By Bob Sanchez, JMI Policy Director
Some of the most popular ads during this year’s Super Bowl showed people so desperate for the taste of Doritos that they’d lick the residue off another person’s fingers. Alas, this degree of desperation may soon get worse. Our nation’s reserves of corn, Doritos’ main ingredient, are now the lowest since 1996. Worse — in yet another sign that prices are affected by supply and demand, even if many politicians don’t seem to think so — corn prices have doubled since last fall. Indeed, corn is now fetching more than $7.50 a bushel and is rapidly nearing its all-time high of $7.65. Meanwhile, the prices of several other key commodities in the food chain – wheat, coffee, and sugar, among them – are also at or above their all-time highs.Coincidentally, the rising price of gasoline may mean that it’ll also cost more to distribute these commodities. Moreover, even if you’ve never tasted Doritos, you may soon experience sticker shock on everything from your Big Mac and Starbucks to the cereal aisle and meat counter at your neighborhood grocer. In fact, in what is probably the least surprising consequence of these trends, the Associated Press reports that “major food makers and some restaurants have already said they’ll be raising prices this year…” In other words, expect to pay a lot more at the store and when you take your sweetheart to a cozy bistro, and by the time Mother’s Day rolls around, you may need to raise the limit on your credit card to buy Mom lunch.Even worse, when food and fuel prices rise, it triggers a chain reaction. In fact, because their costs – seasonally adjusted — figure into the calculations of the Consumer Price Index, don’t be surprised if the U.S. economy moves from bad to worse and enters a period of stagflation. “Stagflation,” you may recall, is a word coined to describe the dreadful economic conditions in the 1970s, when the nation simultaneously experienced double-digit inflation, high interest rates, anemic growth, and persistently high unemployment.Granted, a portion of the current spurt in grain prices can be blamed on a severe drought in China, which – thanks to the goods we import — has the wherewithal to go onto the world market and buy grains. Yet if inflation takes off again in the U.S. economy, we can’t blame that entirely on China. Corn prices? Too much of the crop is diverted into making ethanol to fuel our vehicles – a foolish practice that’s unlikely to change as long as Iowa retains its outsized role in picking our Presidents. Fuel prices? Despite instability and hostility in the regions overseas from which we import much of our energy, we stubbornly impede access to our bountiful domestic supplies of coal, oil, and natural gas. Then, atop these self-imposed dislocations in the supply and demand, we have our federal government’s chronic deficits and “stimulative” economic policies, which boil down to printing more money and, thus, cheapening the dollar.It’s a shame to sound gloomy so soon after many Americans fondly recalled the buoyant optimism of Ronald Reagan in connection with the 100th anniversary of his birth. Indeed, Reagan’s leadership helped the nation recover from the stagflation under the disastrous administration of his predecessor. Unfortunately, in Washington, D.C., nowadays, economic realism has given way to fiscal fantasy. Yet economic “laws” – supply and demand, for instance – remain as unforgiving as the “laws” of physics.So the bottom line is this: Hang on, America; unless things change soon, we may well be in for a bumpy ride.
Our Economic Maize
By Bob Sanchez, JMI Policy Director