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.”

The conspiracy theorist’s natural inclination is to answer “Yes!” In their mental/emotional world, bad things are caused by powerful, evil people acting behind the scenes. Speculators fit this profile perfectly.

For a different perspective, see the June 13 New York Times story on speculators. It cites “people with years of knowledge about how commodity markets work” as saying that “without speculators these markets do not work at all.”

Farmers, miners, oil producers and others involved in producing or consuming commodities – such as food and oil – use futures contracts (a contract to buy or sell commodities at a specified price at a certain time in the future) to decrease uncertainty about the price for which they will eventually sell their production or, if they are consumers, buy it. Without futures markets, there would be much more uncertainty about future prices. This would likely scare some producers away. And if the supply of a commodity goes down, its price goes up. So, future markets make costs lower than they would be otherwise.

Speculators pour additional money into these markets, making them larger and, experts say, less volatile. They argue this makes likely lower, not higher, prices.

If speculators are not the “bad guys,” who are? The article cites several factors causing higher food and oil prices:

• High-growth economies in China and India
• Bad weather
• Increased demand for corn-based ethanol, which drives up corn prices
• The weakening U.S. dollar, which drives up the cost of commodities, such as oil, that are priced in dollars.

In other words, increased demand and decreased supply drive up prices. That’s economics 101.

Unfortunately, complex, abstract causes don’t fit with the very human need to find a villain when things go wrong. So, conspiracy theories, which meet this need, multiply.