Timothy Carney
2008-01-04 08:00:00.0
Current rank: Not ranked

WASHINGTON -

Missouri drivers, starting this week, no longer have any choice in the matter — they must put ethanol in their gas tanks. Republican Gov. Matt Blunt says the state’s ethanol mandate that went into effect New Year’s Day will be good “for our farmers, consumers, [and] the environment.”

Time will tell if Blunt’s claims are correct for everybody else, but for his family, the benefit is clear: His brother’s significant investments in ethanol will appreciate.

The story of Matt and Andy Blunt and Missouri’s ethanol subsidies is not a case of criminal corruption, but it is certainly an illustrative case. It highlights the conflicts of interest, ulterior motives and opportunities for corruption inherent whenever government picks winners and losers in the marketplace.

In his 2006 state of the state address on Jan. 11, Gov. Blunt called for expanded tax breaks and incentives for ethanol. He called on the legislature to, “give Missouri’s heartland economy a major and lasting boost by requiring that motor fuel sold in Missouri for passenger cars and trucks contain 10 percent ethanol.”

Less than two weeks later, Show Me Ethanol, an ethanol processor and seller, filed incorporation documents with the secretary of state. Among the businessmen on the company’s board and “project steering committee” was Andy Blunt, the governor’s brother and the chairman of his 2004 election campaign.

Then the governor hit the trail to promote his plan. The Southeast Missourian reported that Gov. Blunt “flew across the state to increase pressure on the Missouri legislature” to pass his 10 percent mandate. Come May, the mandate passed overwhelmingly, along with a budget that doubled incentives for ethanol.

Later that same month, Andy Blunt and his partners started a second venture, Central Missouri Biofuels. CMB would invest in biofuels projects, including Show Me Ethanol, which was also receiving aid from the state’s taxpayers: By June the firm had been approved by the state government for $1.5 million in tax credits.

Blunt signed the mandate in July 2006. Earlier this week, as the calendar turned to 2008, the law went into effect, and now Missouri’s gas station operators must include 10 percent ethanol in every gallon of gasoline they sell (except for premium grade) or face up to a year in prison and a $1,000 fine.

State Democrats have seized on this story to attack the Republican governor as crooked, but Gov. Blunt has a sensible response: His brother’s ethanol company and the investment firm were both founded after he had publicly advocated the mandate, and any capitalist could have hopped on board the ethanol bandwagon.

This defense has some legitimacy — Matt Blunt would be pushing ethanol subsidies and mandates however his brother invested, and the timing of the government filings suggests that Andy Blunt wasn’t even getting a head start on other investors whose brothers might not be governor.

But the closer you look, the more questions arise. It takes time to prepare incorporation filings; how long before the state of the state address were Andy Blunt’s plans in the making? Would the governor have spent as much political capital on passing the mandate — flying around the state to boost it — had his family not been invested it? Could a less-connected investor been nearly as certain about the mandate’s passage as Andy Blunt was?

The moral hazard, looking ahead, is the real cost. Grant Gov. Blunt the best possible intentions: He wants to help Missouri farmers and the economy, and he believes these benefits outweigh ethanol’s costs including water usage, less mileage and higher food prices.

Still, he saw his brother was able to profit from his intervention in a way they couldn’t have had the government stayed out. The next time he is faced with a choice between increasing the government’s role in the economy or staying out, will his family’s past profits influence him?

It’s not a Missouri phenomenon. Whenever government gets involved in the economy, it creates insider-trading opportunities for the well-connected. If the policies are totally beneficial, maybe nobody cares if the governor’s brother gets rich.

But all government intervention has costs, as the country is seeing today with ethanol. When those costs translate into profit for the well-connected, citizens are right to be skeptical.

Examiner Columnist Timothy P. Carney is senior reporter for the Evans & Novak Political Report.