Export restrictions the way of the future, question mark

The known exacerbator of Peak Oil is the decline in exports (i.e. not only is less oil being pumped out of the ground, but even less of that is being let out of the country, after domestic use). E.g. the Export Land Model (pic is from the Oil Drum)

So to the Financial Times. They put up an interesting article today concerning much the same thing about, in this instance, rice:

Rice prices jumped 30 per cent to an all-time high on Thursday, raising fears of fresh outbreaks of social unrest across Asia where the grain is a staple food for more than 2.5bn people.

The increase came after Egypt, a leading exporter, imposed a formal ban on selling rice abroad to keep local prices down, and the Philippines announced plans for a major purchase of the grain in the international market to boost supplies. Global rice stocks are at their lowest since 1976.

…

The Egyptian export ban formalises a previously poorly enforced curb and follows similar restrictions imposed by Vietnam and India, the world’s second- and third-largest exporters. Cambodia, a small seller, also on Thursday announced an export ban.

These foreign sales restrictions have removed about a third of the rice traded in the international market.

The immediate price effects of course are about as “no” as brainers get. This is an interesting phenomenon to watch, though going forward. Will it expand into other sectors of the agriculture economy? It ought to scatter no end of eggshells beneath international relations.

If the days of tit-for-tat diplomacy (referring to tariffs) were to return, we really ought to ask ourselves, country by country: what can we threaten to withhold in retaliation? Some countries, currently wealthy and powerful, may not much like their answer.

“The endgame of biofuels is price parity between food BTUs and energy BTUs”

This quote comes from a comment beneath a story on Grist, Biodiesel in the dumps – original source (for me) of this article from the Atlanta Journal Constitution.

Biodistillers nationwide now realize that their industry’s survival depends on the vagaries of world trade. Cheaper soy and palm oil from Asia, Africa and Latin America increasingly replace domestically grown soy oil. Environmentally conscious Europe takes most of the U.S.-produced fuel.

Globalization of the American biodiesel industry, though, wouldn’t be possible without lucrative assistance — a $1-per-gallon tax break — from Washington. Alterra and other biodiesel producers receive the excise tax credit for each gallon of alternative fuel that is mixed with regular diesel.

And, since most of the biodiesel is shipped overseas, Congress essentially subsidizes the price European drivers pay for fuel.

“And we’re not really lessening our dependence on foreign fuel supplies,” said Mark Ash, an economist with the U.S. Department of Agriculture.

…

The blame falls mainly on the skyrocketing price of soybean oil used in 80 percent of the nation’s biodiesel production. Soy oil cost 22 cents per pound when Johnson broke ground in Plains. Wednesday, a pound cost 56.4 cents.

It takes 7.7 pounds of soy oil — or $4.34 — to produce a gallon of biodiesel, according to the Food and Agricultural Policy Research Institute. Add overhead and other processing costs (about 70 cents per gallon), federal and state taxes (54 cents) and subtract the dollar tax credit and a gallon of biodiesel could sell for $4.58 at the pump.

Regular diesel sold for $3.86 a gallon Wednesday in Atlanta.

“How’re you going to sell it at that price?” asked Davis Cosey, who owns an idled biodiesel factory in Perry. “The industry’s horrible. It’s in the ditch.”

Farmers aren’t doing producers any favors. In 2006, more than 75 million acres of soybeans were planted in the United States. Last year, only 64 million acres were planted, according to the USDA. Congress’ ethanol mandate — 37 billion gallons annually by 2022 — fueled the switch from beans to corn. In addition, rapidly developing China and India boosted soybean demand, and prices.

Interesting article (“Only federal subsidies keep the industry afloat” – one for the small-government-ers), if including odd lines like

“The American public, with rare exception, is 100 percent price-sensitive,” Johnson said. “They will not pay a penny more to go green.”

I kind of follow the argument – but 100% price sensitive? Dude, we’re all 100% price sensitive. It’s how sensitive we are that defines our markets (and in this “Johnson” is mistaken – of course we will pay more to go green. We just aren’t stupid enough to call something as daft as crop-grown biofuels shipped half-way ’round the bloody world and back “green”).

