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Monday, November 20, 2006

"Bad Economic Policy, Bad Energy Policy, and Bad Foreign Policy"

James Surowiecki of The New Yorker explains why tariffs, quotas, price guarantees, and subsidies in the sugar and ethanol markets are "bad economic policy, bad energy policy, and bad foreign policy":

Deal Sweetners, by James Surowiecki, New Yorker: America ... consume[s] ... close to ten million tons of sugar every year. But American sugar producers aren’t satisfied with supplying the most sweet-hungry population in the world. They’ve relentlessly sought—and received—special favors... The government guarantees producers a fixed price for domestic sugar and sets strict quotas and tariffs for foreign sugar.

Economically..., this has many obvious bad results. It keeps sugar prices in the U.S. at least twice as high as the world average. It makes it harder for companies that use lots of sugar to do business here—in the past decade, an exodus of candy manufacturers from the U.S. has eliminated thousands of jobs. And import restrictions make Third World countries poorer than they’d otherwise be. But protecting sugar also has a surprising consequence: it’s hurting America’s efforts to become more energy-efficient. ...

In recent years, as politicians have tried to deal with high gas prices, concerns about global warming, and America’s dependence on OPEC, a new savior has been found: ethanol. Ethanol has all sorts of virtues. ... So Congress has mandated that four billion gallons of ethanol annually be blended with gasoline, and it also subsidizes ethanol production with a fifty-one-cent-per-gallon tax credit. These policies have stimulated an ethanol boom...

Unfortunately, the ethanol produced in the U.S. comes from ... corn. Corn ethanol’s “net energy balance” ... is significantly lower than that of other alternatives, and modern corn farming isn’t easy on the land. By contrast, ethanol distilled from sugarcane is much cheaper to produce and generates far more energy per unit of input—eight times more... In the nineteen-seventies, Brazil embarked on a program to substitute sugar ethanol for oil. Today, every gallon of gas in Brazil is blended with at least twenty per cent of ethanol, and many cars run on ethanol alone, at half the price of gasoline.

What’s stopping the U.S. from doing the same? In a word, politics. The favors granted to the sugar industry keep the price of domestic sugar so high that it’s not cost-effective to use it for ethanol. And the tariffs and quotas for imported sugar mean that no one can afford to import foreign sugar and turn it into ethanol, the way that oil refiners import crude from the Middle East to make gasoline. Americans now import eighty per cent less sugar than they did thirty years ago. ...

We could, of course, simply import sugar ethanol. But here, too, politics has intervened: Congress has imposed a tariff of fifty-four cents per gallon on sugar-based ethanol in order to protect corn producers from competition. ... [T]he Bush Administration proposed eliminating the ethanol tariff this past spring, but Congress quickly quashed the idea ... [T]he sugar quotas appear to be as sacrosanct as ever. ...

Our current policy is absurd even by Washington standards: Congress is paying billions in subsidies to get us to use more ethanol, while keeping in place tariffs and quotas that guarantee that we’ll use less. ... Because of the ethanol tariffs, we’re imposing taxes on fuel from countries that are friendly to the U.S., but no tax at all on fuel from countries that are among our most vehement opponents. Congressmen justify the barriers to foreign ethanol with talk of “energy security.” But how is the U.S. more secure when it has to import oil from Venezuela rather than ethanol from Brazil? These tariffs are bad economic policy, bad energy policy, and bad foreign policy. ...

    Posted by on Monday, November 20, 2006 at 12:33 AM in Economics, International Trade, Policy, Politics, Regulation | Permalink  TrackBack (1)  Comments (11)

          

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    [Source: Economist's View] quoted: James Surowiecki of The New Yorker explains why tariffs, quotas, price guarantees, and subsidies in the sugar and ethanol markets are "bad economic policy, bad energy policy, and bad foreign policy": Deal Sweetners, b... [Read More]

    Tracked on Monday, November 20, 2006 at 09:54 PM


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