Word on the Street

Ethanol is said to be a great alternative to oil, because it is a reusable source of energy. the price of oil has prompted the U.S. to focus on non fossil fuel alternatives. The fact is that the production of Ethanol has prompted inflationary pressures throughout our economy. We thought we had it bad with $100 a barrel oil and $3.25 per gallon at the pump, think again.

The pressure at the pump isn’t even a comparison to what is going on throughout the rest of the economy. Corn the main ingredient to ethanol also happens to be the main ingredient in 40% of our food supply. It is some of the main feed source used in raising cattle and chicken. Have you noticed the price of beef and chicken at the grocery stores lately? Maybe, you haven’t. But tell me how much did you pay for milk. Have you ordered a pizza lately? The cost of cheese has increased 35%. Cheese is one of the main inputs in making a pizza and has been directly effected from the production of ethanol. So you tell me do the benefit outweigh the inflationary pressures that we face throughout our economy?

To put it bluntly what are you going to do when a McDonalds regular hamburger costs $5.50 and a regular cheese burger costs $6.50 or that quarter pounder meal deal costs $9.50? Not such a deal anymore! There are other options. Another agricultural alternative is biodesiel made from soybean. In Canada, they are converting sand deposits into oil. The bottom line is, what seems like the right course of action on the surface needs to questioned and analyzed before we sink all of our eggs and cheese into the basket.

Written by : Geoffrey Turchin, Economist