The news from Zimbabwe is incredible but true: In the last month, annual inflation has risen to more than 1-million percent.
A loaf of bread now costs about 200 million Zimbabwean dollars, according to news reports. Ten years ago, that would have bought a dozen cars.
A small package of coffee beans runs Z$1 billion. A chicken will set you back Z$2 billion. The problem will get worse, too: If current trends continue, the country’s annual rate of inflation will hit 5-million percent by October.
In such a crazy situation, what’s a rational person to do?
One strategy would be to buy consumer goods in advance of when they’re needed, so they may be obtained before prices float upward or supplies dwindle.
By one definition, that’s just sensible planning. By another, however, it’s “hoarding.”
With the cost of food and fuel reaching new heights, we’re beginning to hear that word more frequently. Earlier this year, Costco limited the amount of certain types of rice it would sell to individual customers. Some groups have called upon the Commodity Futures Trading Commission to crack down on speculators who want to purchase goods at relatively low prices today and sell them at higher prices later on.
In reality, hoarding simply isn’t a problem in the United States. Perhaps some people are choosing to buy items before they really need them–stashing a few extra bags of rice on pantry shelves, for instance. Or maybe they’re picking up an extra bag of lawn fertilizer at the garden store. But they’re just planning ahead.
We often criticize people for taking a short-term view–politicians who don’t think past the next election, CEOs who won’t look beyond the next earnings statement, and teenagers who behave like there’s no tomorrow.
Now we’re supposed to frown on folks who take a long-term view? That’s ridiculous, unless the goal is to condemn everyone, no matter what they do.
Yet hoarding can be a genuine problem–not when individuals plan ahead, but when governments enact policies that restrict trade and limit consumer choice. That’s what happens when countries slap export tariffs on their agricultural products. About 40 countries do it right now, including China, India, Kazakhstan, Russia, and Vietnam.
On first glance, it’s a strange policy. Nations usually want to increase their exports, not depress them. With food costs shooting upward, however, political leaders face pressure to respond. Some think that if they cut off export markets, they’ll guarantee a ‘hoard’ of supplies at home and thereby keep a lid on prices.
This may work for a little while, but it almost always backfires. Export tariffs are a classic example of short-term thinking.
As the Wall Street Journal recently pointed out, they failed miserably for the United States in the 1970s. To fight domestic inflation, Washington outlawed soybean exports. The global demand for soybeans didn’t magically disappear. Nor did other nations sit around and wait for America to change its policies. Instead, farmers in Argentina and Brazil stepped in and filled the vacuum.
Today, the United States is once again a global supplier of soybeans. But so are Argentina and Brazil–and nowadays they give us a run for our money, especially because they’ve welcomed the same biotech tools that have improved production.
Export tariffs on soybeans didn’t whip inflation. But because U.S. policymakers thought it was wise to hoard soybeans, they ultimately encouraged two of America’s biggest competitors in soybean production and export.
When people plan ahead, they’re taking a close look at their individual circumstances and trying to prepare for what may come. When governments try to do the same thing, they tend to let the central planners take over with inappropriate, one-size-fits-all approaches. These often wind up delivering unintended consequences, hurting the very people they’re supposed to help.
The lesson for public-policy makers who want to address the current food crisis is easy enough: First, do no harm.
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade.org