So US biodiesel manufacturers are importing soy and palm oil (the latter a truly horrible product, vis, the environment) in order to make biodiesel that is shipped to Europe because the market here is too small – meanwhile only surviving thanks to subsidies (meaning your tax dollars are subsidising European motorists).

Stop me when you can’t take the stupidity any longer.

So this would be where the comment came from. Personally I don’t fancy their chances, however much I agree with their sentiment. For a start food BTUs aren’t at all close to being adequately priced – but, then, neither are things like biofuels, oil shale, etc. Maybe one day. One day when we stop IV-subsidies to wasteful industries and make agriculture compete like everyone else.

“Everyone wants to eat like an American on this globe”

Don’t ever forget that this is exactly the problem – and why not? Remember the famous words of Oscar Brown Jr: “You so rich and free and fat; Son-of-a-bitch that’s where it’s at!”

Whether an American, Brit, Netherlander – it doesn’t matter. Plenty of people on this Earth are rich and fat and clean. We bang wives made out of girls from Ipanema, buy, wear, drive and eat whatever we like and send our kids off to University to learn how to do even better than us. Good God, man, who wouldn’t want a part of that?

From the New York Times:

Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics.

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.

The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.

Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.

The article mentions, interestingly, how fortunate farmers are (one, in particular – what’s a newspaper story without an anecdotal anchor, after all?). I’m not so convinced. Costs are increasing for them, also. Fuel and food are big parts of their factor costs and, while they can certainly extract greater rent from Consumer (non-lexicographically-inclined readers, this means jack up the price to make more profit), even the mere perception of this is going to put signficant strain on America’s thoroughly embarassing farm welfare. Meanwhile those costs are appreciating rapidly, just as they are for the rest of us (the NYT does mention this). The only difference is that farmers are producing one of the inflating-price goods: how’s your control over the labour market going, these days? Yeah, didn’t think so.

This – the death of farm welfare – is a good thing, certainly – provided it comes off. More likely is that, with even greater control as a lobbied-for group, farmers will also extract rents from Governments trying to get them to grow basic foodstuffs for the common good (not, for example, mustard seeds – and yes, David, I know ‘the market’ should sort all of that out).

In all this, though, what the writer really nailed was one of the two causes: global demand (the other is crop yields – maybe climate change (I think so), maybe not):

As the newly urbanized and newly affluent seek more protein and more calories, a phenomenon called “diet globalization” is playing out around the world. Demand is growing for pork in Russia, beef in Indonesia and dairy products in Mexico. Rice is giving way to noodles, home-cooked food to fast food.

Though wracked with upheaval for years and with many millions still rooted in poverty, Nigeria has a growing middle class. Median income per person doubled in the first half of this decade, to $560 in 2005. Much of this increase is being spent on food.

Nigeria grows little wheat, but its people have developed a taste for bread, in part because of marketing by American exporters. Between 1995 and 2005, per capita wheat consumption in Nigeria more than tripled, to 44 pounds a year. Bread has been displacing traditional foods like eba, dumplings made from cassava root.

…

Mr. Ojuku, the man who buys fewer loaves, and one of his fellow tailors in Lagos, Mukala Sule, 39, are trying to adjust to the new era.

“I must eat bread and tea in the morning. Otherwise, I can’t be happy,” Mr. Sule said as he sat on a bench at a roadside cafe a few weeks ago. For a breakfast that includes a small loaf, he pays about $1 a day, twice what the traditional eba would have cost him.

To save a few pennies, he decided to skip butter. The bread was the important thing.

“Even if the price goes up,” Mr. Sule said, “if I have the money, I’ll still buy it.”

Eco 1 students, for the extra credit: is Mr. Ojuku behaving rationally?

