Question for McCain on Food Prices

Economists for Obama have a question:

Question for McCain: Food Prices, Economists for Obama: While waiting for the South Dakota polls to close and Obama to be declared the nominee, I'm watching McCain's speech. ...

At one point in the speech McCain said, "Sen. Obama supports the tariffs that have led to rising grocery bills for American families." This is wrong on two points. First, Obama doesn't support any such tariffs that I know of, although I imagine someone in the McCain campaign would try to argue (falsely) that Obama's criticism of particular aspects of trade agreements means that he supports food tariffs.

More importantly, no one thinks tariffs are behind the increase in food prices. As Obama noted in an interview a few weeks ago, there are many factors behind the rise in food prices. These include rising oil prices (which affect fertilizer and transport costs), poor harvests this year in a few countries, rising demand in Asia, and the rising demand for biofuels, which has been driven by subsidies in the U.S. and elsewhere. I've read many studies on this topic in recent months, and no one has suggested that food prices in the U.S. have increased because of U.S. tariffs. ...

I'm sure we have some journalists among our readers, and I'm hoping that we manage to inspire them (or anyone else who gets a chance) to ask McCain some pointed questions related to economic policy.

So, here's one: "Experts attribute the rise in food prices to a number of factors, but U.S. tariffs is not among them. You've said [see quote above] that the recent increase we've seen in food prices is due to tariffs. But U.S. tariffs on food and haven't changed. How can unchanged tariffs have caused prices to rise? And which one of your economic advisors told you they have?"

Comments

[reason]

Well no it is worse than. Increasing tariffs in general might lower food prices. Why? Well because it might improve the trade balance, raise the dollar and so lower import prices.

[ECONOMISTA NON GRATA]

"Question for McCain on Food Prices"

Why bother...? McCain is irrelevant.....

Best regards,

Econolicious

[Richard H. Serlin]

This was the first I had heard of the blog, Economists for Obama, so I took a look, and one of the posts sadly identified some economists at top universities who actually supported McCain.

Although tragic, it is interesting how some economists at top universities (even though they are very rare) can support today's Republican's when their policies and dogma are so against economic growth and so brain dead.

Part of it is the super specialization of academics today. Most university economists specialize in a very small technical part of economics, which may involve mostly advanced math anyway, and they may have little and poor understanding of most of economics, yet if they work hard from a young age and publish a lot in their little area, they can rise to a top university. I remember as a Ph.D. student taking an econometrics class from a top econometrician and talking to him about the Microsoft anti-trust case, which was in the news at the time. I could not believe the stupid things he was saying. He was a good mathematician, but he knew nothing about the economics of industrial organization, and had little intuition for economics in general.

Another part of it is just that some have a very Libertarian philosophy. They may understand economics well enough to know that the Republican extreme and unthinking anti-government, every man for himself, dogma will lower economic growth greatly, but they support it anyway because they just hate the government telling people or businesses what to do in any way. They are very willing to accept much lower growth and great human suffering to get even a small bit of extra economic freedom. I find extreme Libertarianism very ugly, uncaring, and harmful, but there are some extreme Libertarians in economic academia, who have worked hard and made it to the top universities.

Finally, for some economists, support of Republicans is a way to get great jobs, support, and patronage. With the vast majority of Economists supporting the Democrats, a rare Economist supporting the Republicans has a much better chance of getting a great job in government in a Republican administration, not to mention a Republican "think"-tank, mega-financed by wealthy conservative families.

So you can see why some economists at top universities support the Republicans, but it's really ugly and unfortunate. It's a stain on economics that just adds further to the high level of confusion about economics among the public, a confusion that has allowed them to be fooled causing tremendous harm.

Has The Who's rock anthem, "Don't get fooled again!" ever been more appropriate – "Meet the new boss, same as the old boss!" How's that for a theme song for Obama.

[Judge Glock]

Barack Obama doesn't only "support" such food tariffs, he has voted and even campaigned for them numerous times: including the sugar tariff, the sugar quota, and the sugar ethanol tariff (which raises food prices surreptiously by forcing an increased dependence on subsidized and inefficient corn ethanol in the US), all to protect corn growers in Illinois. While Economists for Obama are right to say tariffs alone haven't caused the recent rapid run-up in food prices, it is undoubtably true that tariffs have increased the price of food, just as McCain says.

He may be wrong about the supply-side tax cuts, but you have to give him his due here, as well as on his vote against the brobdingnagian subsidies in this year's farm bill... which Obama voted for.

[anne]

"While waiting for the South Dakota polls to close and Obama to be declared the nominee, I'm watching McCain's speech."

Who won in South Dakota? By how much?

[reason]

Judge Glock...
but you have to give him his due here, as well as on his vote against the brobdingnagian subsidies in this year's farm bill
...
unless you are talking about ethanol subsidies you just shot yourself in the foot friend! Ha, ha, ha.

[reason]

I'm not saying that I don't agree with you about policy questions, just that you can't really expect to have things both ways.

[reason]

Besides which of course whether sugar (especially the stuff made from corn syrup) is food is a mute point. My father (a biochemist) always said that if sugar was a new product, it would be banned.

[Jon]

Didn't Obama support the farm bill, while McCain vigorously opposed it?

Hasn't Obama been a supporter of ethanol subsidies in the past (i.e. in Illinois), which McCain has historically opposed?

Are ethanol subsidies not a (large?) component of recent increases in food prices?

[Don Pedro]

I appreciate the critical comments. I've tried to address Judge Glock's points in comments on the original post at our site.

I agree that McCain has the right position on the ethanol subsidies (but in the speech he was talking about tariffs, not subsidies). As the Obama interview I linked to shows, Obama has said ethanol policy needs to be rethought.

