Archive for the ‘Economy’ Category

Food Shortage Or Money Glut?

Thursday, May 8th, 2008

Why are food prices rising?

I watched Becky Quick on CNBC give Senator Bob Casey a superb opportunity for a mea culpa (ethanol subsidies), but for some reason he didn’t grab it with any real enthusiasm.

There are multiple causes and plenty of blame to go around, explained Senator Casey, very carefully never mentioning ethanol subsidies again (he’s on the Senate Agriculture Committee). The Senator enumerated a few other causes, somehow failing to notice that Congress is pretty much to blame for these as well:

  • Weak dollar (due to the Federal Reserve that Congress created, and Congress’s absurd, insatiable profligacy.)
  • Higher energy prices (due to the weak dollar as above, plus Congress’s generalized short-sighted, pandering interference and nimbyness.)
  • Increased demand in India and China (O.K., so maybe Congress is only three for four (including ethanol subsidies), though couldn’t it have occurred to Senator Casey before now that other people besides Americans might want to live comfortable lives and eat food?)

There’s another likely (and likely primary) culprit that Senator Casey didn’t mention directly: Inflation.

Economist Milton Friedman said that, “inflation is always and everywhere a monetary phenomenon”, which could be roughly translated as “the government did it.” Other factors can show up later, but monetary inflation is the necessary condition and first cause of any significant inflation of any kind.

Once government gets the ball rolling with monetary expansion, then the expectations and mood changes of the populace can have an impact. Whereupon, in a disgusting display of scapegoating by the powerful and pulpitorially well-endowed of the helpless and voiceless, they (yes Senator Casey, you’ve been there little more than a year, but you’re a quick study– you’ve slipped in smoothly as a part of they), they point to the people whose lives they’re destroying and say the boiled down equivalent of: “Those benighted peasants– they’re panicking; they’re hoarding; they’re speculating. They have nothing to fear but fear itself, and now damn them, they’re fearing it, which is destabilizing the economy that we worked so hard to stabilize with uncontrolled masses of debt and by changing policies every twenty minutes.” This too is an unfortunate always and everywhere phenomenon.

Even worse (though not quite more revolting) than this blame the victim phase is the type of solutions it can lead to– inevitably insane, since the “solvers” can never correctly diagnose themselves as the problem.

Fear, speculation and “hoarding” (which when government does it with taxpayer money is called a strategic reserve) are necessary market functions– part of the pricing mechanisms of the economy which help it move resources where they need to go. To try to stop them or blame them makes no more sense than it would for an individual to stop eating because digestion, when broken into parts, seems such an unpleasant process. If somehow it had been possible to do the impossible and completely suppress all of these economic mechanisms out of existence, then even now (for example) there’d be no green energy movement (here referring to the more rational ethanol subsidy free side of green). Instead, we’d simply and happily use our last drop of oil someday and say, “Darn– I hope we don’t run out of beer too.”

This can’t happen because of the fear, speculation and hoarding as well as myriad other economic interactions that can be subverted, but never entirely suppressed. These are also– at least as a general class– rational responses to mismanagement by authority, as well as a (rational) demonstration of mistrust that of course government is reluctant to see for what it is. Put another way, it would be hard to imagine anything more irrational than not fearing a government that has absolute power to screw up, and for some genuinely irrational reason, no real fear of using this power to screw up over and over again.

For myself, as I feel ever more fearful and speculative (and continue to hoard mostly candy and grievances at about the same pace as usual), my dreams at this point are modest: that every CNBC anchor– all of whom are no doubt familiar with Friedman’s always and everywhere quote– keeps a copy of Friedman’s words taped and bolded on their computer monitors, bringing it up every single time a Fed official or Congressional guest opens their mouth about food shortages or any other subject, to and beyond the point that the guests pretend that it’s rude and storm off set.

By Les Lafave

Abolish The Federal Reserve – themaestrosrep.org