Biofuel farms make CO2 emissions worse

From today’s Guardian:

US researchers calculated that converting natural ecosystems to grow corn or sugarcane to produce ethanol, or palms or soybeans for biodiesel, could release between 17 and 420 times more carbon than the annual savings from replacing fossil fuels.

This is due to the carbon contained in the original plants and soils which is released as CO2 when the vegetation rots after it is cleared. The researchers said this carbon debt must be paid before biofuels produced on the land could count towards reducing greenhouse gas emissions.

…

In Indonesia the researchers found that converting land for palm oil production ran up the worst carbon debts, requiring 423 years to pay off. Producing soybeans in the Amazon would take 319 years of soy biodiesel to offset the carbon debt.

Honestly, I wouldn’t have thought people needed this explained to them. Carbon is emitted anyway – our problem is emitting it so bloody quickly, burning things. It’s still emitted as nature dies and breaks down. Burning out or otherwise clearing land for biofuels is most certainly going to convert living matter to dead matter – releasing all its stored carbon in the process.

Getting back to the article, we see that markets are at the heart of the problem – and the solution:

Stephen Polasky of the University of Minnesota, one of the authors of the study, published today in the journal Science, said: “We don’t have proper incentives in place because landowners are rewarded for producing palm oil and other products but not rewarded for carbon management. This creates incentives for excessive land clearing and can result in large increases in carbon emissions.”

Palm oil is a horrendous product. An interview with the primary author can be found over at nature.org.

So what happened? Basically, the pressure to establish a market to counteract the non-market externalities of energy-generation (including the use of oil, but we’ll lump all fossil fuels together – why not?) has given us a market that itself has non-market externalities. The solution? Austrian Economists, where are you when we need you? There are two arguments:

First, this would seem to indicate that the pressure to establish “solutions” is, potentially, doing more harm than good. Perhaps we need to back the hell up. Does a bull ever have good luck in a china shop? We need to ease off, sit down and realise that accuracy over speed will be what saves the planet in the long run.

We need to give more consideration to the sorts of market mechanisms we would like to use to overcome the tragedy of the commons (the depletion of fossil fuels: it is the intensity of this depletion that is both leading to things like Peal Oil as well as creating the condition for so-called Catastrophic Climate Change (I say “so-called” because it is a term of art, not because I dis-believe the sentiment)).

Second, or alternatively, we need to plow ahead, tacking markets onto markets onto markets. I’ve no doubt that throwing market incentives into this market to deal with the follow-on environmental costs will probably generate another set of unintended outcomes – it always does. This argument would base its urgency upon the urgency of the problem, and the absence of time to wait.

I favour the first, personally – or a variation thereof. When we make certain crops highly valued, that incentive will overcome most others – how do you think these problems arose in the first place? Farmers in middle-income countries don’t consider their contribution to the global problem (anymore than first-world agriculturalists): they respond to the enormous difference the market will make to their household income. Once those trees are gone, however, they’re gone – land cannot be un-burnt (trust me: I’m Australian). Reclaiming and de-pastorialising land takes a bloody long time.

Mostly, I take this as more evidence that biofuels are shit. We aren’t trying to ‘fix’ our energy problem: we’re trying to stay behind the wheels of our cars as long as possible. The reason I think we need to step back and reconsider is because the problem we’re trying to solve is such a narrow and self-interested one.

EQIP, the Factory Farm Incentive Program

Good for the New York Times! An excellent article is running on a component of the Farm Bill: the Environmental Quality Incentives Program (EQIP):

… when the program was created as part of the 1996 farm bill … the government agreed to pay a share — up to 75 percent — of a conservation project, and the payments were limited to $10,000 a year. Farmers used the money for small-scale projects that had environmental benefits, like planting cover crops to prevent erosion and soak up excess nitrogen or installing fencing to better manage grazing cattle.

But in the 2002 farm bill, the program was changed at the livestock industry’s behest, and funding for the program was raised from $200 million a year to, eventually, $1.3 billion. Yearly payment limits were scratched, replaced by a provision that farmers could get no more than $450,000 during the bill’s life.

