Corn, Ethanol, Farms, Food and the Logic of the Granary

First, a recommended podcast for that wavering ostrich of yours. George Kenney interviews Frank Schaeffer, whose memoir, Crazy for God: How I Grew Up as One of the Elect, Helped Found the Religious Right and Lived to Take All (or Almost All) of it Back, tells of a journey from helping found the evangelical right, to enthusiastic support for Barack Obama. One perspective that I also urge - recognizing the profound commitment made by our military men and women vs. the way they've been despicably betrayed by the Bushite Cabal. Ironically, Schaeffer sees deep parallels between the Obama-led youth movement and the best instincts of those who sign up to serve.

Speaking of ostriches, let's look past the struggles for the Democratic nomination at the big picture, rehearsing what we’ll say in the General. Care for another look at my own two sets of suggestions? First, a few neglected policy planks that the Dems have missed so far (some of them sure winners), and second a fully-fleshed-out list of arguments to split that honest-but-reluctant conservative uncle of yours away from a movement that has thoroughly betrayed him, couched in terms a conservative might understand.

And now... our feature:


Corn, Ethanol, Farms, Food and the Logic of the Granary

In the flux of rapid change, new alliances and alignments are being made, as we speak. Some conservative pastors are reversing themselves and speaking out for "creation-tending" and action on climate change. Meanwhile, the Sierra Club and other environmental groups are reversing their opposition toward nuclear power, which does not emit greenhouse any gas.

Will wonders never cease? Indeed, if Barack Obama and the democrats show any agility at all (as in Mississippi, where they ran a socially conservative but still reasonable Democratic candidate to represent a deeply socially conservative district, and won) then more of these negotiated re-alignments will take place. Indeed, one can hope these are signs of a shift from the dogmatic intransigence that benighted the first decade (the Nasty Oughts) of a dour Twenty-First Century. Indeed, we may be finally shaking off a bad case of Future Shock that swept America, along with that fearsome "2" in the millennium column. We are, after all, a civilization that was founded on pragmatic negotiation and scientific progress, embracing good ideas, even when they come from another "side."


The History and Common Sense of Farm Subsidies... and What Happened

Let me try to zero in on one area where logic and pragmatism has been in stark, short supply. The whole question of farm subsidies, and how they have lately spurred a giant biofuels industry -- one that could be set up in a way that makes sense... but for the simplemindedness of both sides. A remarkable lack of insight has been displayed, both by supporters and by those opposed to biofuels... leaving in place a scam, instead of a process that could have worked well.

First a little history. Remember Joseph? He of the technicolor coat, who wandered into Egypt and interpreted a Pharaoh's dream? Seven fat cows, followed by seven skinny ones, forecast a time of bumper harvests, and then a time of devastating famine. That is, unless sufficient stocks were bought and stored away. Which, forewarned, the Pharaoh did, ultimately thanking Joseph for saving the nation.

Historians can now verify that the Egyptian state used to do this sort of thing, quite often, in a routine and simple way. Whenever crops grew abundant and grain prices were low, the government bought and stored grain, both assisting farmers and creating a stockpiled reserve. When supplies were thin and prices ran high, the caches were opened and stores sold, softening price swings, letting both farmers and consumers have a little predictability in life. Any resulting profit to the government helped to maintain to recoup the large investment in constructing granaries

A simple system. Everyone benefited. Farmers weren't bankrupted by too-good harvest years. The people weren't starved and taken advantage of in lean times. Taxpayers got their money's worth. The state's useful role paid for itself.

Now, there were a few special circumstances that helped Pharoanic Egypt master this trick. The dry climate allowed storage of grain for extended periods, for example. Also, there are a few things that simpleminded kingdoms do really well, such as repeating the same working pattern, over and over. Pivotally, those ancient farmers did not have a massively powerful voting bloc, able to sway government policy and alter the arrangement in shortsighted ways. A failure mode of later, more sophisticated nations.

