Huge energy price increases account for almost all of terrible new inflation numbers that came out yesterday, and federal lawmakers deserve much of the blame. The Labor Department said wholesale prices rose 6.3 percent in 2007, the largest jump in 26 years. “Core” inflation (excluding food and energy) rose just 2 percent, but a whopping 18.4 percent jump in energy prices pushed the overall rate sky-high. It is true that a large part of the problem today stems from increasing international demand combined with a weak dollar. But the big congressional energy bill of 2005 unnecessarily made the problem far worse. In April 2005, when gasoline prices were at what now seems like a bargain at $2.20 per gallon, analyst Ben Lieberman of the Heritage Foundation warned that the energy bill then moving through Congress would be a disaster. Boy, he got that right.
There were three big errors in that bill, the full consequences of which we are only now beginning to see. First and most significant was mandating a nationwide doubling of ethanol use. Subsidized by taxpayers at the rate of 51 cents per gallon, ethanol makes it more expensive to fill your car or truck’s gas tank but does little for the environment in return. Not only that, but ethanol produces much less net energy per gallon than does gasoline, so drivers have to use more to go the same distance. It’s a formula guaranteed to produce scarcity and higher prices. And oh, by the way, increased ethanol demand also drives up the costs of corn on the cob and all other foods or products made with corn.
