The Age of Scarcity?

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What Would Schumpeter Say?

Indeed, instead of Malthus, the touchstone economist for our era is Joseph Schumpeter. He's best known for his metaphor of "creative destruction," the process by which new technologies, new markets, and new organizations supplant the old. Knowledge, innovation, and entrepreneurship are what count. Just ask the risk-takers in Silicon Valley, Route 128, and the Beltway who are eagerly pursuing alternative energy technologies with the price of oil so high.

But equally important in the shorter run is public policy—specifically poor public policy. Take the surge in food prices. "I'm not with Malthus on this one," says C. Ford Runge, agricultural economist at the University of Minnesota. "The phenomenon is the result of a conscious, rational, self-interested claim with horrendous collateral consequences."

Diversion of Food Crops into the Energy Supply

To be sure, the demand for better foodstuff partly comes from increased wealth in developing nations. People can afford better diets, and that demand is putting long-term pressure on supply.

That said, Runge is scathing about the massive subsidies shoveled at the biofuel industry in the U.S., Europe, and elsewhere. One cost of propping up the industry is a global runup in food in grain prices. This can be traced in part to energy legislation enacted by Congress and signed into law by President George W. Bush in 2007.

Talk about unintended consequences. The diversion of food crops into the energy supply—and the attendant runup in prices—has been a disaster for the nearly 1 billion of the world's poor who are chronically food-insecure. Runge notes that in Asia grains account for 63% of diet, 60% in the former Soviet Republics and North Africa, 50% in sub-Saharan Africa, and 43% in Latin America. Here's a thought: Before painting nightmarish visions of a Malthusian moment, why not get rid of biofuel subsidies first?

Remembering the Club of Rome

And then governments in the developing nations can focus on improving their farming techniques and yield. The Asian Development Bank calls for governments to accelerate their efforts to improve technical progress and productivity "through infrastructure, especially irrigation systems, and institutional support through credit markets and extension services."

Commentators and analysts have periodically predicted a Malthusian nightmare—wrongly. Remember the Club of Rome and its terrible forecast about the limits to growth published during the 1970s oil and food crisis? How about the 1980 bet between population pessimist Paul Ehrlich, the brilliant biologist, and the eternal optimist we mentioned earlier, Julian Simon. Ehrlich picked five metals on Sept. 29, 1980 that he thought would rise in price, figuring that a Malthusian squeeze would send natural-resource prices soaring.

The wager? If inflation-adjusted prices rose, Simon would pay Ehrlich and if prices fell Ehrlich would pay Simon. The payoff date: Sept. 29, 1990. Well, the 1980s came and went, and despite a stunning 800 million increase in world population in the '80s, the metal prices dropped. Ehrlich settled the bet with Simon for almost $600.

Almost two decades later, we'll make our own wager: We won't enter an era of scarcity today so long as we embrace public policies that encourage lots of innovation and bigger markets.

Farrell is contributing economics editor for BusinessWeek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program Marketplace. His Sound Money column appears on BusinessWeek.com.