Take the US Great Depression, a time when urban populations went hungry, while farmers poured excess milk into sewers, because the price was too low to be worth shipping. Under the New Deal, various methods were tried, for helping rural populations hard beset by market ructions... as well as dust bowls, foreclosures, bank failures, disease and bad land mismanagement. Some of the solutions -- e.g. roads, schools, electrification, subsidized post, phone and internet -- seem proper tasks for government, even from a conservative perspective. (Now, at least.)

Notably, urban taxpayers never demanded payback for a cent of all that infrastructural support -- a tradition that continues today, as a river of tax dollars continues to flow from Blue to Red. Nor should they. (Nor should rural folk brag about how "independent" they are.)


How did Farm Policy Leave Common Sense Behind?

Infrastructure is an easy decision, but how to damp the swings in market price? Of course, the most direct approach for achieving rural assistance, and the one that involves the most market-meddling, has been direct farm subsidy payments and price supports. And, way back in the 1930s, stage one looked pretty darn traditional. The government often simply bought up extra food and gave it to poor people, elsewhere. Some of the grain and milk got turned into storable items, like flour and cheese, to act as a national reserve for a few years, before getting recycled through food stamps and school lunch programs. And, yes, the government bought grains when they were cheap and sold them later, when the price was high. All very logical. Almost Egyptian.

Only progress follows progress. With all that education and infrastructure and investment, farmers got a whole lot better at their business. There came a time when US agriculturalists could not be stopped from producing too much! Domestically, at least, there was no longer a "famine" side of the cycle, for the government to dump its stockpiles into. And sure, the government tried making this a win-win by sending massive amounts overseas, as foreign aid. But, while some of this was genuinely life-saving, we now know that a result was -- just as often -- to undermine local agricultural systems and destroy a developing nation's ability to feed itself.

So the idea arose to simply pay farmers not to produce on some of their land. On occasion this has been done, in some countries, by purchasing some of the farmland outright, leaving it fallow or converting it to other uses, even parks. Farmers benefit from higher prices or collateral value for their land. Farmers also get higher prices for their crops, since less land is in production. And the taxpayers get something in return for this help. They get that land. It can be banked, just like that Egyptian grain. Only much better preserved and with ecological benefits, too,

But then, we are a nation where political power was deliberately titled toward rural states. And as one might expect, there came pressure for change. It began to occur to clever people that sometimes governments can be arm-twisted into giving, without getting anything in return. (After all, look at the dams and highways and schools.) So, polemical tricks were used. For the government to buy land and surplus produce was "socialistic." On the other hand, simply paying farmers to keep their land, but not to grow anything on it, well, that somehow made sense and was not at all socialist.

This is an old, old argument, and I am neither qualified, nor interested in getting down to the actual fight over farm supports, per se. Or the way giant agribusinesses now collect the lion's share of subsidies that were designed to preserve family farms. Or the way opponents of socialism nevertheless have managed to rationalize demanding that the taxpayers' government never get anything direct and tangible, in return. (Socializing and externalizing costs while privatizing profits.)

But note how the second half of the cycle is now almost completely missing. When the government stabilized low prices by buying something tangible (grain or land) it acquired a tangible reserve that it could then use in emergencies or sell when prices were high. But, today, there are no large federal stocks of food pouring forth to ease the skyrocketing supermarket prices, nor stocks of reserved land being offered to young, suburban couples to try their hand, as new farming pioneers, Nor are the direct-payment subsidies being cut back, now that floods of profit are pouring into agribusiness. It is no longer cycle balancing. It is an entitlement.

Indeed, one sees some very "non-egyptian" things going on... like a US government hurrying to fill the National Strategic Petroleum Reserve with high priced oil. The same government that (does anybody at all recall?) sold out of the reserve, years ago, when prices were low.


WHAT DOES ANY OF THIS HAVE TO DO WITH BIOFEULS AND ETHANOL?

