Subscribe to this blog's feedA few weeks ago I looked (not entirely seriously) at the issue of anti-speculation legislation, through the story of the 1958 Chicago Onion Ring. It's a live issue again now - Bloomberg reports today that
India, the world's second-largest buyer of vegetable oils, banned futures trading in soybean oil, rubber, chickpeas and potatoes as the government seeks to rein in the fastest inflation since 2005...
Communist allies of Prime Minister Manmohan Singh want to ban futures in cooking oil, sugar and other commodities to tame inflation that reached 7.57 percent last month. While a study found no evidence that halting rice and wheat futures last year curbed prices, the government needs to keep food affordable for the half the 1.1 billion people who live on less than $2 a day.
``Halting futures trading will probably have little impact on Indian inflation,'' Anne Frick, a senior oilseed analyst for Prudential Financial in New York, said in an e-mail. ``World soy- oil prices are up due to fundamental factors, not speculation.''
Via Mark Thoma, economist Greg Clark argues that commodity inflation can be dealt with.
...the share of modern U.S. consumption devoted to raw food and energy purchases is small: 1.4% for food raw materials, 7% for energy.The U.S. economy can withstand enormous increases in food and energy costs with little damage because food and energy are even now so extravagantly cheap that most of both are squandered in uses of little value...
It's a different story, though, if food represents more than 50% of your total spending. That's why the Indian government is willing to try anything at all to keep food prices down - even things like this, which will almost certainly not work.
(A startling statistic from the Guardian here: "In the 30 years to 2005, world food prices fell by around three-quarters in inflation-adjusted terms, according to the Economist food prices index. Since then they have risen by 75%, with much of the increase in the past year".)
Being in a gloomy mood, two questions occur to me: how long will it be before the first disproof to Amartya Sen's thesis that democracies don't have famines? And how long will it be before, as some have predicted, we see the first food war?
