Our normal, primitive caveman mentality predisposes us to look for villains as the cause when bad things happen to good people (aka us). This leads to the widespread belief that greedy speculators are causing high food and oil prices.

(For more on our “caveman mentality,” see Evolutionary Psychology: A Primer, which argues that “the mind is a set of information-processing machines that were designed by natural selection to solve adaptive problems faced by our hunter-gatherer ancestors.”)

For a different view on what caused recent steep food and oil price increases, see today’s Wall Street Journal article by Harvard economist Martin Feldstein. Feldstein proposes a different villain. He says supply and demand did it.

One problem in comprehending this is that the human mind does not do math very well. We can handle simple arithmetic, but do not have an accurate intuitive grasp of more complex relationships, like exponential increases.

Feldstein says relatively small increases in demand (for items we really need, like food to eat and gas for our cars) can cause large price increases in a very short period of time. This challenges the simple arithmetic model our mind can easily understand, but makes sense when you consider we eat food several times a day but the food industry can’t just add an extra shift at a manufacturing plant to produce more food right away – it’s a little more complex than that.

Read Feldstein’s article; he’s almost always informative.

Newsweek journalist Robert Samuelson agrees that supply and demand did it.  See his column “Let’s Shoot the Speculators.”