Bread and Rosy Scenarios

The 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.

Brooke Rieder is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.