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I don't know the answer...
... but I'm pretty sure corn farmers are very pleased to see the demands of a new market drive the price their their product up. Also, our government's history of doling out generous subsidies to farmers suggests there are influential lobbyists representing farmers' interests in congress. It is also an election year, so all of the politicians are looking to win votes for themselves and/or their allies.
I think the decision to use corn-based ethanol can be explained entirely by the above factors. I'll bet the politicians simply ignored any input they might have had from the science community.