[Organic George]

What caught my attention was that McCain said to control health cost we need to reduce regulation of the Insurance companies.

Now there is a plan that ensures excellent profits with low service.

[anne]

Don Pedro,

I am not allowed to stay up late, being so little and all, and was wondering who did win the South Dakota primary? Like Elaine in Seinfeld, I know it shouldn't matter but I really want to know since the question came up in passing.

Also what of the tariff on sugar cane, not that it matters either but it is a tariff and who voted for it and does that have anything to do with the demand for and price of corn, like, for eating.

[Charles]

Ethanol tariffs, which Obama supports, strongly affect corn prices. A lot. Sugarcane is a lot more efficient, both in land usage and in net energy production, and eliminating the tariffs would increase the supply of corn (and soybeans) to the food market over the next five years.

[Charles Bird]

The Economists for Obama are being either really dense or really dishonest.

First, they didn't even cut-and-paste McCain's entire sentence. Here it is:I opposed subsidies that favor big business over small farmers and tariffs on imported products that have greatly increased the cost of food. Senator Obama supports these billions of dollars in corporate subsidies and the tariffs that have led to rising grocery bills for American families.
McCain was talking about tariffs AND subsidies. And by the way, the farm bill that Obama voted "yea" on includes a provision that continues and strengthens the $0.54 per gallon tariff on Brazilian ethanol, which is sugar-based and not corn-based (cite). So what McCain said was really and actually true, and you guys got chumped by some economists who were either misleading or didn't know what fuck they were talking about. More from Andrew Leonard here.

[Mark Thoma]

I'll repeat a comment I left at Angry Bear:

On Don Pedro:

He/she can speak for themselve (sic), but I thought the point was that that tariffs had not changed, so how could they be responsible for the run-up in prices?

I don't think the claim from Don Pedro is that tariffs have no impact on prices, or that removing them wouldn't help, it's that tariffs have not changed so they can't be blamed for the change in food prices as McCain claimed. People seem to be missing this subtlety.

Another comment says:

The ethanol tariff is not new, so it's hard to see how this is a change [in a] variable. Removing the tariff would be a good idea, but the fact that the tariff precedes the run up in food prices means that the tariff cannot be responsible for that run up. -- 2slugbaits

That's the point that was being made, McCain was blaming the tariffs for the change in prices. Tariffs make the price levels higher, but they don't explain the change so the claim that they do is incorrect.

[anne]

http://www.earthpolicy.org/Updates/2008/Update72_data.htm#table14

U.S. Fuel Ethanol Use, Grain Production

1980-2007 (Million Tons)

1980 1 of 268
1985 7 of 345
1990 9 of 310
1995 10 of 275
1999 14 of 332

2000 16 of 340
2001 18 of 321
2002 25 of 294
2003 30 of 345
2004 34 of 386

2005 41 of 363
2006 54 of 336
2007 81 of 414

2008 114 of 400 Projection

[anne]

http://www.earthpolicy.org/Updates/2008/Update72_data.htm#table13

World Grain Yield Annual Increase by Decade, 1950-2007

1950-1960 2.0%
1960-1970 2.5
1970-1980 1.9
1980-1990 2.1
1990-2000 1.2
2000-2007 1.2 *

* Annual increase over eight years.

Note: Grain yields for 1960, 1970, 1980, 1990 and 2000 calculated using 3 year averages.

[anne]

http://www.earthpolicy.org/Updates/2008/Update72.htm

April 16, 2008

World Facing Huge New Challenge on Food Front: Business-as-Usual Not a Viable Option
By Lester R. Brown

On the demand side, the trends include the continuing addition of 70 million people per year to the earth's population, the desire of some 4 billion people to move up the food chain and consume more grain-intensive livestock products, and the recent sharp acceleration in the U.S. use of grain to produce ethanol for cars. Since 2005, this last source of demand has raised the annual growth in world grain consumption from roughly 20 million tons to 50 million tons.

Meanwhile, on the supply side, there is little new land to be brought under the plow unless it comes from clearing tropical rainforests in the Amazon and Congo basins and in Indonesia, or from clearing land in the Brazilian cerrado, a savannah-like region south of the Amazon rainforest. Unfortunately, this has heavy environmental costs: the release of sequestered carbon, the loss of plant and animal species, and increased rainfall runoff and soil erosion. And in scores of countries prime cropland is being lost to both industrial and residential construction....

New sources of irrigation water are even more scarce than new land to plow. During the last half of the twentieth century, world irrigated area nearly tripled, expanding from 94 million hectares in 1950 to 276 million hectares in 2000. In the years since then there has been little, if any, growth. As a result, irrigated area per person is shrinking by 1 percent a year.

Meanwhile, the backlog of agricultural technology that can be used to raise cropland productivity is dwindling. Between 1950 and 1990 the world's farmers raised grainland productivity by 2.1 percent a year, but from 1990 until 2007 this growth rate slowed to 1.2 percent a year. And the rising price of oil is boosting the costs of both food production and transport while at the same time making it more profitable to convert grain into fuel for cars.

Beyond this, climate change presents new risks....

The collective effect of these trends makes it more and more difficult for farmers to keep pace with the growth in demand. During seven of the last eight years, grain consumption exceeded production....

[anne]

Mark Thoma:

"I don't think the claim from Don Pedro is that tariffs have no impact on prices, or that removing them wouldn't help, it's that tariffs have not changed so they can't be blamed for the change in food prices as McCain claimed."

Right.

[anne]

http://www.earthpolicy.org/Updates/2008/Update72.htm

April 16, 2008

After seven years of drawing down stocks, world grain carryover stocks in 2008 have fallen to 55 days of world consumption, the lowest on record....