Sunday, July 06, 2008

Planning the world to death. Hubris and the New York Times

The New York Times has an interesting editorial regarding the food crisis in the world. And they have come to some important and rare conclusions. I say the conclusions are rare because they are correct. And, unfortunately, when it comes to economic issues, the Times rarely gets it right. Of course, old habits die hard so they do manage to get parts of the editorial wrong.

The very correct point they make is that the food crisis “could push tens of millions of people into abject poverty and starvation” and that it is largely “man-made --- the result of misguided energy and farm policies.”

Let us be a bit more precise. To call the crisis man-made spreads the blame to all of humanity, much the way the “man-made global warming” scare attempts to pin the blame on humanity in general. That sort of interpretation would be incorrect here. This crisis is politically-made. The culprits were elected officials like Barack Obama, Hillary Clinton, George W. Bush, Dianne Feinstein. The politicians of the European Union were involved as well.

Politicians intentionally foisted policies that provided them with political benefits but which would clearly result in world hunger. None of this was unpredictable. It was simple economics. This blog has been screaming about these policies long before the Times and the politicians realized there was a problem. And I did so, not because I have some sort of psychic abilities, but because the ramifications of the disastrous policies that the political class was pushing, including the New York Times, were obvious.

Just a little bit of Economics 101 is enough to predict that government policies like biofuels subsidies would push food prices higher globally. The problem is that the Times and the politicians both seemed to believe that if the bureaucrats had “good intentions” they could “rationally plan” the market in ways that abolish basic laws of supply and demand.

In any other field they would be laughed out of office for doing that. Imagine them thinking that rational, central planning could reduce the effects of gravity. But economics, more than the hard sciences, has the ability to attract charlatans who believe in the economic equivalent of alchemy.

We saw a concerted effort a few years ago to push for biofuels. That policy taxed consumers to redistribute wealth to farmers and big energy companies. The energy companies got the millions to produce biofuels which were worse for the environment, more costly to produce and which needed food, like corn, in the production process.

The European Union, the British government, the US federal government and many of the state governments, set up subsidies and mandatory requirements that companies produce these biofuels. In a short period of time those companies were getting rich producing a product that consumers didn’t want and which had to be subsidized to be competitive. They also purchased tons and tons of food. The more food they purchased the less food on the market and the higher the prices went.

The fat cats with political pull were living easy off these politically-created, artificial profits. The environmentalists were thrilled that a “clean” energy source was being used and many lobbied for greater subsidies. Big energy was thrilled as they were making record profits from the subsidies. The politicians could buy votes in the farm regions, while claiming to be concerned about global warming everywhere else. All in all that would increase their votes. They also got nice contributions from the big energy companies who were rolling in subsidized profits: just ask Obama and Hillary how much they got.

The Times, and many of their reporters and editorialists, has always had a disdain for free markets. They have preached the gospel of economic interventionism for as long as I’ve been alive -- and longer. They have believed that politicians, and the political process,, should take control of the vagaries of the market and manipulate things through various policies, in order to get politically-acceptable results. Market economists have long noted that such policies and plans always come with unintended consequences. What is particular shocking is that these consequences are not necessarily hard to predict.

But there is a hubris on the Left, or perhaps I should say among politicians in general, that they can somehow, through the sheer force of their own “innate goodness”, will, and government force, manipulate markets so that the results are politically desirable without bad consequences. Over and over they try to accomplish that, and over and over they create disasters. Their current disaster is resulting in millions of people starving to death because politically-planned markets don’t work.

Make no mistake about it, the current food crisis is almost entirely the result of political planning. The Left-of-center British newspaper, the Guardian, recently wrote that: “Biofuels have forced global food prices up by 75% -- far more than previously estimated -- according to a confidential World Bank report obtained by the Guardian."

They say the report is “based on the most detailed analysis of the crisis so far.” They also note that this contradicts the claims made by politically bodies. For instance, the US government pretends that their policies are only responsible for “less than 3%” of the rise in food prices. But a report for the British government apparently backs up the World Bank study and says that biofuels played a “significant” role in the food crisis. This report challenges a central plank of the Labour Party’s environmental agenda. So there is no surprise that the release of the report to the public has been delayed by the government.

One idea of how major an influence these political-boondoggels are in regards to the world food market is that “over a third of US corn is used to produce ethanol, while about half of EU vegetable oils go towards the production of biodiesel.” The UN World Food Program has been arguing that these policies were pushing 100 million people into starvation.

