American Elephants

The Worst Drought Since the Dust Bowl, Global Unrest, Expensive Food. by The Elephant's Child

That corn is certainly not as high as an elephant’s eye— at least not any elephants around here. A far cry from what healthy corn is supposed to look like.

In the last five years, rising food prices twice have caused global waves of social unrest.  Drought in the Midwest  is raising prices for corn and soybeans, and commodity speculation could make it worse. Prices here in the United States will be up, but for many nations it can be disastrous. The ongoing drought is the worst since the Dust Bowl and is expected to last until  October. America is the world’s largest exporter of corn, wheat and soy beans and global prices for those commodities have already surged to record levels. There is some rain in the forecast, but it may not be enough.

The exact role that food prices play in unrest is hard to isolate, but the New England Complex Systems Institute (NECSI) has found biofuels responsible for a slow upwards rise in prices, and speculation responsible for the spikes. With drought-triggered price rises, the grim forecast becomes even worse. NECSI has found that the geographical character of violence changed immediately after the price spikes, changing from ethnically localized to widespread. The amount of unrest in the Arab Spring caused by rises in food prices is hard to determine. Experts have said that “In the short run, USDA needs to figure out a way to remove the mandate on ethanol use from corn. If we could free up 20 to 30 percent of the U.S. crop, reduced as it is, it would bring corn prices down very quickly.”

A major contributor to the problems is the U.S. Congress. Agribusiness in 2008 spent $173.5 million lobbying for farmers to become rent-seekers. In the case of the 2008 Farm Bill the recipients of subsidies of $30,000 or more, had average household income of $210,000. “Government-granted privilege,” says Matthew Mitchell of the Mercatus Center, “is an extraordinarily destructive force:” because it not only results in a misallocation of resources and slower growth, it undermines civil society and the legitimacy of government by providing a rich soil for corruption.

The greatest plague to the honest Midwest farmer is not unfavorable weather, pestilence or disease.  Far worse is the plague of politicians who create an artificial market in which only those with influence can truly compete. A monopoly protected by the government has little incentive to  provide good service, and in the long run, the result of anti-competitive policies is less innovation, lower growth and a smaller pie to share. The farm bill represents the capture of the legislative process by special interests.

Everybody knows that the Farm Bill  is a bad thing. Politicians condemn it. But nothing changes. Next year  we will still agree that it is a bad thing. Politicians will condemn it, and nothing will change except a higher national debt number.

Meanwhile, while hunger stalks the Middle East, the U.S. Air Force spent $50 per gallon on biofuels for a demonstration last month, intended to show “the promise of the alternative energy source.” That’s more than double what the U.S. Navy spent as part of its so-called Great Green Fleet demonstration.  For the Green Fleet demonstration the Navy spent $12 million on 450,000 gallons of fuel, or approximately $26 a gallon. Combining the fuel with petroleum in a 50-50 mixture reduces the cost per gallon to around $15, more than four times the cost of petroleum alone. The company that provided the Navy’s biofuel, Solazyme, was a recipient of a $21.8 million stimulus grant to build a biofuel refinery. So this proves the usefulness of the biofuels industry?

“Our use of fossil fuels is a very real threat to our national security” the Navy insisted in defending the purchase. The Navy has apparently not heard that the U.S. sits on enough oil and natural gas to power the country for hundreds of years. The administration seems to e looking for ways to push alternative fuels without congressional action, so the military is a logical place to start, if that is your goal.

Assumptions about economies of scale and commercial-size refining capabilities, the Pentagon still expects to pay a $2.2 billion premium on annual fuel costs by 2020. This makes an extraordinary amount of common sense in an era when they are slashing military spending to levels described as dangerous. I have to assume that this is just direct orders from Obama. He seems to be one of the last adults to still believe in global warming, and to believe that his move to replace fossil fuels with corn ethanol will save the planet. Everybody has their own personal fantasies. That is Obama’s.


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