Picking winners

President Obama wants to increase the federal government's involvement in energy policy. He wants to promote spending -- aka "investment" -- on certain alternative energy types so that we can wean ourselves off of nasty imported fossil fuels. Sounds great except for the fact that the government has a terrible record of picking winners, with ethanol only the latest example:

Barely a year after Congress enacted an energy law meant to foster a huge national enterprise capable of converting plants and agricultural wastes into automotive fuel, the goals lawmakers set for the ethanol industry are in serious jeopardy.

As recently as last summer, plants that make ethanol from corn were sprouting across the Midwest. But now, with motorists driving less in the economic downturn, the industry is burdened with excess capacity, and plants are shutting down virtually every week.

In the meantime, plans are lagging for a new generation of factories that were supposed to produce ethanol from substances like wood chips and crop waste, overcoming the drawbacks of corn ethanol. That nascent branch of the industry concedes it has virtually no chance of meeting Congressional production mandates that kick in next year.

...“The ethanol industry is on its back despite the billions of dollars they have gotten in taxpayer assistance, and a guaranteed market,” said Amy Myers Jaffe, an energy analyst at Rice University.

This should come as a surprise to no one. If ethanol was so great then investors would be clamoring to throw their money at it. The only way that spending government money on ethanol makes sense is if you believe that politicians are more astute observers of the energy sector than investors who actually study and invest in such things for a living. And of course it isn't a coincidence that ethanol's most vigorous supporters tend to be those from states that produce corn, which ethanol is derived from.

And now just think, with the stimulus package the federal government is getting ready to spend hundreds of billions of dollars it doesn't have that will be allocated in just such a fashion, with political considerations rather than actual costs and benefits serving as the decisive factor.