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Evil grain-speculating OVERLORDS will starve us ALL

Sarkozy, food charities need to look at Adam Smith and DRAM

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Darn those evil speculators in food! You know, them, those men in offices playing with futures and derivatives in wheat and corn: they're starving the poor you know! For there is evil in the marketplace and we know where evil comes from: men in offices playing with money. Therefore the evil must be caused by said playing with commodity derivatives, right?

silo

Lock up your gold wheat, boys ...
Photo by Scott Williams

Sadly, that's about as far as some manage to get in their connecting the two (true) observations that food prices are rising, causing great pain to the poor of the world, and lots of people are playing with food derivatives on the speculative markets. We even have it on the authority of both the French President and the EU Commissioner responsible that this is so...

“Mr Sarkozy has admirably decided to make tackling high food prices a priority for France’s presidency of the G20 this year. Less admirably, he has clearly already made up his mind to blame speculators regardless of the evidence,“ the Wall Street Journal blogger wrote.

That is, of course regardless of the evidence of his own officials who pointed out that speculators are doing no such thing.

We've also had similar hysteria from the World Development Movement (WDM) in this report (PDF/36 pages/937KB) of theirs. “How banking speculation causes food crises” indeed. That certain forms of speculation are what solves food crises, diminishes them, reduces their impact, isn't something they've seemed to notice: nor that the actual speculation they're complaining about, futures and other derivatives, has near to no effect at all on current food prices. Whether the WDM is wilfully blind to it all or simply misinformed is up to you to decide.

Leave aside food for a moment and think of the regular cycles we've had in the memory market: this has been going on since I first thrilled to tech support coming around to upgrade me to a whole 640kb of RAM. Any of us who has been playing with hardware over the years knows the dreary repetition of the story. Someone builds a new silicon fab pumping out umpteen pieces of giggity sized memory and the market goes into a tailspin pricewise.

You can even afford enough RAM to run a Microsoft operating system without a second mortgage. Then there are more people in the market – all using more RAM – and chips become more scarce. Clever people spot this and start hoarding the chips, thus making a fortune as prices soar. At some point the price is high enough that someone out Far East can persuade the bankers to let him have $5 billion to build another new fab and when it comes online prices collapse again and off we go.

Now we could say that those hoarders are profit-gouging bastards: or we could say that they're actually, by the price rises they induce, doing us all a favour. High prices make us all consider our use of RAM, meaning that we'll perhaps not upgrade that operating system: it also leads the would be fab owner to think more about building another and the banks to lend him the money. Prices thus act as a signal of scarcity, making us economise on consumption and others increase production, thus actually solving, over time, that very scarcity the prices are signalling.

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