Was the Ethanol Lobby the Big Loser in Iowa this Year?

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Was the Ethanol Lobby the Big Loser in Iowa this Year?

February 2, 2016

For years, the Iowa caucuses have been heavily influenced by the role of agriculture subsidies in the state in the form of ethanol subsidies. It has long been regarded as political suicide to go into Iowa and call for the end of the federal government's ethanol subsidies program. 

Ted Cruz, who won the Iowa caucuses last night, did just that. 

Indeed, Cruz didn't just mention on the side that he wasn't interested in protecting the subsidies. He came right out and announced that he wanted to cut them. The Wall Street Journal reports

In Sioux Center on Tuesday, Mr. Cruz reiterated his campaign position: That the fuel standard should be phased out and ended by 2022. Mr. Cruz once supported legislation repealing the mandate right away, as a co-sponsor of a bill in 2013. In 2014, Mr. Cruz introduced a separate bill that would overhaul several energy policies, including phasing out the mandate over five years, similar to his current campaign position.

Now, as Gary Galles pointed out in Mises Daily, the correct laissez-faire position is to seek an immediate end to the subsidies. After all, why should be the American taxpayers be forced to endure five more years of being fleeced for the sake of some corn farmed so the program can be “phased” out. 

Nevertheless, the fact that Cruz has at least twice supported legislation to cut the subsidy should have been the death knell to his campaign in Iowa. Even Donald Trump, who doesn't need money from the ethanol interest groups, was nonetheless pandering to them for votes and specifically attacked Cruz on the ethanol issue.  The WSJ goes on: 

If Cruz wins Iowa and he does so without making accommodations to the demands of ARF, they’re the ones that will be the big losers in this,” said Rep. Steve King of Iowa, a Cruz backer who also is a “strong supporter” of the fuel standard.

The ethanol industry agrees. America’s Renewable Future, which is now solely dedicated to attacking Mr. Cruz, is papering GOP caucus-goers’ homes with mail accusing the Texas senator of being beholden to his home-state oil industry, and it is airing countless television and radio ads urging Iowans to vote for anyone else.

Of course, the claim that Cruz is beholden to the oil companies may be right. Maybe Cruz is supporting federal subsidies for oil somewhere at the same time he's claiming to be anti-subsidy. I haven't checked Cruz's entire voting record, and it's not my goal here to portray Cruz as some sort of hero for laissez faire. (Because he isn't one.)

But what we do know is that the failure of the ethanol lobby to stop Cruz in Iowa is very bad news for them, and may also suggest that the American love affair with so-called renewable energy sources is withering. 

Maybe people thought “renewable” bio-fuel like ethanol seemed like an urgent matter when the idea of “peak oil” seemed plausible to many people. But, nowadays with cheap gasoline and oil rigs actually being closed down due to low prices, it's hard to see why all that corn should be going up in smoke to make ethanol. 

Besides, by subsidizing ethanol, the feds are causing corn to go into energy production instead of food production, whether as corn for human consumption, or as livestock feed. In either case, ethanol subsidies are driving up food prices by making meat production more expensive, as well as corn-based foods. It's a classic case of misallocation resulting from government intervention. 

Whatever happens with the rest of the presidential election, one good  outcome may be the fact that next time around, the campaign consultants may look and see that no, they don't have to promise to keep the farm-welfare money flowing to at least one group of free-loaders after all. 

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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