Thursday, April 21, 2022

Bill Mitchell — Helping ease food insecurity and starvation requires governments to ban bankers speculating on food prices

I keep reading reports of the rising risk of food riots as food prices soar around the world and vulnerable nations and communities are faced with increased food insecurity, which is a technical term that international agencies use, that actually means risk of starvation. At the same time, governments allow hedge funds to take speculative positions on food as a traded commodity which has been shown to not only increase food prices but also divert supply into storage (long positions) while the ‘investors’ create artificial supply shortages and market instability – while people are being denied their staple food products (for example, corn speculation). There are many things that governments must do in this regard – including investing in sustainable agricultural systems to create local supply certainty, improving the quality of diets (banning high sugar and salt levels), and more. But one of the most significant things that governments could do to keep food prices down and increase food security for vulnerable nations is to cooperate on a global scale to outlaw any food speculation by hedge funds and the big investment banks. It is not only economically destructive to have large proportions of populations living with the constant threat of starvation. It is also unethical....
The fundamental problem, as Marx and Engels pointed out, is capitalism, which is based not only on the sanctity of private property, especially financial property, but also on class structure, which leads to asymmetrical distribution of power and wealth in a society based on economic liberalism, which is what capitalism is. The driving force of capitalistic production is "accumulation of capital." Capitalists argue that they is beneficial for society because accumulation of productive capital equates to growth. However, the motivation is through accumulation of financial value, working through "money," that is, prices, costs, and so forth, which are valued financially in the unit of account or, historically, other chiefly financial resources like gold and silver as a financial basis of trade, where they served as a vehicle for saving. 

Under capitalism, "money" operates through markets. The basic idea of laissez-faire is to prevent government interference in markets other than as needed to police behavior and prevent cheating. The upshot of this arrangement is that under capitalism an economy that is assumed to be the physical life-support system of a society is dominated not so much by production as by markets that are "free" from government intrusion, which, the assumption goes, are therefore nearly perfect, that is, symmetrical. This makes it very difficult to justify government intrusion in markets to adjust outcomes in favor of more equitable distribution and even more difficult to introduce price controls or rationing outside of emergencies like war. 

Generally, governments only take such action to address the potential for social unrest, e.g., food riots. This may be impending. Food riots are already occurring in some places in the world. Supply is insufficient to provide for demand with respect to food as a vital resource. The same threatens with respect to energy.

Bill Mitchell – billy blog
Helping ease food insecurity and starvation requires governments to ban bankers speculating on food prices
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

6 comments:

Peter Pan said...

The United States implemented rationing via coupons during WWII.

So much for faith in markets, or non-interference in the sacred 'capitalist' economy.

NeilW said...

The problem is largely physical hoarding, although there is clearly some issue with the actual futures markets

Quite why farmers can't fix the price of their fertiliser, weedkiller, seed *and* the price of their crop at planting time I'm not sure. The only risk a farmer should be taking is yield.

It's a failure of the insurance markets if these risks can't be hedged.

Footsoldier said...

Climate change plays its part along with everything being price in $'s and $ denominated debt. The foreign aid programs and their strategic objectives.

The Peterson Commission and the Peterson report that came from it explains it in very clear detail.

The complete history is laid out in Michael Hudson book super imperialism.


Tom Hickey said...

The problem is largely physical hoarding

Right. It's always a matter of availability of real resources. "Speculation" can affect prices but not significantly if resources are available. Speculation is chiefly about arbitrage, which has a smoothing effect on markets.

Where the problem arises financially is when "speculators" keep supply off the market artificially to manipulated prices in ways favorable to them. Large-scale investors can and do influence markets this way. It's a form of cheating that needs to be regulated out of existence.

The real issue is price rationing. Scarce goods need to be rationed and there are various ways to accomplish this. Price rationing is the means of choice under capitalism and for the most part it works reasonably well in the relative absence of market asymmetry and flexible supply. But that is not all the time, and the times it doesn't work are crucial if vital resources are involved.

But "working reasonably well" doesn't mean equitably either. This is particularly the case when there is a broad range of power, wealth, and income as there is at present in most economies. Capitalism doesn't address this through markets other than peripherally.

How to address such matters within the assumptions of capitalism a challenge that is going to increase. This is going to require a new lens and the ability to think out of the box of capitalist assumptions that define and therefore dominate conventional economics and finance.

A major problem is asymmetry, which conventional economics acknowledges but tends to minimize in favor or stylized modeling. For starters, model a contemporary economy realistically involves complexity, with all the issues this raises, which Keynes pointed out.

To address this successfully, the lens needs to change and that requires changing the dominant mindset.

Matt Franko said...

Yo, we throw away HALF of our food….

Matt Franko said...

Yo, Oil was just -$35 per barrel …