It is cliche to claim a market economy is complex. At any moment in the global economy, millions of buyers and sellers of millions of products and services shape a complex system of interaction that no one person controls or can even fully understand. Millions of freely acting participants, acting in accordance with self-interest, form a spontaneously ordered system that benefits all participants.
Many, and some would argue most, economic problems we view in our world are not the result of this spontaneous order that develops once man has the ability to own what is produced, but a result of its opposite – an attempt to governmentally plan an outcome.
To control or attempt to control aspects of the order we witness around us can have undesired consequences, which can spell the death of millions. This is precisely the case with raising global food prices.
Ethanol was seen as a clean, homegrown solution to U.S. energy independence and environmental worries. But capital markets and experts did not view ethanol this way. This lack of investor support did not matter, as ethanol interests played an important role in Iowa – a critical state in the road to the White House. Presidential hopefuls had to take the Iowa ethanol pledge to support ethanol tax breaks and subsidies.
A 2000 article in the New York Times went as far as to claim politicians with even remote dreams of occupying the White House supported ethanol merely to keep Iowa in play. The article also stated the ethanol industry would not exist without government help. Tax breaks keep this industry alive, essentially making an infeasible product feasible.
The spontaneous order of the market economy was claiming the industry should not exist. Investors, entrepreneurs and those intending to make millions by investing in the energy source of the future looked at ethanol and said "no thanks, I think I’ll invest my money elsewhere." Why should they have thought differently? Ethanol has an input-yield problem: it takes more energy to make ethanol than ethanol produces.
But the planners would not have that. They claimed they knew best, that they knew something the capital markets did not. Their actions were not guided by the bottom line shaped around an expected rate of return, but by the expected increase in votes and political power. In the name of the environment and the rural farmers, the government kept this industry alive.
Now millions of people are on the brink of starvation. Bogdan Enache, an associated researcher with the Center for Institutional Analysis and Development, wrote in his article Starving the World’s Poorest, that increased consumption and the oil price increase cannot alone account for the increase in food prices. Enache said these other demand increases "pale in comparison with the recent increase of industrial demand for grain in the production of various types of biofuels."
Enache also points out this is not "a natural market phenomenon, but the direct result of various government programs."
Jean Ziegler, UN special rapporteur and professor of sociology, has called the growing use of crops for biofuels as a replacement for petrol a crime against humanity. A suppressed World Bank report obtained by The Guardian estimated biofuels have forced global food prices to increase by 75 percent. These numbers contradict the Bush administration’s claim that biofuels only contribute 3 percent to food price increases. The World Bank’s report estimates food price increases have pushed 100 million people worldwide below the poverty line and sparked food riots from Bangladesh to Egypt.
Biofuels have distorted the food market by diverting grain and land from food to fuel production, and the U.S. government provided the means and incentive for U.S. farmers to switch production from wheat and soya to corn for ethanol, which has priced millions out of the food market. This was not the intention of our politicians, but makes them no less responsible.
As we look for a solution to these government-fostered problems, let us not look for new plans designed by new planners. As the global economy continues to grow, the more difficult it becomes to predict consequences of even small governmental economic intervention. The global market economy is too complex to be controlled, and all governmental actions can have significantly undesirable consequences.
Gilson, a business sophomore, ?can be reached via opinion@?thedailycougar.com.
