Here in India, fingers were being pointed over rise in food prices. Was it the government's increasing price supports and falling subsidies? Was it those oh-so evil speculators and hoarders? Were the causes political?
Not a single Indian paper tried to address why rising food prices were happening not only in India, but also abroad, in Pakistan, Afghanistan, Iraq, Iran, Middle East, Central Asia,.etc. Paul Krugman just busted all the myths of political opportunists who say speculators were responsible.
The truth is wheat has an elasticity of demand of 0.04. And wheat production has fallen 3%. That means that wheat prices have to increase by 3/(0.04) = 75% in order to service the same level of demand as before.
Can you imagine? A 3% fall in food production causes entire Third World countries to go into riots, chaos, and governments about to be toppled?
Of course, the fall in food production is because of falling solar activity since 2004, which has been causing harvests to keep falling since then. The sun basically shut down seven years ago, and we are on borrowed time until it turns on again. Nature is just very very harsh, and politics even harsher.
Paul Krugman is relatively good on the international front, especially with regards to trade. It is mainly when he addresses domestic macroeconomics that he degrades into apologetics for statism.
Hint: It's not him who writes his more political columns or inserts overtly political statements into them.
It's his wife, fellow acclaimed economist Robin Wells, who has a veto on everything he writes publicly, as of 2002.
If you ever read Krugman's 1990s columns or his more academic works, you see that the man has absolutely no interest in politics. He was even an apolitical person for most of his life, while Ms. Wells once even left United States because Reagan got voted. Remember that his mentor was Paul Samuelson, a man of numbers who despised "men of passion".
http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar?printable=true
It's not him who writes his more political columns or inserts overtly political statements into them. It's his wife, fellow acclaimed economist Robin Wells, who has a veto on everything he writes publicly, as of 2002.
It's not him who writes his more political columns or inserts overtly political statements into them.
I did not know this, but I am not surprised. The perils of marriage!
Ironic that she left the U.S. due to Reagan's election, as Reagan was a big-government social democrat. I suppose most people are easily fooled by rhetoric.
And what caused the rise in prices of gold or copper? Bad harvests caused by climate change, too?
The primary job of Fed-apologists is to dig out inflation culprits. When the primary one (Speculators!) doesn't work then one must roll up their sleeves and dig in deeper on a case by case basis. Anything but monetary inflation.
Z.
Maybe he should write something about the EU, which keeps paying ranchers to slaughter perfectly healthy dairy cows just to drive milk prices up. Or farmers to crush tons of oranges, again to keep the price up. Luckily this had a silver lining. The diminishing numbers of dairy cows have caused demand for maize (the main ingredient of cattle feed) to plummet. Farmers, who turned whole areas over to maize monoculture, are turning to other crops, including wheat. And there's another silver lining: maize requires huge quantities of water. This caused both a dangerous drop in water supplies (during the 2003 drought the Po river, one of Europe's largest, run dry) and changes to microclimate: here from my mountain I could see a thick haze hanging over the plain. Smog? No, it was the cape of moisture from all the irrigation systems running full bore to water the maize fields. I am not a climatologist but it didn't look very healthy.
z1235:And what caused the rise in prices of gold or copper? Bad harvests caused by climate change, too? The primary job of Fed-apologists is to dig out inflation culprits. When the primary one (Speculators!) doesn't work then one must roll up their sleeves and dig in deeper on a case by case basis. Anything but monetary inflation.
Though I'm sure that monetary inflation has had an impact on food prices, you also have to realize that Krugman's analysis here is at least partially correct. The demand for food is very inelastic, moreso in poor countries than in wealthy ones. So a small disruption in supply can cause relatively large changes in price. One could use the same analysis to state that the US and the EU could dramatically lower global food prices by ending subsidies on corn ethanol and eliminating restrictions on farmers (e.g. programs which buy food from farmers and then destroy that food).
One could also use the same logic to state that legalizing offshore drilling and drilling on federal land in the US could drastically reduce oil prices, since the demand for oil is inelastic. And hey, look, I drew a graph of inelastic demand for you:
Political Atheists Blog
krazy kaju:Though I'm sure that monetary inflation has had an impact on food prices, you also have to realize that Krugman's analysis here is at least partially correct.
I'm sure I've never claimed that commodity prices would not change absent monetary inflation. I just find it interesting how anything but monetary inflation is typically found to be the main reason for rises in prices on a case by case basis.