Public trust in the government has been tenuous in recent years due to a deluge of government waste and corruption. Government waste is a product of cronyism, where political exchanges between public officials and special interest groups manifest in legislation. The normally inclusive benefits of legislation are tapered to exclusive benefits claimed by a smaller group at the cost of the public.
The Renewable Fuel Standard, also referred to as the ethanol mandate, is one such example of cronyism. The ethanol mandate sets yearly volumetric requirements for renewable fuels to be blended into motor fuel sold in the states. The mandate has largely been met by mixing corn ethanol with gasoline.
The ethanol mandate suppresses competition by guaranteeing the ethanol industry an exponentially growing share of the energy market. Less than 10 billion gallons of renewable fuels were initially required in 2008 and by 2022, the mandate will require 36 billion gallons of renewable fuels in transportation fuel. The mandate bypasses competition to ensure artificial growth for ethanol producers, distorting the market in the interim.
Legislators have extolled the ethanol mandate as a panacea for the country’s environmental ills. Studies have shown that biofuel production simply diverts the environmental impact from the atmosphere to land and water resources. Increased corn production for ethanol distillation has led eutrophication, where excess amounts of fertilizer and pesticides from agricultural production pollute lakes and rivers. The nutrient rich waters stimulate algal blooms, killing animal life from a lack of oxygen. The negative and unplanned impact on the environment indicates inefficient policy with little regard towards sustainability amounting to wasteful legislation.
An additional issue is the effect on prices from misallocating production. The corn ethanol industry now consumes around 40 percent of the U.S. corn supply. Increased corn consumption by the ethanol industry will continue to raise the price of corn and foods made with corn. This raises concern regarding the stability of the food supply during droughts, and it means that consumers will face higher prices for food.
The benefits of the ethanol mandate are concentrated in the Midwest where refineries and corn growers are present in higher proportions than the rest of the country. An analysis by Robert Bryce found that Americans in non-ethanol producing states transferred $10.6 billion to states that produce ethanol.
From 2008 to 2014, the corn ethanol industry has spent $10.8 billion contributing to federal campaigns and $187.5 billion lobbying during 2007 to 2014. The transactional relationship between private industry and government is the main element of cronyism. If politicians were not susceptible to lobbyist contributions then there would be no issue of federally administered corporate welfare.
The market achieves consumer well-being through the appropriate allocation of scarce resources and efficient prices. However, the ideals of free enterprise do not always align with government officials, who prioritize campaign contributions and budget maximization. These officials bargain with special interest groups who secure influence in legislative and regulatory channels to defend their areas of interest.
Cronyism stifles competition by interfering with the empirical process where market shares are won by suppliers that offer the most benefits to consumers. Legislation arising from crony dealings is usually inefficient and wasteful because it circumvents marketplace competition. A boon to a few, cronyism imposes a cost on the general public, who finance legislative and financial initiatives that go towards these select businesses.
The public is weary of the government, and rightfully so. Cronyism performs a disservice to free enterprise by interfering with competition and adulterating the political process. The needs of the body politic are disregarded in favor of catering to special interest groups, leading to acts of government that are wasteful and inefficient because its benefits do not extend to the general public.
In the end, politicians enjoy increased funding and businesses are secure in their markets, all at the expense of the consumer. The consumer also incurs non-monetary costs in the form of loss of innovation due to government interference in the market. The costs to the consumer do not equilibrate with the benefits to public officials and special interests, because the consumer pays more and gets less.
The only way to curb government largess is to contract governmental authority. The first step should be the repeal of the corn ethanol mandate, removing the incentive for politicians to engage in private sector protectionism. The public must apply pressure on government officials to restore faith in the government and the free market.
Lowman is a research intern at the American Consumer Institute and an economics student at George Mason University. ACI is a nonprofit research organization that receives donations from multiple sources.