Price controls and supplies

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A recent Page One article in the Wall Street Journal told of rising hunger and malnutrition in India amid chronic agricultural surpluses. India now exports wheat, even donating some to Afghanistan, while malnutrition spreads in India itself.

This situation is both paradoxical and tragic, but what is also remarkable is that the long article omits the one key word that explains such a painful paradox: Price.

There can be a surplus of any given thing at any given time. But a chronic surplus of the same thing, year after year, means somebody prevent the price from falling. Otherwise, the excess supply would drive down the price, leading producers to produce less -- and consumers to consume more -- until the surplus was gone.

The Indian government keeps the price of wheat and some other agricultural produce from falling. That is exactly what the U.S. government has done for more than a half-century, leading to chronic agricultural surpluses here. Nor are India and the U.S. the only countries with such policies, leading to such results.

Although Americans wrestle with obesity while Indians suffer malnutrition, the economic principle is the same -- and that principle was totally ignored by the Wall Street Journal report.

There is no special need to single out the Journal for this criticism, except that when economic illiteracy shows up in one of the highest-quality publications in the country it illustrates one of the great deficiencies of journalists in general.

One of the many jobs offered to me over the years, to my wife's astonishment, was a job as dean of a school of journalism. While I was not about to give up my own research and writing to get tangled up in campus politics, the offer made me think about what a school of journalism ought to be teaching people whose jobs will be to inform the public.

They first and foremost ought to know what they are talking about, which requires a solid grounding in history, statistics, science -- and economics. Since journalists report on so many things with economic implications, they should have at least a year of introductory economics.

People with a basic knowledge of economics would understand that words like "surplus" and "shortage" imply another word that may not be mentioned explicitly: Price. And chronic surpluses or chronic shortages imply price controls.

Conversely, price controls imply chronic surpluses or shortages -- depending on whether price controls keep prices from falling to the level they would reach under supply and demand or keep them from rising to that level.

Controls that keep prices from falling as they would reach in response to supply and demand include not only agricultural price supports like those in India but also minimum wage laws, which are equally common in countries around the world.

Just as an artificially high price for wheat set by the government leads to a chronic surplus of wheat, so an artificially high labor price set by the government leads to a surplus of labor -- better known as unemployment.

Since all workers are not the same, this unemployment is concentrated among the less skilled and less experienced workers. Many of them are simply priced out of a job.

In the United States, for example, the highest unemployment rates are almost invariably among black teenagers. But this was not always the case.

Although the federal minimum wage law was passed in 1938, inflation during the Second World War meant the minimum wage law had no major effect until a new round of increases in the minimum wage level began in 1950. Unemployment rates among black teenagers before then were a fraction of what they are today -- and no higher than among white teenagers.

The time is long overdue for schools of journalism to start teaching economics. It would eliminate much of the nonsense and hysteria in the media, and with it perhaps some of the demagoguery in politics.

Thomas Sowell is a nationally syndicated columnist.