The Not So Dollar Menu – Part I

Many people have came to me and talked about how many magazines and newspapers have talked about the rising prices in food. At that time is was the cover of the Economist so here is my analysis of that article.

They cite that food has continued to get cheaper with innovation, which is true and amazing. We have seen people move from the agricultural sector to industrial sector and now more and more today in the service sector. We have been able to do that while producing more and more food.

One big obvious reason for all of this is because we are replacing people with machines or as us economists like to call capital.

The Economist says that “in 1974-1005 food prices on world markets fell by three-quarters in real terms.” My favorite line of theirs is “But the rise in prices is also the self-inflicted result of America’s reckless ethanol subsidies.”

To look into why the above in bold is causing the prices of food to go up. Is because biofuels are competing with food too. The Economist says that you can feed a person for a year on a SUV’s tank of ethanol. Think about that for a minute. When you make your drive to the beach, you could be feeding someone. But even more you are causing the demand for biofuels to go up which makes them the highest bidder and you now are directly bidding with yourself for your food.

This will then cause people or I should say farmers to enter the market for “maize.” That will cause an economic cost of not being able to produce another crop.

Published in: on January 14, 2008 at 5:12 am  Leave a Comment  

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