There’s an old joke about astronomers discovering a giant meteor heading toward the Earth, and the Washington Post running the headline: “World To End; Minorities and Poor To Suffer Most.” Well, on Sunday the front page of the Post read: “The New Economics of Hunger.” In the subhead: “The world’s poor suffer most.”
First, it is not clear that the economics of hunger are any different now than they have been in the past. There is still supply and demand. And there still are no free lunches.
Second, if you happen to be a poor farmer, increasing prices for crops should not make you “suffer most” – they should make you suffer less. If you can grow even a little more than you consume, you will end up with additional cash in your pocket.
The Post article asserts that corn prices have “been climbing for months on the back of booming government-subsidized ethanol programs.” This has quickly become the conventional wisdom. But while free market types (like me) are skeptical about both subsidies and tariffs, there is actually no evidence that these market manipulations have been a major factor behind rising prices for corn or other grains. Researchers Robert Zubrin and Gal Luft point out that the total U.S. corn crop has increased 45% since 2002. The amount of corn available for food and feed has increased 34 percent --- after the part used for ethanol has been taken out.
But haven’t those farmers cut back on other crops -- soy and wheat, for example -- to plant more corn and hasn’t that led to increases in the prices of those grains? Apparently not. As Zubrin and Luft also note, U.S. soy plantings this year are expected to be up 18%, wheat plantings 6%, and overall, U.S farm exports are up 23%.
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American farmers are rational businessmen. When the prices crops command rise, they produce more -- both by increasing acreage under cultivation (only about 30 percent of U.S. farmland is currently cultivated), and by cultivating more intensively – producing more bushels per acre. That requires more investments but it brings more return on those investments.
The Post article also blames higher prices on global warming. But there is no solid evidence to suggest that whatever global climate change we have experienced in recent years – an increase of 0.31 degrees Fahrenheit per decade since the mid-1970s is the best current estimate -- has reduced food production. In fact, a warmer climate should mean a longer growing season allowing for more food production.
So what is really driving up the cost of food? For one, some of the world’s poor are not as poor as they once were. People in India and China, for example, have more money to buy more and better food. But that change has been relatively gradual. What’s sudden is the sharp spike in oil prices -- 40 percent this year alone, with oil now priced at well over $100 a barrel.
That makes it expensive to operate a tractor, expensive to get crops from farms to factories, expensive for workers to get to the factories, expensive to transport the products to the stores.
Oil does not operate within a free market. Saudi Arabia, Iran and other members of the OPEC oil cartel can -- and do – manipulate supply in order to maximize their revenues. And our transportation system has been constructed so that oil has a virtual monopoly as a transportation fuel.
These challenges will not be solved by declaring a “new economics.” What is needed is to get back to basics: Increase supplies of food and fuels and prices will come down.
By all means, send food aid to those who are starving. But over the longer run, Third World farmers need to be helped to grow more of their own food -- not rely on charity from overseas. (Outlining the obstacles to achieving that requires more space than I have here. But the task is essential: Farming is how most people in the Third World will earn their livings over the decades ahead. Silicon Valley is not coming to the Rift Valley any time soon.)
As for transportation fuel, of course drill more oil (e.g. in Alaska and offshore) but also give petroleum competition by manufacturing cars that can use a variety of fuels. The technology for flexible-fuel vehicles already exists, and the added cost is hardly more than it takes to fill the tank of an SUV with $4 per gallon gasoline.
Do that, and an array of alcohol-based fuels soon will be available. They will be made not just from domestic corn and imported sugar cane but also from weeds and crop residues, biomass, coal and even urban trash.
Some of these fuels would be made in the U.S. Others could be produced by those poor Third World farmers. With increased supply and a competitive market, fuel prices will fall and the dollars you do spend can lift African farmers from poverty. The alternative is to continue sending trillions to sheiks and mullahs who openly declare that their mission is to kill your children. Is this really such a tough call?
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