Sunday 22 July 2007

Pic of the day: 100 years ago, few people had seen a car, and some still doubted the rumors that "areoplanes" were not only possible but had even been flown a few hundred yards. Communications satellites did not even exist in science fiction yet. Since then the pace of technological change has increased rapidly. And yet we have the temerity to sacrifice the lives of the poor today in order to decide what climate is best for our descendants in 100 years, in a world we cannot even remotely imagine. And it may not even work.

Fuel or food?

Food prices are rising rapidly. This should not come as a surprise to anyone. I, of course, have predicted it years ago. But then again anybody who predicts bad things is sure to be right if only he waits long enough.

My predictions were based on the fact that each year, several million Chinese move from poverty to middle class, more than the total population of the Nordic countries. This has happened for years now and seems likely to continue for years, as the Chinese economy grows by about 10% a year. One of the first things that change when you get out of poverty is that you stop eating just rice on weekdays, and begin eating meat or fish every day, mostly meat. Meat is more energy dense than rice, sure, but there goes ten pounds of grain for a pig to gain one pound of meat. When millions of people switch from grains to meat even for one or two meals a day, they consume grain that could have fed 8-9 times as many. It is no miracle that food prices go up.

Actually, in a sense it is a good thing that people pay more for food. If all goes well, that money should follow the trade back to its source, and make the farmers produce more. Wait, is that right? Wouldn't the farmers produce less when they can get the same amount of money for less food? Theoretically that may happen, but it is highly unlikely, because humans are greedy. The more they have, the more they want. More money makes farmers able to invest in better equipment. It encourages farming borderline terrain that would not give enough profit with lower prices. It encourages people to start cultivating farms that have been closed down in the past. Like with pretty much everything, better prices increase supply. This is the wonder of the market economy. People will always think of some way to meet a demand.

Unfortunately there is a darker side too. Higher prices balance the market not just by increasing supply, but also by decreasing demand. And it is unlikely that this will take the form of reduced obesity in the rich world. Actually, it seems that the poor, such as they are, in the rich world tend to eat fatter food than normal. The really poor, though, in the third world… obesity is not likely to be a problem there for the next years. True, actual famine is rare these days unless there is war or civil war. Unfortunately, there still is war in the world. And even if you don't actually starve to death, if food takes 100% of your income instead of 80%, that makes a big difference in your life. Much more so than when it goes up from 12% to 15%, for instance.

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Now if food became more expensive only because some people were eating better, or because there are more people in the world, that would be a cloud with a silver lining (or even a silver cloud with a dark lining). But several publications, most lately the Norwegian Dagens Næringsliv (Daily Business), report that part of the cost is due to bio-fuel. Several states both in Europe and the US have introduced legislation to require a certain use of bio-fuels, most notably ethanol. At this point, industrial ethanol is largely made from corn or sugar cane. Brazil is a center for production of ethanol from sugar cane, while in the US most of the liquid is made from corn (maize). While there is unlikely to be a shortage of corn flakes for the foreseeable future, many other uses of corn are being outcompeted by the fuel industry, and other foods - mostly other grains - come in higher demand because they replace lost corn. As a result, food prices rise across the board.

The irony is that ethanol barely saves the fuel that is used to produce it. It is a less energy-dense fuel than gas (petrol) or diesel, so even if you can make more gallons of ethanol than you use of gas, you are still little more than breaking even. But you cannot expect politicians to notice small details like that. And in any case, it is important to be seen as "green", not to actually make life better. The dead do not vote, as the saying goes. Certainly not the dead in some faraway third world country. So what if they starve? That is what those people do. When they don't, we forget them until the next famine, then we can throw them some scraps in front of the TV cameras and show who really is made in God's image.

Now in all fairness, Brazilians may have some contrary opinions. While no longer a classic developing country, it still has a long way to go to catch up with Europe or North America. Labor is still cheap, and can be used to grow the sugar cane at a competitive rate. The new industry will bring in money and help the country climb the ladder of development. It is not really their fault that growing plants for fuel pays better than growing plants for food.

I can see that, and I don't really think that the solution here is to keep food prices down. Rather, the solution should be to make sure everyone can afford the food. That is to say, we need to give the poorest of the poor a chance to earn their own living. This requires above all things an end to the countless wars in the third world. I don't really know how much we can do about that, though, except to not meddle in their internal affairs for commercial or shortsighted political reasons. In the past, foreign aid has usually had little effect, and sometimes been worse than nothing. Free trade, on the other hand, has pretty much always helped all involved. It can't be helped that the capitalists make money from it too. You will just have to live with that, as long as it is the only thing that is consistently shown to actually help the poor. If you want to envy the rich, please do so privately and don't stop them from helping others.

But back to fuel for a final comment. It is more than just the ethanol. The costs of ordinary fuels, gas and diesel, also influence food prices. Agriculture in the western world is heavily mechanized, and depends more on the cost of fuel than labor cost. Fuel costs have been high for a long time, thanks to rapid growth in the world economy, mainly in the largest former developing nations, but also Russia, combined with continued high spending in the USA. All things are connected in this world: If the USA would please stop lying to itself and accept that borrowing is not income, the country would finally go through the recession it has pushed ahead for so many years. The countries that specialize in export to it - the same countries that are growing so rapidly now - would grow less for a while, until they found other markets and other products that are useful elsewhere. Yes, yes, it hurts. But growth will anyway be limited by the high costs of fuel and raw materials. It is better to get it over with and let the commodity prices return to real levels.

As for ethanol as fuel, I don't think it should be required by law or subsidized by governments. History shows that governments rarely do more good than harm when they try their hand in things that are not glaringly obvious - and sometimes even things that are. It may be that global warming represent a clear and present danger, but keep in mind that governments have been horribly wrong on dangers in the past and most likely will be in the future. Also, keep in mind that only a few decades ago, global cooling was a clear and present danger and the same sort of leftist organizations were urging action before it was too late. I was there and bear witness, as can many other people from 40 years upward. 40 years from now, the greatest threat to our planet may be lack of sand in Sahara, for all we know. OK, probably not, but when the global temperatures were what we now expect for the middle of the century, Sahara was green. Conversely, during the ice ages, deserts covered much of what is now fertile land. That's beside the point though. The point is that governments did not evolve to maintain the world's climate, but to create a monopoly on violence. This made civilization possible.

From observation of government and their effect on whatever they touch, I have to repeat the sage advice I first saw in The Economist on a different subject. It is applicable to almost all government action, actually, except enforcing basic human rights when disputed. Don't just do something! Sit there! If there is a problem, the Invisible Hand will fix it.