Thursday, June 30, 2011

Corn Con

“Completely Wasteful”: Steven Rattner Slams Government Support for Corn Ethanol

Democrats and Republicans are locked in a death-grip over how to cut the deficit but agree the government must get its financial house in order. So you'd think there'd be bipartisan support to end the $6 billion annual subsidy for corn ethanol, which most experts agree is money poorly spent.

Former Car Czar Steven Rattner calls the corn ethanol subsidy "completely wasteful" and almost entirely about naked politics.

"Almost since Iowa — our biggest corn-producing state — grabbed the lead position in the presidential sweepstakes four decades ago, support for the biofuel has been nearly a prerequisite for politicians seeking the presidency," Rattner writes in a recent NYT op-ed entitled The Great Corn Con.

"Those hopefuls have seen no need for a foolish consistency. John McCain and John Kerry were against ethanol subsidies, then as candidates were for them. Having lost the presidency, Mr. McCain is now against them again. Al Gore was for ethanol before he was against it. This time, one hopeful is experimenting with counter-programming: as governor of corn-producing Minnesota, Tim Pawlenty pushed for subsidies before he embraced a 'straight talk' strategy."

In addition to $6 billion in direct government subsidies, Rattner notes the "real" cost to American consumers is much higher. Thanks to mandates requiring certain amounts of ethanol be blended into gasoline, about 40% of U.S. corn production is diverted toward ethanol. That, in turn, drives up the price of feed for cattle and pig, which puts upward pressure on food prices. In the past year, corn prices have doubled while the price of bacon is up 24%, Rattner notes.

Citing these "hidden costs" of mandates, the government's corn ethanol policies are a "much more pernicious force" then even most critics realize, he says.

All this despite studies suggesting corn ethanol is energy inefficient — meaning making a gallon the fuel consumes more energy than it produces.

"Of all the examples I've come across in my time both in Washington and watching Washington, this is one of the most remarkable, inexplicable, inexcusable [subsidies] I've come across," Rattner tells Dan and I in the accompanying video.

Last month, the Senate voted 73-27 to end the subsidy. But the vote was largely considered symbolic since the White House has basically taken a 'mend it, don't end it' approach, meaning Senators had cover to cast the "tough" vote.

Still, the Senate vote is "a signal of the fact the world is changing," Rattner says, holding out hope the political winds are finally shifting away from corn ethanol.

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