Iowans, Ethanol, and Influence on Institutions

In Chapter 3, A & R argue that  politics determine the institutions a nation has and the nature of an economy is determined by incentives created by institutions. The debate surrounding ethanol policies and elections in Iowa illustrate the ties between economic and political institutions. Much of Iowa's economy depends on corn. In order to win votes in Iowa (politics), politicians would support federal backing of ethanol (an institution) providing a surge in demand for corn and a massive economic incentive for corn farmers. Recently, however, there has been much concern about the environmental impact of the massive amounts of corn farming as farmers farm on land meant for conservation and the economic impact of the high price of corn on food prices - particularly since the Associated Press published this report. This month, the Obama administration proposed cutting the required amount of ethanol in the nation's fuel supply for the first time since a standard was established in 2007, and the impact of the lack of political popularity of ethanol policies on the economy and institutions of Iowa could be huge.