The World Bank reports that over the past three years global food prices have nearly doubled. I see three primary reasons, and greed isn’t one of them.

First, as populations grow and people become wealthier, they change their diet. They demand not only staples, but also now regularly eat once out-of-reach luxuries like meat, dairy, and poultry. All are grain fed. Second are government policies mandating an increased role for biofuels, such as ethanol. This forces the conversion of food to fuel. Third is the high price of petroleum products. Not only fuel, but also fertilizer and agricultural chemicals are now more expensive.

Concerns about climate change drive the push for biofuels. President Bush signed legislation mandating the production of 36 billion gallons of biofuels (most from corn ethanol) by 2022. This is about five times the current level of ethanol production.

Mandates for the production of goods, whether corn or computer chips, set predictable forces in motion. Here’s how this experiment with Soviet style command economics works.

U.S. corn subsidies push prices above their natural levels. Farmers respond by moving production out of food crops, like wheat and soybeans, and into corn. As the acres devoted to wheat and soybeans fall, and yields decline, prices for these crops rise. Consumers respond by shifting demand to other grains, such as rice. Increased demand for rice raises its price.

Policies intended to protect unborn generations from the effects of climate change instead harm real people now. Worse still, Science recently reported that, on net, the production of biofuels produces more CO2 emissions than conventional fossil fuels. Can you imagine a more perverse situation?

This is not a problem caused by free markets. The mess above is entirely the product of governmental action. The market process would simply not have produced these sorry results, but policies that distort prices have.

Both government action and markets produce errors in systematic ways. One thing we stress at FREE’s conferences is recognizing the circumstances in which such problems occur. We know, for example, that markets often ignore those things that have no price and no owner. Endangered species and ecosystem services are examples.

The ethanol experience illustrates how special interest groups, e.g., corn farmers and large agri-businesses, hijack government policy. They seek unnatural economic profits, those above what they could get in the market. Interest groups expend considerable resources to purchase political favors of subsidies, tax breaks, and regulatory protections. The benefits are concentrated on the special interests and the costs dispersed among the rest of us, even the poorest.

Nobel prize winning economist James Buchanan, Jr. explained how interest groups naturally emerge when government has the power to subsidize, tax, and regulate to benefit specific groups. Buchanan’s work, known as public choice theory, explained how economic self-interest and the political process affect government economic policy. Ethanol is a visible and disturbing example.

The “Progressive” solution was to elect and appoint better people. Benevolent bureaucrats of high intelligence and the right schooling would foster the public good, not their own or that of constituents. This was the animating force behind the original Progressive movement of the early 20th Century. The public choice view is that few politicians make any real difference. Rather, constructive reform comes only when the institutions and the incentives they generate are changed to align self-interest with the public interest.

Since every proposal to deal with climate change suffers from the problems exposed by public choice theory, how can we make progress? Here’s one proposal.

Focus on America’s entrepreneurs, rather than government. Why? Because, at its root, progress is a discovery process. It requires entrepreneurial traits like adaptability, flexibility, innovation, and a tolerance for risk.

The government can foster this process; for example by offering prizes, say for the development of high gas mileage cars. Prizes like the $10,000,000 Ansari X Prize, for the first non-governmental organization to launch a reusable spacecraft twice within two weeks, unleashed dramatic creativity and innovation.

By encouraging such competition, along with the peer-reviewed process of scientific research and government R&D, we expand the odds of finding environmentally and economically viable energy solutions.