Food, Famine, And Fear Of Revolution

Worldwide food prices are up sharply in the last year.  The United Nations Food and Agricultural Organization food price index, which measures the wholesale price of a basket of basic food, has increased seven months in a row.  Food prices are now at record highs, according to the index.

The price increases are largely supply-driven and are expected to be long-lasting, according to the experts.  Weather conditions, such as droughts, floods, and cyclones, have interfered with normally farming and harvest patterns and have kept food from the marketplace.  Other factors affecting supply include the increasing efforts to use food as fuel — the heavily subsidized corn ethanol industry in the United States is a good example — and the spread of cities into areas that used to be agricultural producers.  And as we all know from the law of supply and demand, when available supply does not meet demand, prices will increase.  That is precisely what has happened.

If history teaches us anything, it is that food and famine often effect revolutionary change.  The French Revolution, the Russian Revolution, and countless other incidents of regime overthrow have been motivated by the actions of hungry, desperate people.  The recent unrest in Tunisia, Egypt, and other parts of the Middle East also is being attributed, at least in part, to food prices and hunger.  Leaders of regimes in those volatile, hungry parts of the world must be wondering whether they soon will be going the way of Nicholas and Alexandra and Marie Antoinette.

 

Hard To End

The Washington Post has an editorial today urging Congress to end corn ethanol subsidies.  The subsidies cost $6 billion, and their value in encouraging corn ethanol use is questionable in light of other government requirements.

What the Post editorial does not say is that these kinds of subsidies, and other government programs that seek to encourage or discourage other forms of economic activity, distort the market and have a much broader ripple effect than Congress typically intends.  If government subsidies encourage a farmer to grow corn when he otherwise would grow something else, the result will be an outflow of government money and, because the farmer is not growing the other crop, less competition and therefore higher prices in the market for that other crop.  If the subsidy encourages maximum production of corn, the farmer may use special fertilizers and other forms of chemicals to increase yield that may have an unexpected environmental impact.  The farmer may buy otherwise unnecessary types of equipment and build otherwise unnecessary silos or other structures, thereby making him and his farm economically dependent on the continuation of the subsidy and increasing the risk of an unsustainable debt burden and foreclosure if the subsidy is ended.

Once subsidies are started, they are difficult to end.  The alliances that caused the subsidy to be created in the first place grow stronger as subsidy money flows in and part is then contributed to politicians to encourage them to keep the subsidy in place.  In the case of the corn ethanol subsidy, the alliances presumably would be between farming states, large corporate agricultural concerns, and groups seeking to end our dependence on foreign oil.  Any effort to eliminate the corn ethanol subsidy — or any similar subsidy — therefore would likely face very stiff political opposition.  Occasionally, however, forces coalesce that make the elimination of such programs possible, such as happened when President Reagan was elected and Depression-era farm commodity price support programs were ended.

For anyone serious about deficit reduction, a careful examination of government subsidies, tax breaks, and other methods of interfering with the economy would be a good place to start.  We don’t need the government to pick winners and losers and to waste our tax dollars in doing so.