Ethanol Ignites Debate

by William Yeatman on May 6, 2008

President George W. Bush spoke about what to do about rising gasoline prices at a press conference on Tuesday.  He said that the Congress was to blame for not passing legislation to open the coastal plain of the Arctic National Wildlife Refuge in Alaska to exploration and production.  As he correctly said: “Members of Congress have been vocal about foreign governments increasing their oil production; yet Congress has been just as vocal in opposition to efforts to expand our production here at home.”


In reply to a question, the President said about increasing domestic energy production: “We can also send a clear signal that we understand supply and demand….”  Then he went on to defend the corn ethanol mandate on the grounds that it was only contributing 15 percent to the increase in food prices.  Apparently, the President could use a little remedial tutorial in supply and demand.  The prices of products like corn, wheat, and soybeans are set in a global market on the margin.  A small decrease in supply (such as diverting enough corn to feed 250 million people for a year to ethanol production, as happened last year) can have a dramatic effect on price.


Luckily, President Bush is a lagging indicator.  As news stories on the catastrophic consequences of the corn ethanol mandate threaten to become an avalanche, the Congress is full of talk about the need to do something.  Rep. Jeff Flake (R-Az.) has introduced the most sweeping bill, but there are many others being drafted.  Even Senator Richard Durbin (D-Ill.), the Majority Whip, said this week that they were going to have to look at the mandate.  Durbin represents Illinois, the nation’s number two corn-growing State.

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