Another change: large-scale livestock facilities that once were not eligible for EQIP money were encouraged to participate under the 2002 bill.

As a result, many farmers are using their EQIP money for animal waste management practices, which include helping to pay for lagoons to store manure. The lagoons are lined ponds that are used to keep the waste until it can be pumped out for some other use, usually as fertilizer on nearby fields. In some instances, manure lagoons have leaked or overflowed into the groundwater or neighboring streams.

…

For the 2006 fiscal year, for instance, the Department of Agriculture paid farmers about $179 million for animal waste management practices, with Iowa, Wisconsin and North Carolina getting the most money. More recent data was not available, nor were individual payments.

That compares with $125 million for soil erosion and sediment control, $139 million for irrigation water management and $74 million for grazing land practices, according to Department of Agriculture records.

The article is semi-rant – which is fine by me. What I like is the acceptance, by the author, that this is the way it is (the House version of the bill is more expansive, yet): they only propose more honesty.

… if Congress is to keep sending taxpayer money to farmers to build manure lagoons, it may want to consider a more honest name for the program.

How about “Factory Farm Incentive Program”?

This is, however, where the Farm Bill, in toto, is so distortionary. Here’s a thought: I’m vegan. I purchase nothing that should, in any way, contribute to shit like this. Yet I’m taxed to subsidise exactly this sort of agricultural stupidity, so that non-vegans can purchase, in blissful ignorance, Mad Cow Steaks in cheap abundance from their supermarket. Why do citizens and taxpayers, rather than consumers, have to foot the bill for the subsidies that are required to bribe Mega-farms to operate at a level of minimal environmental containment?

Absent such, of course, things would be a lot worse. But is that the only alternative? Can the government not force farms to perform certain environmentally prudent acts, and pass the cost along to the consumer? That is certainly the economics that I teach: between them, Supplier and Demander share the social cost of the negative externality of the good or service. The NY Times asks the same:

Why should taxpayers foot the bill for manure lagoons, particularly under the flag of environmental conservation? Why should taxpayers subsidize expansion of livestock farms? And if livestock farms have created environmental problems, shouldn’t the polluters have to pay for the mess that they created, rather than the taxpayers?

“Having a lagoon that doesn’t leak into groundwater, that’s the cost of doing business,” said Ferd Hoefner, policy director of the Sustainable Agriculture Coalition. “You shouldn’t be justifying that as a conservation payment. You are building things that have been proven time and time again to cause severe environmental damage when they misfunction.”

The simple answer is yes, they can – but why would they? Agricultural sectors have significant lobbying power, and it is entirely in their interest to secure money from general taxation – because we just pay taxes, don’t we? No chance of us consuming less meat because we realise that the true price of that tray of … meat (it’s been a while) is significantly greater. Moreover, we do not lessen that burden on ourselves by purchasing less of the good – so we may as well go ahead on. We simply do not need this level of administration (consider, too the cost of having the government debate and administer this sort of dog-wagging tail of a piece of legislation). Simple regulations, with simple policing, with simple market mechanisms, could sort the whole thing out.

EQIP is perfect a perfect Trojan Horse for this, of course, because, as long as it does in fact help conservation and clean-up, it’s hard to fight.

This is also the hypocrisy of a government that refuses to countenance things like the redistribution of income for the provisional of health care. Bridges to nowhere? Fine. Money for mega farms (the bulk of which subsidy cheques are cashed by corporations in New York and elsewhere)? Cool. Affordable housing, education, health care? Crazy talk.

Meat vs. food

That’s my mathematics, of course. Opinions differ.

Following on from the oil post, a food commodities post! There is a decent editorial in (I believe) the Christian Science Monitor, found by way of Yahoo:

Food prices worldwide hit record highs in 2006, and all the signs are that they will go on rising this year, and for the foreseeable future. The era of cheap food, the experts say, is over and we are going to have to get used to it.

