Beer and Ethanol

The price of beer is evidently on the rise, due to increases in the cost of materials such as barley. Farmers are using corn to make ethanol, hence using more barley to feed livestock. The total availability of agricultural grains in America is not going to change much. As Economics 101 tells us, when you have a basically fixed supply and you increase demand, you'll increase the price. Nothing surprising here.

The federal government's interest in ethanol shines a bright light on the perverse way in which politics works in America. We will not mandate higher gas taxes, which would shift people to cars that use less fuel. Instead, we mandate the usage of ethanol in the fuel. Being less efficient than gasoline (otherwise, the mandate wouldn't be needed), the ethanol raises the cost of driving, but not very much. Instead, people are permitted to continue driving inefficient vehicles, while passing the cost along to everyone who drinks beer or eats cornflakes.

I predict that Congress will continue the ethanol mandate, especially since they will need to rescue the investors who have started too many ethanol plants. I also predict that they will not do any of the obvious and effective things.