Sunday, July 06, 2008

Yes, Economics is Politics

And here is a classic example. A World Bank study authored by Donald Mitchell never would have seen the light of day had it not been leaked to The Guardian recently.

Contrary to President Bush' claim that price increases can be blamed on more Indians and Chinese eating, the report shows in detail how world food prices have gone up 75% in the last six years due to the drive for biofuels in the world's largest agro-producing regions - the EU and the US.

It argues that production of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher.

In what world is it possible for some investor (i.e. food speculator) in one of New Yorks finance firms able to influence the price of wheat??? Tom Philpott writes:

But when you think about it, why did speculators suddenly start bidding up the price of grains and soybeans two years ago? Answer: because they knew the U.S. and European governments were insuring a steady, and rising, market for those goods in the years ahead. So the big speculation wave stems from the welter of mandates and subsidies propping up the biofuels market.

In the meanwhie, 100 more people join the ranks of the starving poor. Yes, including those whom you see queueing for susbidised rice on Visayas Avenue and elsewhere. Including those random people knocking on you doors asking for lose change to buy food.

Aside from speculators, multinational agro-industries such as Monsanto are also raking it in. Forget the sub-prime crisis Nomi Prins writes, "The next price bubble to watch is food speculation.":
But without strong regulation of electronic exchanges and the derivatives products that enable speculators to move huge proportions of the futures markets underlying commodities, putting a bit of regulation into the London-based exchanges will not alleviate anything. Unless that's addressed, this bubble is going to take more than homes with it. It's going to take lives.

In the meanwhile, the world's rich country club meets in Tokyo to find solutions for problems they do not directly experience and which they cause either directly or indirectly through policy prescriptions. Of course they know better. Governments which represent 2/3 of the world's population (i.e. the suddenly ravenous Indians and Chinese) are invited, but they hold meetings in a separate room. Still not quite part of the 'club.'

Energy crises + food crises + casino capitalism = globalised misery.

Seriously, what kind of world is this?

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