Question of the week

Glenn Reynolds (of whom I am an avid reader) asks, with regard to the use of ethanol as a fuel “WILL ETHANOL LEAD TO FOOD SHORTAGES“?

I was originally going to say “Of course not.” But then, I realized the one scenario where it would happen, and that is if corn is heavily subsidized by the government (ie. the taxpayers, i.e. you and me), but only for use as Ethanol. If it happened quickly enough, every farmer would immediately sell their corn for use as Ethanol, because they’d get money whether it was used or not.

But in general, if the government doesn’t do something stupid like massive, quickly applied subsidies (a tall order, I admit) then there should be no food shortages. Food would get more expensive, especially meat, but all in all, I expect that people can cut back on fuel more than they can cut back on food, and that would cause more farmers to sell their corn to food production instead of Ethanol production. End result – just like any other situation where multiple markets require a particular raw material, we’ll end up with a market equilibrium that will sort everything out.

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