current food shortage has no lack of scapegoats, ranging from the
newfound carnivorous habits of the Chinese, to global warming.
But Finance Consultant Kel Kelly sets out to debunk these and similar theories about the food crisis in the Free Market newsletter put out by the Ludwig von Mises Institute. He takes on New York Times columnist Paul Krugman,
setting out to discredit Krugman’s four main causal arguments for the
current food shortage, which include increased demand from China, high
oil prices, bad weather, and reduced available farmland.
Kelly dismisses Krugman’s analysis as “illogical,” insisting that the
primary reason for the food shortage today, and any shortage for that
matter, is the lack of a free market.
He argues that if food were freely exported from regions where it was
plentiful to more needy regions, like Africa, it would be profitable to
do so because shortages would have caused food prices to rise.
“The fact that this is not currently happening can be a result only of
government price controls, trade restrictions, or some other government
barrier that prevents people from getting what they need,” Kelly wrote.
Using a statistic from the World Bank to emphasize market barriers,
Kelly cites a list of 21 countries with price controls on basic
staples. He also faults government intrusion for major crises such as
the 3 million starving Ethiopians in the 1980’s, stating that the food
was available, but its movement to the drought-stricken region was
obstructed by fighting between rebel groups and the government.
Kelly claims that the second main cause of the food shortage is yet
another sin of government intervention—the overprinting of money.
“While the United States has been expanding the money supply by ‘only’
10-15 percent per year, many countries have printed money at rates
exceeding 50 percent per year,” Kelly wrote.
He explains that this practice causes prices to rise, because money is
being created faster than goods. While Kelly concedes there is a true
decrease in the production of wheat, other commodities such as cereals,
livestock, fish, and seafood have, in turn, seen increases.
Kelly next turns his attention to Krugman’s arguments, systematically
rejecting each causal theory’s plausibility in a free market system.
He explains that bad weather could never have an effect more dramatic
than temporary price increase, because in a shortage other countries
would step up their production to compensate. Increased food demands
from China are not to be feared because increased demand results in a
reduction in demand and prices for other goods. The push for biofuel is
dismissed as a cause because signals of shortage would instigate action
to convert all less important uses of land—“biofuel feedstock, car
lots, movie theaters, houses, or whatever”—into farming land in order
to meet demands.
There is no doubt that Kelly makes some important points about the
virtues of the free market system. However, it is less than helpful to
reject Krugman’s hypotheses of surface-level causes in favor of
theoretical philosophies about the underlying roots of shortages and
their solutions under a pure market system such as the
historically-capitalist U.S. has never even known.