A gap between rich and poor makes free markets fail
It’s really an absurd travesty when starvation gets blamed on “global warming do-gooders,” and we haven’t seen the last of that. The problem is miscast, though. There isn’t a food shortage, at least not yet. There is a food price crisis, which is a very different beast.
Are its roots in the huge resource gap between the relatively rich and the very poor? If that’s true, it has broad implications.
Here’s one way of looking at it, from the Omaha World-Herald:
The list of likely damages from global warming is long and includes those from rising sea levels, more intense hurricanes, species loss, a wider reach of malaria, reductions in water supplies, and increased urban pollution. Perhaps the biggest likely risk, however, is to world agriculture.
Higher temperatures speed plants through their development and leave less time for grain filling. Evaporation and loss of water through plant leaves rises more rapidly with temperatures than the increase in rainfall expected from global warming, causing a loss of moisture. Incidence of severe drought, like that in the American Dust Bowl in the 1930s or Australia in recent years, would likely increase.
There’s another way this can be played, though, from The New York Sun:
The campaign against climate change could be set back by the global food crisis, as foreign populations turn against measures to use foodstuffs as substitutes for fossil fuels.
With prices for rice, wheat, and corn soaring, food-related unrest has broken out in places such as Haiti, Indonesia, and Afghanistan. Several countries have blocked the export of grain. There is even talk that governments could fall if they cannot bring food costs down.
“I don’t think anybody knows precisely how much ethanol contributes to the run-up in food prices, but the contribution is clearly substantial,” a professor of applied economics and law at the University of Minnesota, C. Ford Runge, said. A study by a Washington think tank, the International Food Policy Research Institute, indicated that between a quarter and a third of the recent hike in commodities prices is attributable to biofuels.
“It takes around 400 pounds of corn to make 25 gallons of ethanol,” Mr. Senauer, also an applied economics professor at Minnesota, said. “It’s not going to be a very good diet but that’s roughly enough to keep an adult person alive for a year.”
In fact, there is plenty of agricultural productivity to feed everyone, and in principle a considerable amount left over for biofuels.
What’s going on? It isn’t that there isn’t enough food. It’s that the ability to fill up a gas tank with gasoline is, in the “wisdom” of the marketplace, the highest value use of the food crop.
Admittedly, what we’re seeing now is a consequence of some distorted subsidies, but consider this. If the price of liquid fuel goes up further because of reduced supply and inflexible demand, then even if the subsidy goes away, it might well become more lucrative to produce biofuel for rich people than to provide food for poor people.
Indeed, something like this is already going on. Most of the land in production in the U.S. goes to produce animal feed, which produces a small fraction as many calories in a luxury crop (meat) as the same land would in producing directly for human consumption. While cereal crops worldwide set new records, some people have been going hungry even before this year’s price rises.
How is this possible? Is the demand for one luxury meat meal really bigger than the demand for ten subsistence grain meals? This is true only if the wealthy person’s desires are valued more than the poor person’s desires. A starving Haitian’s desire for a scrap of bread exceeds your desire for your favorite meal by a considerable amount, but his ability to pay is constrained by your desire for steak.
When our economic system evolved, the number of very wealthy people was small. For most of the population, there was a market for their labor, which they could exchange for goods. The demands of the wealthy for luxuries didn’t compete directly with the demands of the general population for basics. The world was essentially infinite; people bought labor and not resources.
The worker, free to sell his or her services to the highest bidder (at least in principle), was at least relatively liberated compared to his feudal ancestor.
Two things have changed. The number of relatively wealthy people has burgeoned, and the competition for raw materials has become important. The arrangement that fueled the successes of the industrial economy breaks down.
There is less opportunity to exchange labor for goods even in the wealthy countries, as the labor gets outsourced to foreigners and machines. With globalization, your currency gets weighed against my currency, and your labor competes against the labor of even more desperate people. At the same time, rich and poor now compete for the same raw materials.
In these circumstances, meat for one is “worth more than” gruel for ten, and a rational farmer will target the former rather than the latter.
The problem gets worse, the larger the ratio of the wealth of the wealthiest to the wealth of the poorest. In a recent NPR article about gasoline hitting $4/gal in the Bay Area, one fellow said, “It won’t affect me in the least. I am sure it is difficult for some people, but it has no impact on me whatsoever.” I have heard similar comments from a Texan who sells very large luxury vehicles.
I’m not sure how to address this. I used to believe that a carbon tax was our best bet, but I’ve come to doubt that it will work. In an age of a huge wealthy demographic, such measures become extremely regressive long before they bite the major consumers. Note that gasoline prices had to triple in the U.S. before the consumption curve showed even a tiny dent.
A rise in price of essential commodities concentrates wealth and, in turn, exacerbates excess.
Thinking about the fact that world cereal production set records last year, I’m convinced that the problem is in the incentive system, though, not in the production of biofuels or (leaving aside other issues) even in the demand for meat. When very rich and very poor people compete for the same resources, you have a problem that can’t be fixed with pricing.
We have excess food production capacity, and some of it could go into meat or into biofuels. The problem is that this makes it harder for poor people to get grain. I genuinely hate to say this, but I see no way around it. Unless wealth becomes much more evenly distributed, we need a way of separating out the necessities from the luxuries that isn’t purely market driven.
I guess the simplest thing on the food front is to tie food aid directly to prices of the foods that food aid supports, and to fund it through taxes of the competing commodities.
What to do about discouraging carbon use is less clear to me. The recent events regarding food versus biofuels has me thinking that, unfortunately, putting a price on carbon is not going to work out very well without some other, more complex and more difficult measures to discourage excessive consumption by the relatively wealthy individuals and societies.