I disagree with the staff writer’s exonerating of crop yields, as a factor – his reference to Australian production is off, and it is the only one he uses, in a world with declining yields across the board. However he covers things like bio-fuels and shifting palates (“increasingly prosperous consumers in India and China are not only eating more food but eating more meat”) reasonably well: I’d have liked to see more on just how great a waste of grain a cow is, but that’s also my vegan’s prejudice. One aspect that is well-covered is the distributional effects of our new Malthusian utopia:

… it is the poorest people in the world who suffer most, because food takes up a bigger share of their daily shopping bill than it does for richer people. A family in Bangladesh, for example, living on $5 a day, typically spends $3 of that on food. The 50 percent rise in food prices the world has seen in recent years takes a $1.50 chunk – nearly 30 percent – out of the family budget.

Even farmers are not immune. On the whole, small-scale farmers in developing countries buy more food than they sell, so they, too, are net losers. Relatively few peasants have holdings large enough to benefit from price increases.

Big farmers in the rich countries, however, are doing well: US corn farmers have seen the price their crop fetches jump by 50 percent since 2000. Other net food exporters, such as India, Australia, and South Africa, will also do well out of rising prices. Major dairy producers, such as New Zealand, have done well as consumption of milk, yogurt, and cheese rises in Asia. As a result, while property values in New Zealand are generally expected to soften, flat rural land, where cows can graze, is expected to continue to rise in price, according to a survey by Massey University in New Zealand.

Speaking of cows, and how rapidly farmers can change crops – or how willing they are to do so, given the uncertainty over yields, rainfall and prices – Argentina is, apparently, also beginning to suffer. Kind of:

… while Argentines are some of the world’s top meat-eaters, consuming nearly 70 kilos, or 154 pounds, per capita each year, soaring grain prices and export caps are driving many cattle ranchers to sell their herds and instead farm more lucrative crops. Ranchers have switched from grazing to grain on about three million hectares, or 7.4 million acres, since 2005 – a 10 percent decline in ranch land, said Pablo Adreani, an economic analyst with AgriPAC Consultores, an agricultural consultancy in Buenos Aires.

Export caps, imposed by then-President Nestor Kirchner as an anti-inflation measure, have flooded the local market with meat, keeping beef prices low while soybean, corn and wheat prices soar.

…

Some agricultural analysts say that Argentine soybean farming is now three times more profitable than cattle ranching. Others say that reliable figures are lacking. Nonetheless, the trend against ranching is powerful, the commodities expert Ricardo Baccarin said.

“The business of soybean farming is brilliant in Argentine today,” Baccarin, chief analyst at the grain brokerage Paniagricola, said.

Half of all cultivated farmland in Argentina is dedicated to soybeans – an explosion aided by the fact that soybeans need just eight months to reach harvest, far less than the two to three years needed to raise a beef herd, he said.

Soybeans also require less fertilizer, a major expense, than corn or wheat, and almost 90 percent of soybeans are exported for high prices thanks to a solid futures market and constant international demand, he said.

Funnily enough, I don’t know that I’m that big a fan of such a move, either: monocultural agriculture never strikes me as a good idea – even if it’s for the commodity I consume as a staple (I’m still looking forward to the day of realisation that soy kills us and has destroyed all our top-soil. Every skinny person with decent skin will die at the hands of mob violence). It just isn’t good to punish land without a break, like that.

At least, like all agricultural suffering, the government can be blamed.

“If the government would allow a free, unrestricted market, Argentina could be the second largest world exporter of beef,” Adreani said. Instead, it is now the fourth, behind Brazil, Australia and India in the USDA ranking.

The remaining ranchers in Argentina are particularly frustrated to be missing out on rising global beef prices driven by the same swelling cost of grains that cattle are increasingly fed. At his white-tiled slaughterhouse at the Yaguane meat processing plant, the quality-control supervisor, Carlos Alberto Kuida, blames the government.

“We’ve got our hands tied behind our backs with these export taxes,” Kuida said. “We’re in the worst situation we’ve been in for years.”

Corn Ethanol and its consequences

Quite a neat article up, over at truthout.org.

