Monday, May 5, 2008

Two Perspectives on the Food Crisis

This morning my RSS feed for the Financial Times greeted me with two back-to-back articles about the global food crisis. One of these was actually just a report taken from their own Reuters feed. The lead paragraphs indicate the extent to which those in the power elite are still struggling to grasp the nature of the problem by understanding its source:

Food price inflation may be one of the most serious problems facing the world, but it is one that monetary policy has little power to tackle, central bankers said on Monday.

With the price of food rising by more than 40 percent a year, the issue is high on the agenda at meetings at the Bank for International Settlements in Basel which began on Sunday.

”Food pressure is a global problem, we have to observe, monitor, but we cannot use monetary policy tools to manage this problem,” said Polish National Bank President Slawomir Skrzypek. ”Food pressures could be one of the most serious problems that we have to face now.”

Regular readers may think that this will reinforce my recent position that the food crisis amounts to "yet another battle in the War Against the Poor;" but I actually think that Skrzypek may have a point. Much as I prefer to focus on the social world, rather than the objective one, his objective language in that final paragraph needs to be appreciated. Monetary policy is nothing more than a tool. Most of us do not appreciate this premise, although Alan Greenspan certainly made a noble effort to cultivate such appreciation in his recent book, The Age of Turbulence.

The thing about tools, however, is that, even in the objective world, they are not always properly used, hence the joke that, to a small boy with a hammer, everything looks like a nail. If we have a problem recognizing monetary policy as a tool, one reason may be that, beyond some casual language about "money supply" (which we associate with how much currency can be printed, often forgetting that paper currency is nothing more than a symbol of value), we are not quite sure what the tool manipulates (certainly not the way we understand that a hammer drives in nails). The clunker in that last sentence is the noun "value," which, as I have previously argued, has almost nothing to do with all the objective mathematical models of economic theory because it is fundamentally a construct of the social world.

This bring us back to the "inconvenient truth" about the food crisis, recently revealed by Frank Hornig and Beat Balzli on SPIEGEL ONLINE. The "crisis of the food crisis," so to speak, is a crisis of two vastly separated social worlds with two equally separated constructions of the concept of value. To a worker who earns a subsistence wage (if that much), the value of a gallon of milk is not pegged to a standard Troy ounce of gold or the exchange rate between the Euro and the dollar; it is ultimately based on the subjective value of being able to live another day. On the other hand the price of that gallon of milk in the worker's country is based on a value constructed in the social world of commodities traders, most of whom would find the price of food "an inconvenience for the rich," has Josette Sheeran put it in her BBC report. The problem is that a tool whose impact is felt in the latter world is not likely to improve matters in the former; and, given the greed-driven motives of that latter world, the tool could well make matters worse.

This brings us to the second Financial Times story, a report from the annual meeting of the Asian Development Bank in Madrid filed by Raphael Minder. Here there was apparently at least one voice trying to grasp the nature of the problem from the perspective of that former world and consider taking an action that would make getting that gallon of milk more feasible:

India’s finance minister said on Monday he was considering a blanket ban on trading in food futures, underlying growing concerns in Asia over the role of hedge funds and financial market traders in the recent surge in commodities prices.

If India imposes a ban, it would come only five years after the country introduced such futures trading as part of a broader push to develop India as a leading financial centre.

Speaking on the sidelines of the Asian Development Bank annual meeting in Madrid, P. Chidambaram said his worries over market speculation were shared by governments across the region and that India was “facing a very grave crisis on the food front”.

This left me wondering if Chidambaram was the first member of the "fiscal power elite" to read the Hornig-Beat analysis in enough depth to take it with intended seriousness of its authors. The subtext of that second paragraph amounts to a decision to place a higher priority on feeding one's population than on building economic growth through the cultivation of financial institutions. This is not the sort of language one expects from a finance minister from any country, regardless of its economic ideologies. However, it is a serious effort to address one well-argued hypothesis about the cause of the global food crisis and to apply that hypothesis to a proposal for action. My guess is that, when Chidambaram returns from his elevated company in Madrid, he will face considerable argument within the Indian government; but he should be applauded for putting this stake in the ground in a forum where all the world can see it.

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