Anne Korlin writes (below) that my wireless infrastructure analogy proves the point that government needs to intervene in transportation fuel markets to guarantee the viability of ethanol.

That is quite a stretch given the fact, as I wrote, that the government has had no role in the wireless industry’s remarkable, two-decade growth as a serious telecom alternate to entrenched landlines. In fact, her point that wireless providers own the supply chain (phone and towers) only further confirms how markets work: Consumer markets evolve through innovation to bring product in the most efficient manner possible.

In the auto world, market dynamics require that auto and fuel companies are separate. In the PC computer world, one manufacturer initially owned the hardware and software supply chain, only to be overtaken by a better business model: The Intel (hardware) and Microsoft (software) model.

But in all cases, the critical point is that government did not intervene – a liability that would only have slowed the evolution towards the most efficient service for the consumer.

Anne thinks transportation fuel is a chicken-and-egg issue (automakers won’t build ethanol cars until there’s ethanol infrastructure), but does anyone doubt that if Shell (a major hydrogen researcher) or BP (a major biofuel researcher) made breakthroughs in those currently uncompetitive fuels they wouldn’t start reforming their existing infrastructure immediately? And (like software writers responding to chipmakers) that auto companies wouldn’t immediately design their products to fit?

Anne might more convincingly argue government’s role in standardization (as in interstates or auctioning wireless spectrum licenses) – but government is a monkey wrench when it comes to picking market winners and losers.

If national security advocates think our fuel market is an impediment to fighting radical Islam, they must advocate a radical response: Declare a war-time economy and put our fuel industry in the hands of the Pentagon.

That is the honest (if politically suicidal, which is surely why it’s not mentioned) case for ethanol – not that government can make it competitive in today’s market.