December 21, 2007 | A truckdriver unloads his cargo of corn into a chute at the Lincolnway Energy plant that converts corn to ethanol fuel in Nevada, Iowa. The Federal Energy Bill, with its fivefold mandate to increase ethanol production, is headed for the president’s desk now that all requirements to support tax credits for solar and wind systems have been removed.
(Photo: Jason Reed / Reuters)

The Federal Energy Bill, with its fivefold mandate to increase ethanol production, is headed for the president’s desk without threat of veto, now that all requirements to support tax credits for solar and wind systems have been removed.

…

States such as water-rich Minnesota and Iowa complain that the ethanol industry is mining their groundwater, causing some plants to be closed because the groundwater supply has been depleted. In many places in California, especially in the San Joaquin Valley, the ground has already subsided many feet because of groundwater mining. Approximately 14 percent of the US corn crop is irrigated. This irrigated acreage consumes almost 18 million acre-feet per year of water – much of which is overdrafted from the Ogallala aquifer in the Great Plains. To put this water requirement in perspective, the average annual flow of the Colorado River at Lee’s Ferry is only about 14 million acre-feet per year.

…

Corn is also a lousy raw material for fuel. It takes 10 gallons of ethanol to produce the energy equivalent of about seven gallons of gasoline, and greenhouse gas reductions are minuscule.

A little activist but, then, nobody was ever the worse for that.

Inflation set to hit

Which is to say, set to hit such that it won’t be ignored, for a change.

Hacking away at tariffs will only do so much. After continuing appreciation in the prices of grains and other primary foods, it looks like inflation is coming to supermarkets, for reezies.

In Chicago wheat and rice prices for delivery in March 2008 have jumped to an all-time record, soyabean prices are at a 34-year high and corn prices at an 11-year peak.

…

The increase of eurozone food price inflation to 4.3 per cent in November was one of the main reasons for the jump in the zone’s annual inflation rate from 2.6 per cent in October to 3.1 per cent, the highest in six years. In the US, annual food price inflation of 4.8 per cent in November contributed to a rise in the inflation rate to 4.3 per cent.

In the UK, food inflation was already running at an annual 5.1 per cent in October and analysts expect higher food prices to push overall inflation up in November. The UK figures are due to be published tomorrow.

In early trading on Monday, the new benchmark price of wheat for March delivery rose 30 cents to $10.09½ a bushel, more than 7.5 per cent higher than the expiring December contract of $9.39 and first time it has traded over $10 a bushel. The December contract expired on Friday and the March 2008 contract became the market’s benchmark on Monday.

Looks like its our turn. And just when it looked like people would manage to afford those mortgages, LIHEAP-less heating oil and the appreciation in gasoline prices that nobody has seen coming, yet.

The Austrian school, sub-prime, and speaking of centrally-planned economies…

Did you know, for example, that agricultural subsidies are set in five-year plans, here in the US? Those crazy commie Chinese. I mean. Wait…

Meanwhile, Hank “what is this thing called foreign exchange, anyway?” Paulson is pushing ever forward, along with his friends in the George “what is this thing called mature, responsible government, anyway?” Bush administration, with their five-year plan to fix interest rates.

George W. Bush is expected to announce on Thursday a five-year interest rate freeze on some subprime mortgages as part of a deal brokered by Hank Paulson, Treasury secretary, to prevent a tidal wave of home foreclosures.

The five-year freeze – a compromise between regulators, who were pushing for a seven-year freeze, and some lenders, who had argued for a one- or two-year freeze – was in a draft accord circulated on Wednesday, a Treasury official confirmed.

…

Under the plan, mortgage servicers would agree to the five-year rate freeze voluntarily. An industry lobbyist said the freeze would apply to subprime adjustable rate loans taken out between January 2005 and July 2007, with rates scheduled to step up between January 2008 and July 2010.

