Wednesday, January 27, 2016

The inanity of ethanol subsidies explained

Before I begin this entry, I just want to state that I am not a business graduate. I don't have an MBA from Bentley University. I'm just a 46-year-old tax-paying schlub with a BS in Geography that I earned what feels like a century ago. But, I like to think I've learned a thing or two about how the world works during my life thus far—which is why I'm so deeply disturbed and flummoxed by Donald Trump's defense of ethanol subsidies.
On this subject, Trump is to the Left of most environmental nutcases, including Al Gore. Even President Barry has not coddled the industry as much as Trump is proposing to do. Did I mention this is disturbing?
I'm a free market ├╝ber alles kind of guy. A laissez-faire marketplace is like the Constitution to me. That in a nutshell is to say, don't fuck around with it. There is no way to improve on the original template, so let it be.
The market should be left alone to determine the winners and losers, in accordance with natural law, in the style that nature operates. A business or industry must succeed based on its own merits and strengths.
Think of it this way: There are two factors determining the health of a business in the free market. You have the consumer base and the investors. Both are vital to the health of a business. If you have investors but no consumer base, you will find that the business will suffer a fall in shares on the stock market as stockholders lead a revolt against it. If you have a good customer base but no investors, you will have a short-term profit margin, but it cannot be sustained without private backers.
The ethanol industry finds itself without a customer base, because it is expensive and, in the long run, it ruins motors. Ethanol is not fit to fuel the combustion engine; the combustion engine was not built to accept it. The industry has no investors because when it takes four barrels of gasoline to produce three barrels of ethanol, you don't have to be a genius to work out the negative enterprise value. Not to mention that it takes food off the plate of human beings and feed away from animals to produce a questionable fuel. Yet, because Iowa and the rest of the Midwest is corn-producing country, you have to sedate the hicks in power with promises that you will prop up their pork.
The ethanol industry is as establishment as they come. Yet Trump, supposedly the "anti-establishment" candidate, is defending it. Either he really has no intention of increasing subsidies to ethanol, in which case he's lying to the people of Iowa, or he's serious. In either instance, he's in trouble on the subject.
Now let's talk about subsidies. Most people would be inclined to ask, "OK, if you haven't got investors, then what's wrong with government subsidies to take their place?" What's wrong is that it costs tax dollars that are better spent elsewhere. And subsidies keep alive an industry that would be doomed to fail without them. It does not abide by natural law. Darwinism must be allowed to operate in the business world as much as it does in nature, or you cannot trust the quality of the product nor the integrity of the business offering it to you.
For instance, when Ford was allowed, in a robust marketplace, to produce quality cars, that's exactly what the customer got. Ford's strong profit margin attracted investors and the car manufacturer became a giant. Compare this with the Soviet car Lada, which during the '70s and '80s was a pile of junk on wheels. The Russian government told its car industry AvtoVAZ to produce cars for the proletariat. AvtoVAZ said it could not produce high-quality without the requisite profit platform. The government responded that it did not care, just that it had to produce. So AvtoVAZ produced crap. If all that matters to a business is quantity, that is a good sign that it is being manipulated by big government. Once the Russian Federation allowed for a free marketplace, AvtoVAZ could concentrate on quality.
Does the average American citizen want their Fords, Hyundais or Nissans to be turned into Ladas that won't start or poop out in the middle of the freeway? Then ethanol is the way to go.
To sum up, you must have the one, which is the customer base, and the two, the investors or stockholders, to ensure a successful business. If you replace two with three, government subsidies, you will have a business on life-support. This is the future of industry in America?
There is a lot wrong with the marketplace. Competition is its lifeblood, but we have private industries constantly swallowing up each other to the point where competition is an afterthought. For instance, when I was 19, I got my first bank account with a local bank called BayBank. BayBank merged with Bank of Boston in 1996 to become BankBoston. Then BankBoston was acquired by Fleet, which had also merged with Shawmut Bank. Finally, in 2004, Fleet merged with Bank of America. From the years 1989 to 2007, I had dealt with four changes of bank. Then I settled my accounts with them and left. No customer should have to go through that.
Mergers happen too often these days. It seems like the current business climate encourages it, but when companies keep merging and grow bigger as a result, they become all the more powerful, therefore unaccountable—not as beholden to either their customers or their investors, and the less competition exists as a result. Again, I'm no business expert, but it seems to me that the free market suffers in a time of high M&A (mergers & acquisitions) activity.
Sorry for the tangent, dear reader, but that had to be said. You can't even trust the private sector to regulate the business environment the way it should be. Everyone wants leverage they can't afford. That's why we had the financial crash of 2008.
I don't know what Donald Trump is going to do regarding ethanol. He's gotten himself into a fix and he'd better figure a way out of it. I don't want the "nationalist agrarian populism" that Mark Levin calls it. Like him, I want conservatism, and, for conservatives, there is only one option for the delivery of goods and services to the population: The free—not subsidized—market.

1 comment:

goddessdivine said...

Ethanol is the WORST thing to happen to this country. Period. Hallelujah if that industry goes under.