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Thursday, May 08, 2008

"Silver Lining in High Food Prices"

Kenneth Rogoff says higher commodity prices send important economic signals that shouldn't be muted:

Silver lining in high food prices, by Kenneth Rogoff, Project Syndicate: Today's soaring commodity prices scream a fundamental truth ... that many politicians, particularly in the West, don’t want us to hear: the world’s natural resources are finite, and, as billions of people in Asia and elsewhere escape poverty, Western consumers will have to share them. ...

The United States’ ill-considered, biofuels, subsidy programme, demonstrates how not to react. Rather than acknowledge that high fuel prices are the best way to inspire energy conservation and innovation, the Bush administration has instituted huge subsidies to American farmers.... Never mind that this is inefficient in terms of water and land use. ...

[D]iverting vast tracts of agricultural land into fuel production has contributed to a doubling of prices for wheat and other grains. With food riots in dozens of countries, isn’t it time to admit that the whole idea was a giant, if well-intentioned, mistake?

Another wrong turn is the proposal ...to temporarily scrap taxes on gasoline. As laudable as it may be to help low-income drivers deal with soaring fuel costs, this is not the way to do it. The gas tax should be raised, not lowered. ...

Of course, it isn't just the cost of oil that is high, but all commodity prices... The proximate cause is a global economic boom... Some politicians ... complain about speculators... But why is this a bad thing? If “speculators” are bidding up today’s commodity prices because they realise that future generations are going to want commodities too, isn’t that healthy?

High prices for commodities today mean more supply for future generations, while at the same time creating an incentive to develop new ways to conserve... Again, high prices are helping in ways that Western politicians seem afraid to contemplate.

While surging commodity prices are helping poor farmers and poor resource-rich countries, they are a catastrophe for the urban poor, some of whom spend 50 per cent of their income on food.

One element of the solution is to compensate the very poor for the higher cost of survival. Over the longer term, more money for fertiliser, and other aid to promote self-sufficiency, is also essential.

    Posted by on Thursday, May 8, 2008 at 12:33 AM in Economics | Permalink  TrackBack (0)  Comments (24)

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