Monday, September 17, 2007

No Free Lunch

A story in our local paper makes for general reflection about markets and capitalism.

Out of concern to reduce greenhouse gas production and hold off global warming, many are turning to the use of ethanol for a fuel. Ethanol in the United States is made from corn. Demand for ethanol is pushing up the price of field corn. This makes some farmers very happy.

But not all farmers. The corn farmer's win is the hog farmer's loss - and the dairy farmer and those who feed cattle for the slaughterhouses. Corn is a cost for these farmers, so higher corn prices mean lower profits for them or higher prices for consumers of meat and dairy products.

The National Corn Growers Association is lobbing the Congress for more ethanol production but the meat and dairy lobbyists are opposed.

Prices are like that; they divide to conquer. A high price is good for some and bad for others and vice-versa. It is hard to think of a price that can keep everyone happy in the status quo. Prices change and such changes impact standards of living, use of technology, accumulation of savings, etc. Markets are constantly shifting opportunities and upsetting establishments. They are demanding and uncompromising. Some would say disciplined while others call them immoral and insensitive to human needs.

One has to be nimble and flexible to ride the currents of markets without capsizing. Facing up to the need for change, for invention, adaptation, is a character trait and an intellectual ability. Surviving in a market environment is a return on human capital.

But it also takes finance capital. Having a rainy day fund makes it more probable that new opportunities will be found and used when prices shift against status quo expectations.

Steve Young

1 comment:

Makaila said...

Keep up the good work.