Thursday, February 17, 2011

Increasing food prices are actually killing people

The sheer amount of economic barbarism associated with the "fight" against inflation is enough to put one off the whole subject like--forever.  Having lived through the regime of Paul Volcker, I now just hear the word "inflation" and wonder which crazy central banker is going to raise interest rates.

But here are the absolute basics one simply must understand about the rise in food prices.

The increase in food prices has real-world causes.  For years, the geniuses who figure out how to increase food production have managed to succeed in the face of exploding population levels, depletion of important aquifers, loss of natural soil fertility, agricultural land lost to urban sprawl, crazy weather patterns caused by climate change, diversion of food to biofuels, etc.  I know folks who understand agriculture intimately who lay awake at night wondering when this whole production rat race will come crashing down bringing whole populations with it.

Folks who claim that supply and demand curves cannot explain the recent sharp rise in food prices are also correct.  We might be on the edge of "peak food" (in fact it is almost inevitable that this is so because agricultural productions rates were forced upward on the back of petroleum products--therefore peak oil is almost by definition, peak food) but that doesn't explain everything.  And yes, the evidence that speculation in the financial markets has driven up global food prices is all over the place.  And this is possible because...

Food is perishable.  Depending on the methods used, food can be stored for short periods but generally speaking, food must be consumed when it is ripe.  This means the ideal range of production is quite narrow--the difference between not having enough and having too much is tiny.  Anyone who claims that, for example, a 2% drop in global wheat production isn't very important and shouldn't move markets is flat out wrong.

For an explanation see Speculation And The Frenzy In Food Markets

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