Two Big Surprises

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Well, now, you can knock me over with a feather! Two stories just out are amazing in their a priori improbability. They tell us a lot about the growing awareness of our looming national financial crisis.

The first is the news that the U.S. Senate has voted to end federal subsidies for ethanol, which this year hit a high of $6 billion from taxpayer dollars.

This is surprising for a number of reasons. The ethanol lobby (i.e., the group of rentseekers who derive much of their income from this screwy subsidy) is powerful, consisting of many players in key political states. Moreover, it has been around for more than 30 years — an unhappy product of the Carter presidency. Also, it has been a darling of the environmentalist movement, which has consistently opposed fossil fuel and nuclear power, favoring instead so-called “renewable” sources of power (biofuels, wind power, and solar power).

Even more surprising is that the vote was bipartisan and wasn’t even close: 73 for, and only 27 against, with Dianne Feinstein (D-CA) joining Tom Coburn (R-OK) in sponsoring the bill. In the end, 33 Republicans and 40 Democrats joined to kill the subsidy program.

I suspect that a number of facts helped the Senate reach this epiphany. One is that despite over 30 years (and untold billions of taxpayer dollars) invested in research and development, the energy output that you get for the required input still keeps the fuel from being economically attractive — a point that even Mr. Green himself, Al Gore, mentioned when he came out against corn-based ethanol earlier this year. In part, the problem is that we are making ethanol out of corn, which is far less efficient than making it out of sugarcane — and this is why, besides giving the domestic producers of the stuff a hefty tax credit of 45 cents per gallon of ethanol blended with gasoline, the feds have had to impose a whopping 54 cents per gallon tax on ethanol imported from abroad (mainly Brazil).

Another senatorial eye-opener may have been the recent, massive discoveries in domestic sources for oil and natural gas that can be produced by new technology such as fracking. These discoveries make the case for subsidizing domestic ethanol even more dubious.

Besides, politicians are finally beginning to see the obvious, deleterious impact that diverting 40% of our corn crop to make ethanol (which, again, we could buy more cheaply from Brazil) has on food prices both here and abroad. The rapid inflation of food prices has caused riots abroad and is beginning to cause real discomfort here.

Finally, there is the sense that this subsidy program has just gone on too long. As Senator McCain put it, “Enough is enough. The industry has been collecting corporate welfare for far, far too long.” Exactly so. There is demand for ethanol, but the industry needs to supply it in the free market.

The ethanol industry has been angling to replace tariffs and subsidies with federal spending for special pumps and tanks to hold higher concentrations of ethanol. But the House just voted against that by a margin of 283-128.

So it may be that the governmental subsidies for ethanol will end soon.

Now, the second surprising story is that the AARP, the liberal advocacy group that purports to represent the elderly, and was so crucial in helping President Obama ram through Obamacare, has changed its position on reducing benefits for Social Security. John Rother, the AARP’s policy head, has said that the AARP now views change in Social Security’s benefits structure as inevitable, and wants to have an influence on the process. This is a big change from AARP’s earlier stance, which was that all we needed to do was increase payroll taxes to cover the deficits. As Rother put it, “The ship was sailing. I wanted to be at the wheel when that happens.” Of course, the question is, why would we want this toad and his leftist organization — who did all they could to block reform and increase the depth of the problem — to be “at the wheel” of reform?

It is all so richly ironic. The AARP was viciously instrumental in killing President Bush’s attempt to reform Social Security. It claimed that Bush was going to shortchange the elderly. Now the AARP itself will face the same charges.

Indeed, the AARP immediately aroused the antipathy of a coalition of leftist groups calling itself (in pure Alinsky style) “Strengthen Social Security.” It has already accused AARP of becoming elitists disconnected from their base.

The AARP is approaching this cautiously. It lost about 300,000 members by helping push through Obamacare. To cover its tail, it wants to make sure that the Social Security revision process is bipartisan. Its own polls match public polls that show the elderly deeply oppose changes to the program. One recent poll shows that 84% of all Americans 65 and older oppose any and all cuts in benefits.

But the AARP and members of Congress are finally coming to see the iceberg of fiscal insolvency toward which the economy is headed. Visions of Greece, currently in the throes of riots by dependents of the state and facing the prospect of defaulting on its debts, are concentrating minds wonderfully.

In fact, it is all rather like watching a Greek tragedy. The blind AARP finally has to face its fatal flaw — the mess it helped create and maintain.




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Comments

J Eyon

i'm dizzy from doing so many cartwheels

good analysis of the ethanol situation Jason - but you may be giving too much credit to the analytical skills of most people - it could just be the vision of their state and local governments collapsing under debt that has finally wakened the inner "fiscal conservative" in many people - plus the publicizing of corn-deprived poor people around the world

maybe a similar perilous vision has affected AARP and its members - a tax base threatened by today's economy can no longer counted on to shore up Social Security - either SSI goes - or it adapts

funny that even when the economy is just getting by - bad behavior is reinforced - it takes something brutal like a crash landing to change things

ready for more cartwheels

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