Cramer asks Buffett about ethanol

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JIM CRAMER (ON TAPE): Asking the icon. Sir, isn't it true that we have an energy policy backing ethanol that is creating so much inflation that perhaps it would be better to stop the emphasis on ethanol, allowing inflation to come down and the Federal Reserve to cut more? Am I wrong that mankind is being crucified upon a cross of ethanol right now, and it's killing the poorer nations and the people in our country who can't afford anymore to eat chicken or beef?

QUICK: Warren, what do you think?

BUFFETT: I wouldn't put it exactly in those terms, but I would say that ethanol is a relatively inefficient way of creating gasoline--gasoline equivalent, and it uses a lot of energy in the process of raising the corn that does it. And, as correctly pointed out, it has a by-product of raising agricultural products elsewhere. In economics you can never do one thing. Anytime anybody tells you they're doing something in economics, then you have to say, `And then what?' And the `and then what' in the case of ethanol is A, if you use it to plant more corn, you're going to use--in terms of fertilizer and everything, you're going to use a lot of energy. And secondly, you're going to raise the prices, on balance, you'll raise the prices of other agricultural products. So there's no question that that--that's a fairly correct statement of the problem.

QUICK: Those are very brave words when you realize we're standing in the "Cornhusker State."

BUFFETT: Yeah.

QUICK: Do you get pushback from that?

BUFFETT: My son was head of the Nebraska Ethanol Commission. He is a farmer. He lives $5 1/2 corn, he loves $12 soy beans, I don't blame him. But I'm not running for anything, fortunately, and, you know, I can call them as I see them.