What’s behind the surge in food prices? The usual suspects have made the usual claims — it’s all about the Fed, or it’s all about speculators. But I’ve been looking at the USDA World supply and demand estimates, and what stands out from the data is mainly that we’ve had a huge global harvest failure.Notice that Krugman does not even mention the fact that 40 percent of the nation's corn crop goes to produce ethanol, the inferior fuel that government forces us to put into our cars. But why the crop failures? Krugman has the answer:
Why is production down? Most of the decline in world wheat production, and about half of the total decline in grain production, has taken place in the former Soviet Union — mainly Russia, Ukraine, and Kazakhstan. And we know what that’s about: an incredible, unprecedented heat wave.One of the big ironies here is that during the era of communism, the U.S.S.R. blamed bad weather every year for crop failures. It looks as though Krugman is trying to pick up where Khrushchev, Brezhnev, and Gorby left off.
Obligatory disclaimer: no one event can be definitively assigned to climate change, just as you can’t necessarily claim that any one of the fender-benders taking place right now in central New Jersey was caused by the sheet of black ice currently coating our roads. But it sure looks like climate change is a major culprit. And it’s not just the FSU: extreme weather elsewhere, which again is the sort of thing you should expect from climate change, has played a role in bad harvest around the world.
Back to the economics: if you want to know why we’re having a spike in food prices, the data suggest that the key cause is terrible weather leading to bad harvests, especially in the former Soviet Union.
Krugman picks up the same theme in his Monday column, continuing his theme that the Evil Right Wingers are the Source of All Evil. First, he excoriates anyone who might thing that printing lots of dollars might have an effect upon commodity prices:
So what’s behind the price spike? American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve, with at least one commentator declaring that there is “blood on Bernanke’s hands.” Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of “extortion and pillaging.”Like Krugman's predecessors who blamed bad weather for permanent bad harvests in the U.S.S.R. (because, after all, socialism BY DEFINITION cannot result in anything but freedom and plenty), Krugman tries to use the current events as a way to encourage the imposition of draconian government policies, this time to prevent Global Warming.
I hate to tell Krugman this, but he is not an expert on the weather. A Nobel does not give one Ultimate Wisdom, no matter what he and his friends at Princeton might think. In fact, Krugman might want to put on his economists' hat (you know, the one the emphasizes opportunity cost, something he ignores, as it doesn't fit his program of Inflation First) and ask what would happen not only of "cap and trade" were imposed as severely as the Princeton faculty is demanding, but also the effects of "food for fuel" around the world.
No, Krugman ignores the obvious and then demands that the bad harvests be used as a hook to impose government policies that will result in even worst harvests and real-live starvation. In other words, real economic analysis is not acceptable, not when one can worship the statue of Algore.
15 comments:
If you ignore Krugman's comments about climate change, the fact remains that global food production is down significantly owing to natural factors. Take a recent example: Australia was just hit by once-in-a-100-years floods and now a huge cyclone, hitting crops hard.
Are you so contempibly one-sided that you can't even acknowledge this and other natural factors reducing global production?
In Krugman's defense he did say this in his column:
It’s also true that agricultural raw materials, especially cotton, compete for land and other resources with food crops — as does the subsidized production of ethanol, which consumes a lot of corn. So both economic growth and bad energy policy have played some role in the food price surge.
If memory serves me right, he is not a proponent of ethanol as automotive fuel.
Also, I look forward to Mish's response re. Bernanke.
Most CO2 hysterics are Keynesians. Most Keynesians are CO2 hysterics. They believe it is essential that they be empowered to tamp down on economic activity via the donut-eater state with themselves in control to limit those allegedly pesky parts-per-million of CO2. Simultaneously, they believe it is essential that they be empowered to "stimulate" economic activity via "the printing money" with themselves in control of the regulatory donut-eater nanny-state. But doesn't "the printing money" stimulate CO2 emissions? If they were truly serious about the CO2 emissions (and they're not), wouldn't they take 4 minutes and try to understand the Austrian theory of unsustainable malinvestments?
As we have noted in these comments, you cannot argue with these people or even find common ground. These people are nothing but Nurse Ratched writ large.
Thanks for critiquing krugman who i read regularly and only discovered you today. I too believe global warming is a key factor in rising food prices and subsequent riots. but i also thank you for reminding us that Bernanke's dumping $600 billion into the world economy is bound to have an inflationary effect on food prices, etc. Brazil doesnt forget, nor does China. We in the US also should not.
"Are you so contempibly one-sided that you can't even acknowledge this and other natural factors reducing global production?"
Are you so despicably one-sided and pitiably blind that you cannot even acknowledge the fact that money supply in various countries has been rising, for the last few years, at rates varying between 15 and 25% and the economic theory that explains the connection between such inflation and price rise?
Ooops!!! I forgot that I am talking to an economic historian and not an economist.
More CO2 will mean better crops. If more CO2 does, in fact, lead to a bit of extra warming, that will lengthen the growing season and expand the areas where crops can be cultivated.
The only things people need to fear are a) Global Warming legislation; and b) "The Printing Money" by "The Ben Bernank".
And war, of course, subsidized by "The Printing Money".
