The Scarcity Syndrome: Comment

Paarlberg, in his insightful Journal note of February 1982, suggests that people of similar mindsets "read and reinforce each other's work, using similar methods of analysis. Thus they do not provide entirely independent assessments" (p. 111). While not necessarily admitting to the same mindset as Paarlberg, we wish to reinforce his conclusion that "the scarcity syndrome is an untested hypothesis not an established fact" (p. 114). Beyond the evidence provided by Paarlberg, we submit two additional observations about the relative scarcity of grain. The first involves long-run performance of grain price behavior compared to prices of other goods and services. The second concerns the apparent capacity of the grain producers to respond to real grain price increases resulting from increased demand. If one accepts relative prices as an indicator of relative scarcity, then the "scarcity syndrome" suggests that grain prices must be rising relative to prices of other goods and services. In the long-run context, empirical evidence suggests the contrary. Figure 1 shows the average annual U.S. prices of wheat and corn deflated by the consumer price index (CPI) for the period 1866 to 1981. The CPI was used to calculate "real" prices because it is one of the few price indexes readily available for the entire period. However, prices were also deflated using the wholesale price index (WPI), the prices paid by farmers index (PPFI) and the implicit gross national product deflator (IGNPD) for the years each is available.' The pattern of peaks and valleys is uneffected by the index choice. However, both the PPFI and the IGNPD series showed recent real prices to be lower relative to prices occurring early in the period than did the CPI or the WPI. The WPI and CPI give virtually identical results. When real prices are examined in this historical context, recent grain prices are remarkably unremarkable. Consider the fifteen high and fifteen low real-price years. For both corn and wheat, the most recent high price year is 1947. Also, eleven of the fifteen low real-price years for wheat occurred since 1960, six since 1970. Five of the low real corn price years occurred after 1960, two since 1970. Moreover, the wheat and corn prices of 1973-74 are rather unspectacular in this long-term context. Between 1866 and 1981, the average annual real corn price exceeded the 1974 level nineteen times. The 1973-74 real wheat price was exceeded thirtythree times. A simple estimated linear time trend shows a statistically significant downward trend for wheat. Thus, over this 115-year period, wheat prices have persistently fallen relative to other prices. No statistically significant trend appeared in the real corn price series. However, they exhibited a significant downward trend in the post-World War II years. Even though the 1973-74 period displayed a significant price rise, relative prices collapsed to near record low levels in the latter half of the 1970s. To achieve the purchasing power equivalent of the 1914-19 period (the "golden age of U.S. agriculture"), the 1981 nominal wheat price would have had to be $15.27 per bushel; the nominal corn price would have had to be $10.78 per bushel. The '"scarcity syndrome" arises, in part, from believing that the world food supply system cannot respond to projected demand increases. Paarlberg suggests that those with this mindset fail to appreciate fully the supply response capacity of agriculture.