Lordy be, there\’s famine in Niger again. And we\’ve the usual nonces at Comment is Free shouting about how awful the free market is. My response, C&P from there:
Oh dearie, dearie, me.
Right, famine. Horrible: we should do something about it. As, indeed, we do. As mentioned above, there\’s nothing in any free market philosophy that says the starving should be left to starve: nothing that excludes charity.
OK, now, what should we do about it? Yes, we know the signs: the pastoralists are slaughtering their cattle as the pasture dries up, meat prices are falling. This is a well known sign of impending problems (see, markets can actually send us signals through prices!).
1) Send food aid. This tends to take 6-10 months to arrive. Not much good for those who will starve in the next few months. We could give that food away. This discourages farmers from planting the next crop: why make all that effort to grow millet (for example) if the market is full of free stuff? So, the free food aid route is late and has the unfortunate side effect of entirely killing farming where the food is given out.
Or we could:
2) Give poor people money. With this they can go and buy food. We have preserved the market and the incentive for the next crop to be planted, raised and harvested. And we have also stopped people dying in the interim. Plus, handing out banknotes is really rather faster than shipping food in. Can be done in a couple of weeks if people get their skates on.
One more thing giving money to the poor to buy food does. It raises the price of food. This increases the incentive for farmers to plant more grain for the next harvest. Plus it incentivises areas outside the famine area to send food into it to sell. Again, we have used the market and prices to send a signal: there\’s a food shortage here, you can make a profit by supplying food to it.
Now, of course, I can be accused of some dreadful neo-liberalism here. Markets, all the time markets and nothing but markets. However, I do in fact have reality on my side.
Amartya Sen is a Nobel Prize winning economist. He won his prize for his studies of famine in the 20th century. More specifically, what causes them and how to deal with them.
His most important observation was that famines do not come about because of a general shortage of food. As several will note, Ireland exported food during the Great Famine: Ethiopia during the one of the 80s. What actually happens is not the absence of food. It is the absence of purchasing power, of the money to buy the food, among certain segments of the population.
So, the answer is not to screw over the farmers by offering everyone free food: it is to give money to purchase food to those who do not have the money currently to do so.
The answer, if you like, to a market failure like an impending famine is not to abolish markets and prices, it is to intervene in the market to make it function better: to remove the failure, not the market.
Just give money to poor people.
Just like we do here actually: we don\’t deal with unemployment or food poverty by insisting that the government or Sainsbury\’s give away free food. We give poor people money to go and buy it.