In contrast to many conservative economists, I don’t think Robin Hood’s redistribution policies were necessarily bad.
My conservative colleagues are right, though, when they say there is no way to prove that taking from the rich and giving to the poor makes society better off, because there’s no way to measure it.
Yet I’m perfectly happy to pay a substantial portion of my own income in taxes if I know it will benefit people poorer than me. My values say that such redistribution is part of what makes a just society.
But as a practical person, I do have a beef if Robin Hood’s tactics are misused, especially like this: Take some money from nearly everyone, let most of it fall into various ratholes, and then give the pittance that’s left to people who are no poorer than those from whom it was confiscated in the first place.
That’s why the biodiesel proposal passed by the Minnesota Legislature is such a bad idea.
Not because it takes some money away from nearly every household in higher transportation costs or because it will give little to Minnesota farmers, but rather because so much will be wasted along the way.
The debate so far is pretty simplistic. Mixing soybean oil with diesel fuel will increase the demand for soybeans and raise soybean prices. Burning soybean oil will cause less pollution than pure petroleum-based fuel and will reduce our dependence on imported crude. A win-win-win situation says advocates.
All these assertions may be generally true. But making this simplistic argument is like saying that the poor peasants are better off because young Robin Hood brought them two shillings, two pennies and a farthing while ignoring the fact that the seized purses of the rich merchants traveling through Sherwood Forest had contained 500 gold sovereigns.
Minnesota farmers will get pennies for each dollar that consumers pay in extra transportation costs.
The reason farmers will get so little compared to what consumers will pay stems from the fact that soybeans are a fungible commodity — that is, soybeans are soybeans whether they are grown in northern China, the United States, Brazil, Paraguay, Argentina or any other nation.
The world market for soybeans is perhaps the most efficient, globally integrated one for any commodity.
Moreover, the United States is a major exporter of soybeans. For such commodities in a global market, increases in demand in one geographic area inevitably affect demand globally and cannot be limited to one state or nation.
The fact that we are an exporting nation means any measure to increase demand for beans in the U.S effectively increases the demand for beans worldwide. The flip side of this is that the effects of even a minor program like requiring biodiesel in a few Midwestern states will be dissipated across a huge international market.
If we were an importing nation, and we erected tariff barriers against foreign vegetable oils and oilseeds, a requirement to mix vegetable oil into diesel fuel might have greater effects on prices of soybeans, flax and other oilseeds.
But as an exporter, any extra demand from such a mandate is just one drop in the bucket of total world demand for soybeans. To the extent it increases demand for U.S. or Minnesota beans, it also does for Brazilian and Argentine beans.
Yes, Minnesota farmers may get some minor price enhancement from shifts in what grain marketers call “basis,” the difference between prices for the same commodity at two different points. The amount by which Minnesota soybeans differ from those at Chicago, Decatur, Ill., or New Orleans may narrow somewhat. But overall price improvement will be very small.
Some have argued that requiring all soy oil blended into diesel fuel to come from Minnesota-grown beans will solve this problem. Not true, because soybeans are fungible and Minnesota is a net exporter to the rest of the world.
What about Minnesota farmers enjoying higher prices? Prices will increase for them nearly as much for Brazilian growers. But the price effect for either group will be so small that it won’t have much impact on farm tax returns made out in either English or Portuguese.
In contrast, soybean processors — Archer Daniels Midland and Cargill, for example — may capture more of the cash extracted from consumers.
Most of the money consumers will pay for biodiesel will simply disappear and will benefit no one. This is the result of inefficient use of resources and is what economists call a “dead-weight loss.” Someone pays, no one benefits.
If we want to help soybean producers, we should tax the general populace and cut each soybean farmer a check. This is politically impossible, but it would put more money into farm pockets at less cost to society than this biodiesel scam.
The fact that the bill has come this far is a tribute to our economic ignorance.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.