Mr. Anderson,
For some unknown reason, you conveniently leave out the FACT that the floods in Pakistan wiped out $3.5 BILLION of the cotton crop. You also ignore the floods in Queensland that have caused iron ore and sugar prices to surge to new highs. You ignore the fact that the Ivory Coast has cancelled exports of cocoa, and as a result cocoa prices are near 30 year highs. You conveniently fail to mention that Argentina (which supplies much of Brazil's wheat imports) has had some of the lowest wheat yields in a century, and just got done with the worst crop in 32 years. Meanwhile, Colombia's arabica coffee bean crop has suffered from blocked roads, disease, and extreme wet weather conditions. Russia's two year drought and resultant wildfires have caused global wheat prices to surge, especially in Egypt where they import 50% of their wheat from Russia.
Your attack on Krugman is pointless, because you are just as SUSPECT at failing to provide FACTUAL DATA to support your claims.
And even when you do speak to the Corn crop ( which is currently at 15-year lows for SUPPLY ), you can't even get the facts straight . . . the percentage of the corn crop that goes into ethanol production is NOT 40% as you have claimed, but actually 32%.
Dear Michael - Facts are irrelevant when you are married to an ideology that is the end all be all in macroeconomics, despite its lacking of empirical evidence and general common sense.
You see, if Prof. Anderson was interested in facts, he would have said the following FACTS during this post:
Since quantitative easing part two was announced:
-the net speculative long position in wheat on the CBOT has doubled
-the net speculative long position in corn on the CBOT has risen 15%
-the net speculative long position in soybeans on the CBOT has risen 40%.
-the net speculative long position in copper on the CBOT has risen 90%
All of the above FACTS can be found on Bloomberg. And combined with the above FACTS noted by Michael, it is no surprise that commodity prices have risen and was expected by those that understood QE was nothing more than a portfolio rebalance policy that will lead to asset bubbles and ultimately deflation. It’s pretty basic supply and demand.
But of course, boring old statistics and facts are not as much fun since it's intellectually easier to continue attacking Krugman with childish names, scary ideologically driven nonsense, and the occasional (and irrelevant) communism reference This scores more points with his loyal readers that are more interested in simpleminded straw man arguments.
@statists
Typical statists, blaming the weather and “bad crop seasons” on rising commodity prices. Absolutely Pathetic, and an amateur Ad hoc excuse at best. Commodity prices were already rising before QE2 was announced. For example, take a look at the CRB index that looks at the overall price of raw materials and you can see that it has had an upward trend since the beginning of last summer, when QE2 was announced officially in early November. Commodities are up across the board, not just in areas with “bad crop seasons” or in areas that AP alleges are due to “speculators.” Precious metals are basically a barometer of the value of the dollar. Since Gold and Silver have risen substantially over the past decade (and no, it’s not due to “speculators” or “Glen Beck commercials,” it’s a reflection of a falling dollar. Commodity prices and precious metals are not rising; it’s that the Dollar is falling measured in those commodities. In other words, its currency debasement i.e. inflation on behalf of the FED. Look at the dollar against the Australian dollar, Canadian dollar, Swiss franc, and Japanese yen and you can see it has been falling substantially over the past 2 years. A falling dollar, coupled with rising commodity prices across the board, with gold and silver prices rising is evidence, I believe, of inflation. And we are in the early stages of it. Excuses, Excuses, Excuses.
Here is Krugman's argument in a nutshell:
Bad Weather causes Poor Harvest
Global Warming causes Bad Weather
Therefore: Global Warming causes Poor Harvest
The problem with his reasoning is in the second statement since there is no proven linkage between Global Warming and any single Bad Weather event.
Its not that GW can't cause bad weather, there is no proven link to any single bad weather event. Anyone that claims such a link has been established is not telling the truth.
PK is also wrong when he says accidents on the NJ Turnpike cannot be proven to be caused by ice on the road. A proper investigation can often determine the cause of an accident. The linkage between road ice and certain auto wrecks is well proven.
At last: Unrest in Egypt due to global warming!
"Paul Krugman joins the crowd who think that they can see the signal of greenhouse emissions in noisy, short-term data on food prices, and then construct a chain of causality to the ongoing unrest in the Middle East. Such tenuous claims of attribution have about as much scientific standing as Pat Robertson saying that Hurricane Katrina was the result of the vengeful wrath of God.
"Here is what Krugman writes today:
"'[T]he evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.'"
All caused by Western capitalists, no doubt.
It's funny how all the people come up with all sorts of excuses as to why commodity prices did exactly what we predicted they would do 2 years ago. What's next, do we blame rising interest rates on global warming as well? What massive flood is causing the gold and silver prices to rise? If its all this bad weather, why are commodities we don't eat skyrocketing? Yes, commodities to have phenomenal supply/demand issues. That's why they go up first.
I'm sure that the inexorable melting of the polar ice caps are a gift from God to give the world more fresh water. A thirsty growing population needs more water as well as do the crops to feed all the hungry mouths. God created McDonald's as a way to make children happy via the Happy Meal.
What I have a hard time understanding is why God spent millions of years to create forest and jungles and wetlands, etc. and populate them with thousands of different life forms only to wipe them all out in a span of a few hundred years. God is not a sadist, so their must be some other rational explanation. Perhaps the devil is in charge and God is on holiday. I think the world needs an exorcism and then a hug. We need to all hold hands around the campfires and sing Kumbaya. That ought to do the trick.
One thing that Krugman has overlooked is that, even according to AGW proponents, such as Professor Jones, there has been no global warming over the past 10 years, despite the fact that CO2 has been increasing annually. So, how can you blame poor crop yields on global warming when no global warming has actually occurred?
The largest source of global warming is the heat caused by cooking the books.
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