Government-run banks harm economy and environment, and promote corruption

Government-run banks harm economy and environment, and promote corruption

ethanolAt EcoWatch, Megan Quinn Bachman called for creating state-owned banks in order to fund “green electricity—and other sustainability projects.”  But government-owned banks have a sad history of subsidizing ecologically-destructive boondoggles.  She cites one of the few state banks that ever turned a profit, the Bank of North Dakota.  But its funds have gone to fossil-fuel projects, not green energy.

As banking expert Mark Calabria notes in the New York Times, advocates of state banks “point to the Bank of North Dakota, currently the only state-run and state-owned American bank. Of course that ignores that in the 1800s there were a number of state-owned U.S. banks. They all failed miserably, and at great expense to the taxpayer. They were also magnets for corruption. But that’s history. Currently the Bank of North Dakota is generally a well-run institution. It is also a massive subsidy to the fossil fuel industry. One need only look at its annual reports to see that the bulk of its below-market lending has been to the fossil fuel industry. It’s a case in point, illustrating that government-owned banks will tend to subsidize the powerful.”

Government intervention in other industries like agriculture has also had negative effects on the environment.  A classic example is in Soviet Central Asia, where the vast Aral Sea largely disappeared, leaving behind a vast ecologically-ruined wasteland after a massive government cotton project ravaged the regional environment.  As the London Daily Mail notes, “The shrunken sea has ruined the once-robust  fishing economy and left fishing trawlers stranded in sandy wastelands, leaning over as if they dropped from the air.  The sea’s evaporation has left layers of  highly salted sand, which winds can carry as far away as Scandinavia and Japan,  and which plague local people with health troubles.”

Cunning politicians use environmentalist rhetoric to push policies that actually harm the environment and the economy, the classic example being ethanol mandates (which recently enriched Wall Street speculators, some with ties to the Obama Administration).  While in the Senate, Al Gore, working with fat-cat lobbyists, “saved the ethanol” industry by pushing through big taxpayer subsidies for ethanol.  (Years later, he belatedly admitted that ethanol subsidies were a “mistake,” a harmful policy partly designed to appeal to “farmers in the State of Iowa,” which holds the influential Iowa caucuses that can make or break a Presidential campaign).

For cynical political reasons, the Obama Administration clings to ethanol mandates, backing them despite growing evidence that they increase world hunger and mortality, and harm the environment.

In 2008, a Washington Post editorial by two prominent environmentalists described how ethanol mandates have harmed the environment and spawned hunger across the world.   In “Ethanol’s Failed Promise,” Lester Pearson and Jonathan Lewis observed that “Turning one-fourth of our corn into fuel is affecting global food prices. U.S. food prices are rising at twice the rate of inflation, hitting the pocketbooks of lower-income Americans and people living on fixed incomes.  .  .Deadly food riots have broken out in dozens of nations.”

Moreover, they pointed out,

food-to-fuel mandates are leading to increased environmental damage. First, producing ethanol requires huge amounts of energy — most of which comes from coal. Second, the production process creates a number of hazardous byproducts. . .Third, food-to-fuel mandates are helping drive up the price of agricultural staples, leading to significant changes in land use with major environmental harm. Here in the United States, farmers are pulling land out of the federal conservation program, threatening fragile habitats. . .Most troubling, though, is that the higher food prices caused in large part by food-to-fuel mandates create incentives for global deforestation, including in the Amazon basin. As Time Magazine reported this month, huge swaths of forest are being cleared for agricultural development. The result is devastating: We lose an ecological treasure and critical habitat for endangered species, as well as the world’s largest ‘carbon sink.’ And when the forests are cleared and the land plowed for farming, the carbon that had been sequestered in the plants and soil is released. Princeton scholar Tim Searchinger has modeled this impact and reports in Science magazine that the net impact of the food-to-fuel push will be an increase in global carbon emissions — and thus a catalyst for climate change.

In Human Events, Deroy Murdock chronicled how rising food prices resulting from ethanol forced starving Haitians to literally eat dirt (dirt cookies made of vegetable oil, salt, and dirt), and fueled violent protests in unstable “powder kegs” like Pakistan and Egypt.  More recently, biofuel mandates have fueled hunger and malnutrition in Guatemala. The Obama Administration has forced up the ethanol content of gasoline, heedless of the fact that ethanol makes gas costlier and dirtier, increases ozone pollution, and increases the death toll from smog and air pollution. Ethanol mandates also result in deforestation, soil erosion, and water pollution.  By driving up food prices, they have fueled Islamic extremism in Afghanistan, Egypt, Yemen and other poor countries in the Middle East. The Obama Administration persists in supporting ethanol mandates despite widespread criticism from experts across the political spectrum

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department. Hans writes for and has appeared on C-SPAN’s “Washington Journal.” Contact him at


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