"Basic economics points out that if
government has to provide a subsidy to make production of something
profitable, then the resources devoted to that product are
misallocated. If the ethanol subsidies were removed and production
became unprofitable, that would tell us we would be better off using corn
for other purposes. The profit and loss signals arising from
genuine market competition provide evidence for whether resources are
used to create value for consumers."
The Calling
Cornfield Socialism
Politics and hypocrisy.
Steven Horwitz
Posted February 03, 2011
A favorite sport of many conservatives is calling President Obama a
socialist because of his anti-market rhetoric and the significant
increase in government involvement in the economy. In an earlier
column I weighed in on this issue, suggesting that Obama is more of
a corporatist than a socialist. Whatever term one thinks best
describes Obama’s politics, ironies abound in the conservative charge of
“socialism.” In general, conservatives have been quite willing to
accept, if not encourage, government intervention in markets.
The most obvious example is the conservative unwillingness to tolerate
free markets in prostitution, pornography, and especially certain
drugs. Of course, those markets raise other issues that matter to
conservatives, which would distract us from the more fundamental point
about socialism. So instead, we can turn to the recent endorsement
of ethanol subsidies by Newt Gingrich and Rick Santorum.
Ethanol, a fuel made from corn, has been widely criticized for a variety
of reasons. Most common is that it converts corn -- which could be
used for food -- into fuel, and very inefficiently at that. This raises
food prices in the United States and around the world. By providing
subsidies for ethanol, the government steals food from the world’s poor
to enrich large fuel producers and agribusiness.
Basic economics points out that if government has to provide a subsidy to
make production of something profitable, then the resources devoted to
that product are misallocated. If the ethanol subsidies were
removed and production became unprofitable, that would tell us we would
be better off using corn for other purposes. The profit and loss
signals arising from genuine market competition provide evidence for
whether resources are used to create value for consumers.
Isn’t this the point many conservatives keep making about Obama’s
policies toward the banks or auto companies? Haven’t they rightly
said that keeping failing banks or auto companies afloat with government
dollars just throws good money after bad and prevents those firms from
learning from their mistakes? Yet here are two potential Republican
presidential candidates lining up to endorse what amounts to an ongoing
bailout of agribusiness and energy companies. Even if ethanol
didn’t lead to higher food prices worldwide, doesn’t the conservatives’
supposedly principled objection to bailouts apply here?
Al Gore Even
Let’s put it this way: Even Al Gore, not known as
a source of great economic wisdom (other than during his excellent
performance against Ross Perot in their 1993
NAFTA debate),
recognizes that ethanol subsidies are a bad idea. When you argue
for more government intervention in the market than Al Gore does, you
have a big problem.
But the worst part remains the hypocrisy. Both Gingrich and
Santorum have now lost whatever small amount of credibility they had in
criticizing Obama for being a socialist. After all, what are the
ethanol subsidies if not cornfield socialism? If a key part of a
genuine market economy is the full force of profit and loss, then
subsidizing ethanol is anti-market.
Resolving this paradox is not all that hard. As potential
presidential candidates, Gingrich and Santorum have to appeal for votes
in Iowa, which is smack in the middle of the cornfield socialist states
of America. The logic of concentrated benefits and dispersed costs
combines with the self-interest to lead politicians to support a policy
that directly contradicts some of their loudest positions on other
issues. The benefits to Iowa agribusiness from the subsidies are
huge, but the costs in higher food prices or taxes are spread thinly
across the rest of the country, if not the world. It’s easy for any
politician to promise to support a policy that gets him votes when the
costs of the policy are so small (per individual), so hidden, and so
spread out.
But that doesn’t change the fact that ethanol subsidies are no less
socialistic than the Obama interventions that conservatives like Gingrich
and Santorum decry as socialism. Too bad for the poor who must pay more
for their food that those guys don’t get it.
http://www.thefreemanonline.org/headline/cornfield-socialism/
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