Amartya Sen on Food Prices

Wed, 28 May 2008 13:05:44 +0000

Amartya Sen provides a sobering account of the distributional consequences of the rise in food prices in an op-ed in today's New York Times, "The Rich Get Hungrier." He describes one of the underlying causes as unequal income growth:

It is a tale of two peoples. In one version of the story, a country with a lot of poor people suddenly experiences fast economic expansion, but only half of the people share in the new prosperity. The favored ones spend a lot of their new income on food, and unless supply expands very quickly, prices shoot up. The rest of the poor now face higher food prices but no greater income, and begin to starve. Tragedies like this happen repeatedly in the world.

As I have noted before, this is a pecuniary externality. Although it is not by itself an indictment of free markets, the distributional consequences are no less real and remain a call to action. But Sen goes on to point out that in these cases, the market is not completely free, in that governments are making the problem worse:

There is also a high-tech version of the tale of two peoples. Agricultural crops like corn and soybeans can be used for making ethanol for motor fuel. So the stomachs of the hungry must also compete with fuel tanks.

Misdirected government policy plays a part here, too. In 2005, the United States Congress began to require widespread use of ethanol in motor fuels. This law combined with a subsidy for this use has created a flourishing corn market in the United States, but has also diverted agricultural resources from food to fuel. This makes it even harder for the hungry stomachs to compete.

Ethanol use does little to prevent global warming and environmental deterioration, and clear-headed policy reforms could be urgently carried out, if American politics would permit it. Ethanol use could be curtailed, rather than being subsidized and enforced.

He is absolutely right--as was Pete, when he blogged about this in April.