I think these chicken little columns, saying “the sky is falling” are stupid. Marxists, Austrians, and other sorts of people have been saying every year over the last century that we’re in for another Great Depression, to the point that I think it’s as likely as the second coming of Christ, as Christians make that false prediction with the same frequency.
Still, though, I think we can mostly agree on this issue.
Government investment in ethanol is a classic example of “crowding out.”
Right now, we have a supply-shock from high oil prices that is causing stagflation. In terms of specific industries, this increases the cost of food, for example.
We respond by increasing investment in ethanol, which crowds out oil production and raises the price of oil, since ethanol production itself uses oil. Also, when the government invests in ethanol, that takes land away from agricultural production, which also drives up food prices.
If you acknowledge this is true, advocating even more welfare is very much like the Austrian “broken window fallacy.”
The problem of rising food prices in America can be dealt with by:
- Abolishing all tariffs, especially on sugar and other agricultural products.
- Abolish subsidies on farming (including ethanol)
- Abolish taxation on oil and other capital goods used in the production of food, as well as taxation on the sale of food
The Democrats ironically support tariffs to support domestic industry, subsidies to “help the farmers” (and the big agro corporations), funding ethanol “to get us off of oil” (doesn’t accomplish that goal, though), and heavy taxation of oil “to make the big oil companies pay and give something back to the people.”
Then, when all of these policies combined drive oil prices and food prices up, they think the solution is to just subsidize food and oil!
The reason for rising food prices in the face of abundance is because of two vicious cycles of regulation. The first: As the government subsidizes ethanol, that drives up the price of oil. In response, the government increases ethanol subsidies, increasing the price of oil further. The second: As the previous vicious cycle drives up the cost of oil, that drives up the cost of farming and therefore the price of food. In response, the government increases farm subsidies even further. which in turn increases the price of food and oil.
The solution is to recognize what’s going on and simply stop the cycle.
The author clearly admits that the “highest ever recorded” figure was nonsense because it wasn’t adjusted for inflation. So, why even mention it? Because he wanted to be shocking and controversial. Unfortunately, rational analysis alone doesn’t sell newspapers.
He’s right that increased economies abroad will increase the price of some goods at home, in the short-run. But he’s treating this short-run effect as if it were long-run. In the long-run, those increased economies will also trade with us freely (hopefully, if anti-globalists including some Libertarians will STFU) . Any increased gain abroad is a domestic return in the form of foreign trade and investment.