Unintended Consequences 201

Grrr. Is there anything that the government can’t mess up?

In an effort to encourage the use of bio-fuels, the IRS is paying paper mills almost $10 billion to burn a wood by-product that they already were using to generate their own electricity. Now they run their mills flat-out to maximize the benefit, in spite of depressed pulp prices. With losses mounting and the industry in crisis, the bio-fuel subsidy has acquired a life of its own, supporting the paper industry and thousands of jobs.

It reminds me of a story from the former Soviet Union: Cotton farmers in Central Asia used so much water from around the Aral Sea that the shoreline receded hundreds of miles. Problem was, there were fish-processing plants on the shore. So to save jobs the government flew fish thousands of miles from the Baltic Sea to be processed near the Afghan border.

At the time, I thought, I’m sure glad I live in an open economy where the government doesn’t do such economically stupid things. Uh huh. Milton Friedman once said that most government programs are designed to fix errors caused by government mismanagement. He sure got that one right.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net

Leave a Reply

Your email address will not be published. Required fields are marked *