Good question. First, some more historical perspective, provided by economic analyst John Mauldin:

North America has experienced great weather for the last 18 consecutive years, which, combined with other improvements in agriculture, has resulted in abundant crops. According to Donald Coxe, chief strategist of Harris Investment Management , you have to go back 800 years to find a period of such favorable weather for so long a time. Yet food stocks in corn, wheat, rice, etc. are dangerously low. We are just one bad weather season from a potential worldwide food disaster. And Dennis Gartman has been pointing out almost daily how far behind US farmers are in getting their corn crops planted, due to bad weather:

“… the corn crop really is behind schedule. Corn is not like wheat. Wheat can survive drought; it can survive cold; wheat, as we were taught by our mentor, Mr. Melvin Ford, many years ago, is a weed. It is an amazing, resilient plant. But corn is temperamental; it needs rain when it needs rain; it needs dry conditions when it needs dry conditions. It needs to not be hit by early season frost, or it will suffer, and it needs a rather archly set number of days to grow. Each day lost at the front end of the planting/growing season puts pressure upon the corn plant to finish its job before the autumn frosts, and puts increased soybean acreage and decreased corn acreage before us. Meanwhile, ranchers are reducing their herds, as they cannot afford to feed them due to high grain prices.The same thing is happening with chickens. This means sometime this fall supplies of meat of all types are going to be reduced. Maybe someone will point out that using corn to produce ethanol has the unwanted and unintended consequence of driving up food prices all over the world.

As usual, economic wisdom from one of the best analysts in our generation. So, then, let's bring in ethanol.

In recent years, a heavy and generous federal subsidy has created a vast corn-to-ethanol industry whose effects are causing a lot of public debate. Environmentalists claim that it takes _more than a gallon of imported oil to actually create a gallon of ethanol fuel. The greenhouse gas benefits are negligible and possibly negative. According to Mauldin, the price and energy balance would be much better if we imported Brazillian sugar cane, which seems made for ethanol production. But farmers in Idaho apparently have a veto over anything sensible like that.
Of course, never mind the blatant silliness of pouring food into our gas tanks, while poor people around the world riot over skyrocketing prices and we, here, feel a sharp pinch in the store.
Here we see democracy at its almost-worst. (Wherein hypocritical conservatives who keep citing the infamous "largesse" diss upon the common citizen, are actually by far the worst offenders. Just Google "democracy largesse" to scan this calumny.)

The entrenched special interests are vast, so don't expect them to enter into negotiations to find a logical way out of this mess. Indignant rationalizations abound, and everybody seems convinced that their own version of government-suckling is not socialism. It is patriotism.


The Right Way to Apply Hard Liquor...

But now I plan to surprise you. I will speak up not only for government price intervention to help farmers, but also for subsidized biofuel alcohol!

Though not as it is being done today.

Perhaps it is time to take a look back at the Egyptians of old, and go back to the root of the problem, so to speak. Farmers (especially giant agribusinesses) do not deserve automatic subsidies as some kind of birthright. On the other hand, the ancients were onto something and we are all better off if farmers are cushioned from wild market swings and get the kind of predictability that can let them invest in what is, after all, a business vital to us all.

Back when the New Dealers and Great Society folks tried to balance the cycles by buying cheap-excess bumper crops and storing for lean days, they ran into a problem. A vast, continental nation can only store up so much grain and cheese. In part, the move to simple cash grants came out of despair over how to do the job effectively, the Egyptian way.

But here is where alcohol comes in! Because alcohol can be stored. In fact, it can be stocked away beautifully.

What was done pathetically under Lyndon Johnson... turning excess farm production into mountains of wasted cheese... can now be done logically and efficiently.... if we make biofuel ethanol a seasonal or occasional way to absorb and store, and later use, excess grain surges.

Let the subsidy go away. It insane and the money could be far better used making up for fifteen years of deliberately sabotaged research into energy independence.

Instead, let the taxpayers buy corn when its price is low, convert it into storable form, and sell the alcohol when the price seems right.

We need to stop thinking of ethanol as an alternative to imported oil. That's just silly and a crutch for those diverting us from real solutions for energy independence. Nevertheless, ethanol can be viewed as a wonderful way to store the produce of America's fertile fields, in a form that will be easily convertible, at some future date, into fuel, or money... and thus even back into food.