Critics often complain that the media only report bad news. Journalists point out that that’s because bad news is news. “Planes land safely” just isn’t a story. But the critics have a point when good news is reported as bad news. That’s what happened in a recent lead story of the Wall Street Journal. This was the upper-right headline:
New Farm Powers Sow the Seeds Of America’s Agricultural Woes
Long a Buyer of U.S. Wheat, Russia Is Now a Threat; Economic Clout at Risk
This article is the latest chapter in the greatest story ever told: the struggle to produce enough food. From time immemorial, humans have endured back-breaking labor just to get enough to live on. Starvation was a constant threat. Now, thanks to free trade, free markets, and the green revolution, starvation is becoming a thing of the past. The world can support six billion people. This article reports the latest good news: the world’s biggest countries have gotten their acts together and are now producing enough food for their own people and with some left over for export. Yet the Journal’s reporters — or at least the headline writers — report this good news with terms like “woes” and “threat.”
The article explores the declining role of U.S. farmers in world trade:
America’s run as a wheat powerhouse, and the dominant player in global agriculture, is under attack from a crop of newly emboldened, low-cost international rivals who are striking at one of the main pillars of American economic might: food exports. U.S. farmers are increasingly under pressure as they compete with commodities including Brazilian soybeans, Indian wheat, Chinese apples, Mexican tomatoes and Caribbean sugar….Wheat is at the vanguard of this change. In the 1980s, America controlled half the world’s trade in the hardy grain, competing with Europe, Canada and Australia. Now more than 90 countries grow wheat and many have lower costs and closer proximity to key markets.
Part of the problem is the misguided notion of trade as a competition, or even a war. Note the terms like “economic clout,” “wheat powerhouse,” “economic might.” But trade is not a zero-sum game. Everybody wins when more goods are produced. The story of economic progress is the tendency toward increasing specialization and division of labor. When new market participants can produce wheat more cheaply, established wheat producers can move on to other tasks, generally higher-value-added production. If Americans can purchase wheat cheaper than we can make it, then we can turn our labors to software, financial services, engineering, entertainment, computer chips, medical instruments, telecommunications equipment, chemicals, and so on.
China, in a drive for self-sufficiency, has become the world’s top wheat producer and is nurturing a sophisticated biotechnology program. India, a land long-associated with hunger, became an important exporter three years ago when it released part of its huge wheat reserves onto the world market.
China and India, with more than a third of the world’s population, can feed themselves! And not only that, they produce enough food to export some. Talk about good news. This should have been the lead, under a positive banner headline. But you know what they say: Good news is no news.
Now, wheat is once again pouring out of Russia in volumes rarely seen since the days of the czars. Long a sleeping giant with an abundant supply of cheap, fertile soil, Russia is now putting that land to work through political and market reforms. Combined with neighbors Ukraine and Kazakhstan, Russia will supply 11% of the world’s wheat exports over the next 12 months, according to the USDA. Some economists see the region controlling 20% in about a decade.
And Russia! After 72 years of communism, Russia (along with its former internal colonies) is once again a grain exporter. We hear lots of bad news out of Moscow these days, as President Vladimir Putin arrests and intimidates political opponents and journalists. But this news probably matters more to the Russian people. There’s food aplenty, and you don’t have to stand in line for it. And why? A newly privatized Russian farmer tells the Journal:
“Freedom,” he says, inhaling deeply on a cool spring day. “You’re working for yourself.”
Plus there’s food to export, in exchange for imported goods. One of the problems Warsaw Pact countries faced after the fall of communism was that they had very little that could be sold on world markets. Their cars and other manufactured goods just didn’t meet world quality standards.
America’s agricultural balance of trade is being pressured by the country’s growing appetite for largely imported foods such as olives and avocados.
Okay, this is crazy. “Agricultural balance of trade”? Adam Smith wrote in 1776, “Nothing can be more absurd than this whole doctrine of the balance of trade.” When two parties trade, each expects to gain. It doesn’t matter whether they live in different neighborhoods, different states, or different nations. I don’t worry about my balance of trade with the grocer, and the grocer doesn’t worry about his balance of trade with the car dealer. And it’s the same with international trade. Why would we expect countries to import and export the same amount of any product, whether wheat, shoes, computers, or movies?
Trying to add up “America’s trades” with China is a silly exercise. Each trade profited the people who made it. And an “agricultural balance of trade” is sillier than a general balance of trade. The point of comparative advantage is that goods (and services) will be produced where they can be produced most cheaply and traded for other goods produced where they can be made most efficiently. It would be a most remarkable coincidence if any country found itself importing and exporting the same amount of agricultural goods. Americans produce enough stuff that we can afford to import olives and avocados. That’s more good news.
Growing wheat is now a riskier proposition for American farmers. In the past, the U.S. controlled such a large chunk of the world’s exports that the quality of its harvest had a big influence on prices. A drought in the U.S., for example, would create a worldwide shortage and push up the cost of wheat, mitigating losses for U.S farmers.
Again, this is good news spun as bad news. It’s good that there’s enough wheat in the world that a drought in one country can’t push up the price. True, it may be a hardship for U.S. farmers who now face more competition from abroad. But that’s the general story of free trade. Millions of consumers (in this case billions) benefit, but a few producers may lose. That’s the “destruction” part of creative destruction. But we’re overwhelmingly better off when we can produce things more efficiently, even though a few people — the less efficient producers — may lose out and have to go through a painful shift to new endeavors.
A decade ago, a report from the Worldwatch Institute, a Washington-based environmental research group, set off a firestorm in Beijing. Chinese imports were rising after a series of lackluster harvests and Worldwatch predicted that China’s demand would suck up a huge amount of the world’s wheat and other grains, forcing up prices.
Does anybody make more wrong predictions than the Worldwatch Institute? It keeps predicting that we’re going to run out of food, water, energy, and other resources, and we keep not running out. Yet every year journalists solemnly report its annual predictions. Anyway, China didn’t suck up the world’s wheat and prices didn’t rise.
Free-market reforms in the late 1970s allowed a return to household farming. National wheat production began to soar as farmers were able to buy chemical fertilizers and new seed strains. The Chen family’s harvests have increased seven-fold since China’s market reforms.
Instead, starting with Deng Xiaoping’s reforms after the death of Mao, Chinese agricultural production soared — so much so that peasants began leaving the farms, going to the cities, looking for jobs, and setting up enterprises. Despite his Communist Party years, Deng may have done more good for more people than anybody else in history. Thanks to his reforms, over a billion people can now not only feed themselves but export food and shift labor to more productive uses.
As Jean-Baptiste Say of Say’s Law fame pointed out almost 200 years ago, we’re all better off when our neighbors produce more: “a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value…. For this reason, a good harvest is favourable, not only to the agriculturalist, but likewise to the dealers in all commodities generally. The greater the crop, the larger are the purchases of the growers. A bad harvest, on the contrary, hurts the sale of commodities at large. And so it is also with the branches of manufacture and commerce. The success of one branch of commerce supplies more ample means of purchase, and consequently opens a market for the products of all the other branches; on the other hand, the stagnation of one channel of manufacture, or of commerce, is felt in all the rest.”
The positive-sum character of trade is the very foundation of the liberal world order, the underpinning of expanding trade, international harmony, and peace. If one country’s success was another’s woe, then the socialists and nationalists would be right: World trade would be a war of all against all. Thankfully, they’re wrong. The growing productivity of China, Russia, and India is wonderful news for their two billion citizens and good news for everyone else in the world economy as well. This time, at least, the Journal is perhaps unconsciously spinning good news as bad.