New Corn Laws Adam Smith Would Also Dislike*

Diamonds are scarce like every other economic good. Their scarcity, however, is vastly exaggerated by those in the business of marketing them as a luxury. If the cure for cancer were discovered tomorrow, however, and if it somehow required natural, i.e., not man-made diamonds, the demand for diamonds would skyrocket and they would legitimately command an even higher price.

Food, by contrast, is not a luxury but a necessity, at least in its most elementary forms. Moreover, the poorer you are, the more you will spend of whatever your income may be on food and the more vulnerable you will be to any sudden and significant increase in its price. Four dollar a gallon gasoline inconveniences middle-class Americans but a 75% increase in global food prices is catastrophic for poor people around the world.

Which is precisely what an unpublished World Bank study is being reported as claiming.

In the rush to report such things (and, yes, the rush to report such reports), it more often than not occurs that sensational conclusions such as this are not only misleadingly taken out of context but, once the data is actually made available, subsequently shown to be unsubstantiated by that data. That needs to be said here, as well.

Still, whatever the figure may be, whether it is 75% or the laughably and unbelievably small 3% the U.S. government has claimed plant-derived fuels contribute to recent food price increases, it takes no more than common sense (never in large supply, I grant you) and a passing grade in intro economics to realize that a new and large demand for a commodity will at the very least temporarily raise its market price. Moreover, at some point, if that demand continues or, worse yet, continues to grow, suppliers will not be able to meet such increased demand at whatever the former market price may have been.

U.S. energy policy (not unlike U.S. health care policy) is criminally broken. I mean “criminal” in a moral, not a legal sense, and yet the fact that alternative bio-fuels like ethanol are being mandated by our elected weasels in Washington artificially skewing both the energy and the food markets and contributing no end to the misery of the world’s poor probably should be a crime of some sort. It is, in fact, simply a forced redistribution of wealth for nothing more than the ephemeral political advantage of those office holders who temporarily placate their constituencies as a result, never mind the unintended and sometimes tragic consequences others must suffer.

But that is the political reality. Starving people in third world nations don’t vote in U.S. elections, whereas Kansas and Nebraska corn farmers do.

(* Yes, I do in fact know that when Adam Smith first wrote about corn laws the word "corn" was a generic term for grains.)