restaurant level if things continue as they are now...Analysts blame a combination of drought, freezing weather, and the rising demand for corn due to the popularity of ethanol. With ethanol production expected to double in the next four years, some analysts say today's prices may look like a bargain in comparison."

But the chief cause of rising prices, Fed monetary policy, is excluded from this list. Back in February Katz also predicted that beef prices would rise thanks to Congress's ethanol subsidy. But the policy underlying inflation is the Fed's.

Surber now notes that:

"Another favorite Memorial Day snack that may take a bite out of your wallet is beef.My Pittsburgh bureau chief supplied the reality check by actually buying groceries: I noticed that the chicken on special this week, fryers and split fryers etc, generally priced at $.99 Lb are on special at $1.19. Filet Mignon special last year at $6.99 lb for whole filet is $8.99. Guess you could say ethanol production hurts the poor and the rich!"

Of course that is true. But blaming particular causes for price increases plays into the inflationist establishment's hands. There are two US causes to the problem that Don Surber notes: (1) Government intervention resulting in poorly thought-through policies like ethanol and (2) price inflation due to the Fed's monetary expansion. A third problem is third-world corruption. A fourth problem is European jealousy of and hostility toward America. It difficult for me to talk about the London Observer or Heather Stewart or Europeans' opinions of America with a straight face. I'd prefer to leave them running in place on hamsters' treadmills, swinging from trees and eating bananas, as long as they don't run wild and return to their millenial habit of murdering Jews.

Both of the policies, government intervention and inflation, make corn and beef prices higher, hurting almost everyone except for those who benefit from them, i.e., Archer Daniels Midland, inflationist bankers, big business, hedge fund operators and real estate developers.