Although not directly related, I liked this passage, most of all:

Speaking at the Nasdaq stock exchange, Mrs Clinton said the financial sector had to accept its share of responsibility. “Wall Street shifted risk away from the people who knew what was going on and on to the people who didn’t,” she said. “Wall Street helped create the foreclosure crisis, and Wall Street needs to help solve it.’’

I agree – the moreso, had she mentioned her own culpability, being First Lady, and then Senator, for the period in which Greenspan loaded all these cannons with shit, aimed them at fans and then retired to write his goddamn book, I Can Be Pontius Pilate, And So Can You!

Here’s an interesting point of reference:

The Chinese government on Wednesday froze prices that it controls for the rest of the year, in the latest sign of Beijing’s mounting concern over inflation.

…

“All current rules on goods and service prices controlled by the government should be strictly implemented. Any unauthorized price rise is strictly forbidden,” the statement said.

The ministries ordered local governments not to raise prices without the approval of the National Development and Reform Commission, the main planning agency.

The statement urged local governments to raise minimum wages as soon as possible to make up for inflation, which jumped to 6.5 percent in the year to August.

That was mid-September – a little bit before that Secretary Paulson fellow went on his tour of lecturing other countries on how to govern and regulate financial markets.

This would be where the Austrian school (with whom I find I am ever-increasingly sympathetic) comes in. Specifically:

In a mixed economy, government decision makers can use information generated by markets, but as government grows relative to the market sector, market prices contain less information to guide resource allocation, rendering the economic system less efficient. Thus, smaller governments naturally act more efficiently than larger ones.

In addition, government institutions often contain incentives to make decisions that work against the public interest, and because government decision makers have no invisible hand to pull them toward socially desirable policies, the self-correcting aspects of market activity play no role in the public sector. As government grows, the ability of the price system to effectively convey information leading to efficient resource allocation breaks down.

… government intervention leads to more government intervention because all interventions have unintended consequences. A major source of the unintended consequences is the response of affected individuals who try to avoid suffering the negative consequences of the intervention. Thus, taxpayers who face higher taxes look for ways to avoid taxation, and individuals alter their behavior to avoid the negative effects of government regulation. Such responses create three sources of additional intervention.

First, the government might close loopholes to try to force people to behave as originally intended.

Second, because people try to avoid the adverse effects of interventions, an initial intervention will fall short of its goals, creating demands for more intervention to produce the desired effects.

Third, an intervention will produce unintended negative consequences that people may not even realize resulted from the intervention. When these negative side effects show up, demands will arise for more government intervention to remedy them. Because one government intervention creates demands for more intervention, the mixed economy moves increasingly toward government control.

Sing out when any of this becomes familiar. This is a trope to which I return, and ever will return, often: there is (as far as I’m concerned) no such thing as big government vs. small government; there is no substitute for good government. In this instance, only bad governments fix prices; only bad governments push five-year plans onto otherwise operable markets.

UPDATE: from a colleague:

I am naturally cautious of anything with the words

1. “five year plan”
2. “the master plan of”, or
3. “the final solution to”

in the title.

Said the under-developed skeleton, “We want rice”

Pretty good article in the Guardian at the moment:

The risks of food riots and malnutrition will surge in the next two years as the global supply of grain comes under more pressure than at any time in 50 years, according to one of the world’s leading agricultural researchers.

Recent pasta protests in Italy, tortilla rallies in Mexico and onion demonstrations in India are just the start of the social instability to come unless there is a fundamental shift to boost production of staple foods, Joachim von Braun, the head of the International Food Policy Research Institute, warned in an interview with the Guardian.

…

The social tensions caused by rising food prices are already evident, says von Braun. “The first sign was the tortilla riot in Mexico city, where 70,000 took to the streets. I think that was only the beginning – there will be more,” said von Braun. “For a year or two countries can stabilise with stocks. But the risk comes in the next 12 to 24 months. The countries that cannot afford to buy will be the losers, while those with huge foreign exchange reserves will bid up the world market.”

Score. China must be pretty happy. It has billions of mouths to feed, but many, many billions of dollars with which to try to do it.