The News & Observer has a piece today explaining the impact of a midwest drought on food prices. It’s true. I was in Indiana ten days ago, and the corn was short and yellow. Even my untrained eye could tell it wasn’t healthy. There’s no doubt yields will be down.
The N&O does a pretty good job of explaining the basic situation. Drought means less corn, which means higher prices for everything that’s made with corn. It also means higher prices for feed for livestock, which means meat prices will likely rise. The article doesn’t mention ethanol, but that is made from corn and will doubtless be affected, too, so there’s an impact on gas prices. That affects transportation costs for all kinds of consumer goods. All of a sudden, it’s evident that a lack of rain in one part of the country has knock-on effects for all of us.
Of course, the other thing the article doesn’t mention is subsidies, which are huge. The market for corn is complex. It’s used for lots of things and its price affects huge swathes of the economy, either directly or indirectly. With anything so complex, it’s impossible to predict exactly what the impact on the economy of a change in supply will be. An increase in prices, but how much, exactly? And when? This year? Or will it take until next spring? No one’s quite sure.
And yet, the government spends huge amounts of taxpayer money trying to manipulate the corn market through subsidies. I have to wonder, wouldn’t it be better to let the market take care of itself here? I mean, if we know we can’t really predict the impact with much precision, why are we spending so much money trying to manipulate the corn market? That’s not something government does well, so maybe it’s something the government shouldn’t do at all.
