The US Department of Agriculture is reporting today that America’s farmers are planning to plant more acres of corn than in any year since 1937, back when output per acre was much slower. Basically prices have been going up, so farmers are planting more.
This is a good example of how being willing to tolerate a little bit of inflation can help boost the economy. The Fed could have reacted a few months ago to rising food prices with tighter money and slower economic growth. Instead they rightly recognized that food prices tend to be very volatile and we should just ride it out. Now corn output is going to rise (boosting employment) and with more acres planted future price increases should be kept under control. The next challenge—which is very similar—has to do with rents. As people get jobs, they’re moving out of mom’s basement and rents are rising. If the Fed responds to this with tight money we’ll keep inflation locked down at under 2 percent but stifle growth. If instead the Fed says “hey, we still have a lot of excess capacity it’ll be fine” then instead unemployed construction workers will go back to work building apartments and the supply crunch will ameliorate.