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Brooks Wilson's Economics Blog: Responding to Comments about Ethanol

Thursday, December 17, 2009

Responding to Comments about Ethanol

In response to, "Ethanol as a Gas Additive," in which I questioned the value of ethanol as a fuel additive, Anonymous wrote,
Are you serious? Where do you think jobs for additional gasoline would be located? NOT IN THE UNITED STATES! Ethanol is better for the environment and helping the economy. It's sticking money right back into the U.S. instead of shipping it overseas. Ethanol does provide a lot of good jobs in which we seem to have quite a shortage of right now. So for a few miles you would rather send your money overseas?
My response is too long to fit into the small comment box.  First, thanks for the comment. I am serious about the public’s misguided focus on job creation rather than productivity. Bryan Caplan, the author of “The Myth of the Rational Voter,” calls it the “make work bias.” Before I proceed, I do realize that the economy is in a deep recession and that many are unemployed, including some in my family.  My comments still apply.  Despite occasional recessions, economies from market oriented to socialistic generally have little problem finding jobs for everyone. Wealthy countries are highly productive, poor countries are not.  Both experience periods of high unemployment.  The question should be: how do we increase the productive of our workers? 

Increasing productivity does have costs.  American farmers are so productive that we now have about 2.2 million compared to 15 million a century ago. The “freed” farmers of the last century went on a productivity binge that dramatically raised our standard of living. I placed freed in quotation marks because nobody wants to be "freed" from their occupation. It is a hard, painful process but it is part and parcel of economic growth through rising productivity.

I have no problem with the production of ethanol so long as it is produced without a dime of taxpayer money. If it is a good product, meaning that it has as much as or more value per dollar spent than other products, people will buy it. My experience was that it cost more to drive the same distance. This means that I have less money to buy food, clothing, shelter, and entertainment. If my experience is the average, then producing ethanol creates jobs but loses productivity and wealth. 

And yes, a higher price for gasoline would produce jobs in the United States. We are the world’s third largest producer of oil and last year witnessed a large increase in American oil production (see “Drill Baby, Drill”). Even if all the gasoline or oil came from abroad, Americans would be needed to transport it from ports to end users and the money that I save from buying the best fuel for my vehicle would also employ Americans.  A higher price for gasoline would not improve productivity.


  1. Tax payer money? If your referring to subsidies, oil gets their share as well. America is one of the wealthiest nations in the world. The cost of food in our country is among the lowest in the world thanks to our farmers. But yet people complain becaue of few less mpg's which in turn are benefiting our countries' economy and enviornment. If America's imports of oil were cut off, we would have a total crisis in a matter of 5-6 months.

  2. Tax payers should not subsidize oil production either.