What is particularly sickening is that the very politicians who tend to portray themselves as advocates for the poor, are the leaders in the campaign for the policies that are killing millions of poor people. Can anyone say Hillary and Obama?

The root cause for this is hubris, their belief that they have the ability to second guess markets and plan massive economies. That is what the socialists have been advocating for centuries. It is no accident that the first nations to adopt these short-sighted energy and agricultural policies were the Left-wing welfare states. In the US the Democrats have been the major proponents. In the UK it was the Labour Party. In nation after nation the Left-of-center parties have been pushing central planning in the name of protecting the environment.

We saw centrally-planned economic policies regularly produce famine. Political planning under the Soviets killed millions of Russians, Ukranians and others, as food production was destroyed. The socialist planning ideals of Mao led to massive famines in China in the late 50s and early 60s. State regulation in India was responsible for widespread hunger. Yet, when China allowed markets to work, the hunger ended even as the population grew. When socialist Vietnam stopped centrally planning agriculture, food production turned around and the nation became a food exporter. When India undid their socialist controls, and allowed markets to operate, they too became a net exporter of food.

Now, mainly in the name of the environment, governments around the world are once again centrally planning markets. Politicians are using carrots and sticks, penalties and subsidies, to force markets to fit their agenda. The result is 100 million starving people. Politicians kill. They don’t mean to kill but they do it anyway. Their inherent need to tinker with, and regulate people, means that they must destroy the private plans of the people and impose their own plans instead.

One of the great myths about central planning is that politicians impose planning where only chaos existed. On the contrary, government planning destroys the plans of millions of people. And those millions of people are planning with information they have which no government has, or can have. They are using the local knowledge of their own situation and conditions to plan for their future. The politicians come in, and smash those rational, individual plans. In their place the politicians impose a political plan, based more on wishes and whims than on reality and facts. The only possible, long-term result of such economic planning is disaster.

As long as people believe that politicians can solve problems, these sorts of disastrous results will keep accumulating. The problem is that, even while these results are staring them in the face, advocates of central planning are ideologically blind. They offer more of the same rot that caused the problem, as the solution. So the Times, while it acknowledges that political planning caused the problem, demands that governments “vastly increase aid to the poorest countries.”

Where does that aid go? It goes to the governments of those countries in order to allow even dumber, more corrupt politicians, to dominate more of the local economy. Anyone who has lived in Africa knows that agriculture is dominated by the State. Many African nations have food marketing boards. Farmers are required to sell to these boards at below market rates. These government boards then sells the food at world prices keeping the profits for the state and passing it around to the political elite. The net result is that many food producers don’t wish to produce for the market, but only for their own personal consumption. Peasant farmers who attempt to sell their products in the open market can face jail.

Robert Mugabe intentionally destroyed the agricultural sector of his own economy and was applauded by the other African governments while doing so. He did much of it with the vast amount of foreign aid he was receiving at the time.

The Times get much of the editorial right. They want the end of agricultural subsidies in the United States, the end of biofuel subsidies and the end of tariffs. They have recognized that central planning didn’t work in the rich nations of the world but created world-wide disaster.

But they seem to believe that central planning in the Third World will solve problems there. Foreign aid creates central planning where it might not have existed otherwise. Aid funds are giving to central governments which then use the money the way governments everywhere use money. On one hand it is used to punish activity the government wants to stop and on the other hand it is used to provide subsidies to projects the government wants to encourage. Somebody has to decide which projects fit which category. Government-to-government aid forces the very kind of central planning on Third World nations which the Times is now condemning in the West.

But the Times dare not see the principles involved. To acknowledge that political planning doesn’t work would destroy the very foundation of their entire political belief system. So they entertain the fantasy that old failed planning policies can be replaced with new planning schemes. They will continue to endorse politicians and policies which thrust government bureaucracy into the market and they will continue to propose the abolition of local, individual planning with central, political planning. The Times, and Left-thinking politicians, will continue to pretend that such proposals mean that they are “compassionate and caring” while the advocates of markets are proposing “a dog-eat-dog kind of world.” And more disasters will follow.

Postscript: As a perfect example of the problems I mention in this piece consider this news from the BBC. Argentina's lower house of Congress has "approved a controversial package of taxes on agricultural exports. ...Argentina is one of the world's top producers of soya, grains and beef and the government wants a bigger share of the profits, it says to fight poverty."

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