The LA Times brings us the distressing news that there is going to be a shortage, a near famine, of that food of the Gods that is bacon.
Might want to get your fill of ham this year, because "a world shortage of pork and bacon next year is now unavoidable," according to an industry trade group.
Blame the drought conditions that blazed through the corn and soybean crop this year. Less feed led to herds declining across the European Union “at a significant rate,” according to the National Pig Assn. in Britain.
The proximate cause of this shortage is speculation in food. Yes, those horrible people who play with money in an attempt to profit from the necessities of life. The ultimate cause is the bad harvests in the US and other countries as a result of the extreme weather this summer. Which is why we should be very happy indeed with the existence of those speculators for they have, through their actions, managed to reduce the number of people who will die as a result of the bad harvests.
The basic point was well explained by Adam Smith those couple of centuries ago. Start at para 40 of Book IV, Chapter 5 of Wealth of Nations.
Assume that we have a bad harvest, as we just have. If we carry on eating as if we haven't had a bad harvest then at some point in the future it's likely that we'll go to the cupboard for more food and there won't be any. We could, conceivably, simply run out before it's time to bring in the next harvest. What we would like therefore is some method of persuading people to use a little less of our now restricted supply. A rising price does that nicely. Speculators buying food now, while it is still plentiful, raises those prices. So by their very act of speculation they are providing the signal for the rest of us to use less of those precious grains.
In the years since Smith we've invented futures markets, not something he really knew about (although Japan had had rice futures for a century or so by the time he wrote). Instead of people having to purchase and store grain in order to provide that price signal these days it's all done just purely with money. On those futures markets where it really is speculators running amok over what they think might happen. The result is even better than it was in Smith's day as well.
For we've had the news about the bad harvest: we had that some time ago as people noted the effect of the drought on the crops. Prices for grains for delivery in the future then rose strongly. Who were the people who took note of these prices? Obviously, from the above news, it was one of the major purchasers of grains, the people who feed the crops into pigs. They are slaughtering herds now before the grain becomes more expensive. This has pushed down current prices and pushed up future prices of pork. We have a glut now and foresee a shortage of that blessed bacon as a result. This is a good thing: however delicious running the grain through a pig before it goes into a human it is an inefficient method of getting calories into a human. A more efficient method is simply to feed the grain to the person (perhaps cooking it first if we're feeling really picky). There will thus be more food available to keep humans alive as a result of this shortage of bacon.
All of which is a very good thing indeed. We have a shortage of grain over the next year. As a result we'd like to move from less efficient to more efficient methods of using that grain. Efficiency here being defined as keeping the maximum number of people alive with whatever grain we've actually got. What do we actually have happening? As a result of price movements, movements in prices in the futures markets, we have a move from inefficient methods of using grain like the production of bacon to more efficient methods of use. Like leaving the grain to be eaten directly by humans rather than being processed through the pig. This is not just a good thing it is precisely and exactly what we would like to happen.
And what is it that is driving this change in behaviour? Producing this change in allocation? Why, that would be all those speculators, driven purely by their own greed and desire for lucre, producing the price signals that lead to this resource allocation. They most certainly don't intend this result but that is the end result all the same. By pursuing their own ends they have reduced the amount of grain that will be fed to animals and increased the amount that can be fed to humans.
There is only one thing left to puzzle us. There are those who insist that we should stop people from speculating in the price of food. Given that such speculation produces exactly the result that we desire, more food for people to eat, why do these people insist that we must have less of what saves lives?
