Sunday, March 02, 2008

Government Intervention Gone Amuck, Case No. 10: Food Subsidies

Yes, increased inflation is around the corner, judging from the news. Raw-material food commodities are doubling in price.

Some will explain the phenomenon with the following suggested causes:

1. Increased demand from China and India.
2. 2007 was a bad year for wheat and corn.
3. Speculation.
4. Uncharted worldwide monetary looseness (inflation's ultimate cause).

All of the above probably play a greater or lesser role in our current raw material inflation, but our government legislators are not innocent. They have contributed to this crisis by their intervention in our food markets.

[Thanks to for this photo of the monkey on our back.]

Here at Freetrade.Org you can read about food subsidies and the harm they do to our economy and to the poorest among us.

As the article states:

"[F]ailed government policies—supporting domestic farmers through restrictions on cheaper imports and stimulating demand for corn-fed ethanol—are adding to consumers’ woes. The federal government can and should take this opportunity to alleviate the effect of higher prices at the grocery store by reducing taxes on imported rice, dairy products, and sugar and by abandoning its misguided support for biofuels."

Tariffs, price supports, and other government-made distortions to the communication mechanism that is the marketplace almost always (if not always) backfire. See also my previous post about the rice fiasco in the US.

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