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Thursday, February 3, 2011

Cornfield Socialism

Politics and hypocrisy.

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.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.