Laissez Faire

Sepia Mutiny:

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.

Later:

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.

Update
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 The European Union has suspended, unfortunately not rescinded, its rules that prevent farmers from planting cereals on a specified fraction of their land.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.

Exactly.

Comments

[Saul Wall]

Why apply reason and empirical evidence to the economy when we have such a long tradition of failed impulsiveness and intuitive compassion to fall back on?

[Jacob]

You are right, Indian (union) government should do nothing. The saddest part is what happened in Kerala - 5000 acres of paddy crop got destroyed because the communist government didn't let harvest machines.

[MikeT]

The fastest way to fix the problem is to drive the damn tree huggers out of Washington at bayonette point. As I've said countless times, when I, as a libertarian, find myself solemnly agreeing with Fidel Castro about the unjust nature of an economic policy, you know it's evil--and that's precisely what our biofuel policies are. They are there so that some yuppy scumbag can feel good about their fuel consumption while others starve.