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The Ethanol Mess

One of the perks of being an M.I.T. graduate is that I get an automatic subscription to the magazine Technology Review. I highly recommend it to anyone with a curiosity about science and technology. It is not technical or hard to understand (like, say, Scientific American). Rather, it is loaded with fascinating articles about cutting edge advances in technology, written for numskulls like me.

The most recent issue has an excellent discussion of the impact of government subsidies for ethanol (a topic we’ve written about before). According to recent calculations, if oil prices fall back down to $40 per barrel, the implied tax paid by consumers because of ethanol mandates will be over $15 billion.

The article lays out nicely the simple economics behind the mess we’ve created for ourselves. I wish that I was teaching intermediate microeconomics this term, because this would be a perfect exam question.