Food Riots, Commodities, Global Warming & Liberal Gaffes

It all began with hurricane Katrina in the late summer of 2005.

Remember? Gasoline price spiked as refineries and distribution systems were affected. Convinced that the government must 'do something,' people expressed outrage upon learning that so much of our country's energy supply entry points and distribution systems were located in or near the Gulf of Mexico.

The knee-jerk reaction was for President Bush to call for more use of ethanol, followed by predictable legislation making imports more expensive and rewarding Iowa corn farmers.

From the sidelines, many liberal pundits cheered that the Republican administration had finally 'gotten it,' and global warming was finally on the national agenda in a big way.

How the worm has turned!

A few weeks ago, on March 24th, the Wall Street Journal carried a front page article entitled "New Limits to Growth Are Reviving Malthusian Fears."

Shortly thereafter, the US was castigated at an international meeting for amoral behavior, i.e., burning corn-ethanol for fuel while people in third- and second-world countries died in food riots.

This week, Costco and Sam's Club have taken steps to curb the hoarding of bulk rice at their stores.

The Journal featured a story today concerning mid-market casual dinner house chains going bankrupt amidst "Carteresque" inflation in their inputs- meat, milk, grains- which they cannot pass along with substantially crimping customer visits.

Be it ancient Egypt, Rome, or Britain, with its famous "Corn Laws," corn has been at the center of food supplies from time immemorial. Its provision and price can trigger riots, bring down governments, and cripple nations.

So, let's step back and see where we are now.

Thanks to a boneheaded, panic reaction to the inflationary effects of rising gasoline prices in late 2005, corn-based ethanol sent food prices soaring in the past two years.

For a negligible effect on oil and gasoline prices, which has been overcome anyway now, and dubious effects on climate change, as I noted here and here, the Greenies have landed us all in a food commodity shortage, food-based inflation, and worries about sufficient supply of food in the years ahead.

Nice job, guys.

Really, you have to love environmentalists for the cluelessness and woolly-headed notions. By single-mindedly focusing on one bugaboo- global warming- which, if it is truly even occurring at the rate they allege, is not yet proven to be anything more than a natural earth cycle, they have managed to send the world's economies into panic as food is used for fuel, some fuel is judged as 'bad,' and nuclear power is still shunned.

If this crew wanted us returning to caves and burning animal dung for fuel, they seem to be on the right track, don't they?

But, back to reality.

In the midst of the very real issues of rising food commodity prices, mismatches of supply and demand, for both foodstuffs and energy commodities, what is the solution?

Well, considering our latest governmental fiat involving corn-based ethanol helped to trigger this current mess, if you think the solution is more governmental tampering and legislation, think again.

No, the obvious solution is markets. Just let markets work.

I heard just this morning on CNBC that there are several tens of millions of acres of US farmland being paid, by taxpayers, to lay fallow. Crops can be grown to meet demand, signaled by higher commodity prices, within two years.

Energy resources take more time than that, but new refineries have been abuilding in India for a few years now.

As Julian Simon noted, and I discussed in this post on my companion business blog, higher commodity prices are the necessary signal to suppliers that brings forth more supply.

Any attempts to control prices, or limit demand, creates distortions which frustrate the emergence of new supply. Price caps prevent new supplies from coming onto the market at a loss, and demand curbs similarly create either black markets, or an understandable crimp in supply, to support prices.

If we would just look at history, and trust to people's own profit motives and technology, we'll be fine.

And in about five years, farmers will bemoan the fall in the prices of commodities like corn, wheat and meat. Energy prices will soften. And producers will all be pining for the salad days of the late 2000s.