Panel Discussion: The Future of Biofuel

duction than is economically efficient. If ethanol is not economically competitive with gasoline, then subsidies distort the market by steering investment away from economically attractive gasoline and toward economically unattractive ethanol. Consumer well-being and overall economic efficiency suffer as a consequence. Support of ethanol subsidies and consumption mandates offer a mix of arguments to justify government intervention. Those arguments can be neatly sorted into two categories: those that forward wealth distribution claims and those that forward efficiency claims. The former arguments, although interesting, are not addressed in this paper. Ethanol may or may not transfer wealth to rural America, for instance, but preferences with regard to wealth allocation are subjective and not worth much analytic time. The latter arguments, however, are grounded in concrete claims that can be proven or disproven and are, thus, the focus of this paper. To have any intellectual force, the argument that ethanol subsidies and consumption mandates enhance economic efficiency must begin with a discussion of market failure. Economists broadly agree that, as a general rule, leaving production and consumption decisions to market actors proves more economically efficient than leaving the same to governmental planners. Only if some unique and fundamental failure occurs that prevents gains to trade in a given market is there room for the arguAn Economic Critique of Corn-Ethanol Subsidies