Ezra Klein makes a popular point:
If we insist on inefficiently subsidizing massive quantities of corn-based ethanol, hundreds of millions of people will go hungry. As populations grow pained and restless, productivity will suffer, development will slow, stability will erode, governments will be overthrown (there are already food riots wordlwide), and we can expect an increase in civil wars and regional conflicts, which will kill millions more. All because Congress doesn’t want to piss off corn farmers.
SIOUX CENTER, Iowa, Jan. 11  – Early every winter here, farmers make their best guesses about how much food the world will demand in the coming year, and then decide how many acres of corn to plant, and how many of soybeans.
But this year is different. Now it is not just the demand for food that is driving the decision, it is also the demand for ethanol, the fuel that is made from corn.
Some states are requiring that ethanol be blended in small amounts with gasoline to comply with anti-pollution laws. High oil prices are dragging corn prices up with them, as the value of ethanol is pushed up by the value of the fuel it replaces.
This was in early 2006, when oil prices were half what they are now. Gas prices drive up the cost of farming and food transport, which contributes to the problem. Poor harvests worldwide are a problem as well. But the fundamental issue isn’t lack of food production capacity. It never is. Michael Tobis makes this point directly:
It’s really an absurd travesty when starvation gets blamed on “global warming do-gooders,” and we haven’t seen the last of that. The problem is miscast, though. There isn’t a food shortage, at least not yet. There is a food price crisis, which is a very different beast. [...]
What’s going on? It isn’t that there isn’t enough food. It’s that the ability to fill up a gas tank with gasoline is, in the “wisdom” of the marketplace, the highest value use of the food crop.
Admittedly, what we’re seeing now is a consequence of some distorted subsidies, but consider this. If the price of liquid fuel goes up further because of reduced supply and inflexible demand, then even if the subsidy goes away, it might well become more lucrative to produce biofuel for rich people than to provide food for poor people.
Indeed, something like this is already going on. Most of the land in production in the U.S. goes to produce animal feed, which produces a small fraction as many calories in a luxury crop (meat) as the same land would in producing directly for human consumption. While cereal crops worldwide set new records, some people have been going hungry even before this year’s price rises.
How is this possible? Is the demand for one luxury meat meal really bigger than the demand for ten subsistence grain meals? This is true only if the wealthy person’s desires are valued more than the poor person’s desires. A starving Haitian’s desire for a scrap of bread exceeds your desire for your favorite meal by a considerable amount, but his ability to pay is constrained by your desire for steak.
Or, equivalently, the problem is poverty. Federal subsidies for corn ethanol stand at $7 billion/year, generously. World food trade is valued at hundreds of billions of dollars annually, pre-price boom. I’m certainly no economist, but I fail to see how the one can have such an astounding impact on the other. On the other hand, as tens of millions of Chinese and Indians annually join Americans and Europeans in wanting their steaks and wines – and perhaps a bit of $4 gasohol from food crops to get them to the supermarket and back – the orders of magnitude start agreeing. What we are looking at is not an example of government meddling ruining a free market, as this is generally characterized. What we are seeing is a fundamental principal of any market at work – when you don’t have money, no one wants to sell you shit.
I’ve said my bit on biofuels, so I’m not going over that again. Corn ethanol subsidies are an inefficient boondoggle, much like a program to prepare every school child in America for the high-tech economy of the 21st century by buying them a brand new Commodore 64 would be – stupid, of profoundly limited practical benefit, based on 20-year-old technology, but unlikely to starve anyone to death. The failure of the Great Government Commodore 64 giveaway of ’08 (brought to you by your friends at the Commodore surplus vendors lobby) does not actually prove the uselessness of computer technology generally. Nonetheless, much as Al Gore causes global warming, or Rachael Carson was worse than 100 Hitlers, or how windmills will wipe out the majestic Apocryphal Eagle, carbon-reducing biofuels will now be the cause of global famine. Meanwhile, carbon emissions continue unchecked:
By the end of this century, if current trends continue, world agriculture will be in serious trouble, according to economist William Cline, senior fellow with the Center for Global Development and the Peterson Institute for International Economics. His new study, Global Warming and Agriculture finds that global agriculture potential could fall by about five to 15 or 20 percent as a result of global warming, if nothing is done by the 2080s. But, he says, that would mask a much deeper loss, “Something like 30 to 40 percent in India, and something like 20 percent or more in Africa and Latin America, because there would be some countries that could actually [experience] some gain.”
Al Gore grew a beard.