Sound Money and Free Markets

I've linked to a few articles blaming the recent phenomenon of food shortages around the globe on subsidies for "biofuels," which divert crops and farmland from the production of food to the production of fuel. Deroy Murdock has another article on that topic, calling for "emergency legislation to repeal ethanol-market meddling."
But I'm also aware that this is only one factor and (for all of its merits) is being a bit overblow—so I was glad to find the two articles below at today's RealClearMarkets explaining the other major causes of these food shortages.
John Tamny discussed the role of the Fed's weakening of the dollar, which causes an inflation in the price of internationally traded commodities, while Steven Malanga points out that the nations experiencing the most severe shortages are, as usual, the ones with the least free economies.
That leads back to the "big picture" of the economy in relation to the sub-prime mortgage crisis, a big picture that integrates, as a common thread, every controversy and every achievement in the economic realm. The big picture is that the keys to growth and prosperity are sound money and free markets.

"The Food-Shortage Myth," John Tamny, RealClearMarkets, April 24

Writing in the New York Times in the aftermath of President Nixon's August 1971 decision to sever the dollar's link to gold, author John Brooks observed, "that the president and his advisers, in making their Draconian move, did not understand what they were doing." Truer words have rarely been written.
Given the absence of policy that must coincide with the notion of a "floating" currency, the dollar, previously defined as 1/35th of an ounce of gold, suddenly had no market definition. With US monetary authorities lacking a benchmark whereby they could manage the greenback, the latter's value quickly eroded.
Though the oil "shocks" that followed are to this day described in establishment economic quarters as a function of OPEC's largely symbolic "embargo," the real answer lay in a currency that was quickly losing value. This materialized first in the form of a rising gold price, and it soon led to broad increases in the prices of all manner of commodities….
While the dollar price of oil rose 300% during the dollar's first major devaluation, other commodities not impacted by OPEC machinations similarly became dear. In 1973, meat prices were rising at a 75 percent annual rate. From 1972 to 1973 the cost of a bushel of wheat rose 240 percent. Soybeans rose from $3.50 a bushel in 1972 to $12.00 in 1973….
Moving to the present, a number of commentators from both sides of the political spectrum have called attention to rising food and commodity prices….
Not defending the hoax that is ethanol for one second…. But what all three left out of their analysis is the dollar's near singular role in the above. Indeed, over the same timeframe the objective benchmark that is gold is up 244 percent in dollar terms. Rather than expensive, food in real terms hasn't kept pace with a severe dollar devaluation that has spread to currencies around the world….
A simple solution to the present food problem would involve the Bush Treasury making plain that it would not just prefer a stronger dollar, but a stable one defined in terms of something real like gold.

"Free Markets Are Rare in Starving Nations," Steven Malanga, RealClearMarkets, April 24

Last week the Daily Telegraph of London ran a photo of food protests in Haiti to accompany a story on how the West's production of bio-fuels had contributed to the world hunger crisis….
Today, according to the Heritage Foundation's Index of Economic Freedom, Haiti is one of the world's most volatile, least free, and poorest countries, "plagued by corruption, gang violence, drug trafficking, and organized crime." It lacks property rights and its explosive political situation discourages foreign investment, while payoffs to customs officials raise the cost of imported goods.
Haitians are tragically starving, in other words, not because of the West's misguided bio-fuels policies….
Heading the UN's list of countries where people are most undernourished, for instance, is Zimbabwe. When the country became independent in 1980 it had, according to the Index of Economic Freedom, "extensive natural resources, a diversified economy, a well developed infrastructure, and an advanced financial sector," as well as networks of productive farms. But the increasingly repressive regime of strongman Robert Mugabe has destroyed property rights, allowed favored government officials to seize control of farm lands, and been hostile to Western investment, in the process transforming the country "from the breadbasket of Africa into a starving, destitute tyranny," according to the Index of Economic Freedom….
Conflict is at the heart of the struggles and starvation of many of the world's poorest people, especially those whom Oxford University economist Paul Collier calls "the bottom billion." Collier argues in his book of the same name that while much of the developing world marches toward a better future, about one-sixth of the Earth's population is being left behind in large part because of political turmoil and bad government.

By esanch36 on Apr 25, 2008, 05:53 in Off Topic.