On the News Tab, KXB posted a link to an article in Time about the skyrocketing global price of rice, which has the potential to destabilize economic conditions (and governments) all over Asia. For those who haven’t been following it, the price of rice has more than doubled in the past six months, peaking recently at more than $23.00 per hundred pounds.
The question I have for those who understand these issues better than myself is this: what should the Indian government do, keeping in mind that the vast majority of Indian consumers of rice cannot afford the current price?
The Indian government ought to do nothing because their tampering with the simple market will make matters worse. One of the unappreciated advantages of the higher prices is that it signals to the farmers to produce more rice in the near-future -- so that they can cash in. If the Indian government were to squash that incentive, then this shortage will last longer -- and it'll signal to farmers and producers to not bother producing more of other foods as well.
Here's what Gary Becker has to say:
The Moroccan government forced bakers there to hold the price of bread steady during the holy month of Ramadan. The European Union has suspended, unfortunately not rescinded, its rules that prevent farmers from planting cereals on a specified fraction of their land. Many other countries are also considering controls, subsidies, and regulations to prevent food prices from rising so rapidly.
Most of these policies are counterproductive because they discourage rather than encourage food production. This is especially true of price controls since farmers will grow less of the foods that have artificially low price ceilings.