Let Them Eat Bubbles

By Elizabeth Palmberg 7-01-2008

"Grain Markets Panic Buying, Export Controls, and Food Riots," trumpets the headline of one Web site I read while researching the world food price crisis for Sojourners' July issue. Was the site a moral critique of how our corporation-driven, anything-goes global economy has caused the cost of food to skyrocket, driving 100 million people into poverty?

Actually, the "food riots" headline is geared to telling people how to profit from others' suffering. The next sentence reads: "Long-term global demand and supply trends in the agricultural sector remain very favorable for investors." Morally repugnant as that segue is, the real problem is that speculation probably helped cause the food price crisis (in concert with other factors such as agrofuel production, rising meat-eating, and the gutting of poor-country farm policy).

Speculative markets are innately prone to stampedes, as we can see from the mortgage bubble, the dot.com bubble, etc., etc. Wild price swings are built into the system: It's the job of a money manager to buy commodities that will go up (helping to inflate bubbles) and sell them when they start to go down (helping deflate them).

Turning up the speculative heat is the fact that there's a LOT of money out there chasing investments -- double what there was in the year 2000. A recent NPR program, The Giant Pool of Money, spells out, in human terms, how the pressure that speculative money exerts was a recipe for disaster during the housing bubble.

While that bubble hurt homeowners and investors when prices deflated, food-market speculation hurts the world's poor as prices go up -- way, way up. Incredibly, many voices in the press fly in the face of reality by arguing that speculation somehow decreases the wild swings and bubble pricing of markets. For example, The New York Times recently argued that

... the more money that speculators are willing to put to work in the market, the more liquid it is and the easier it is to buy and sell without causing big ripples in prices.

If you believe that stampedes calm vibrations, I've got some subprime mortgage-backed securities to sell you. A more accurate description of how speculators act can be found in Washington Post humorist Gene Weingarten's interview several years ago with Nobel Prize-winning economist Robert Solow:

[Weingarten]: ... would it be your professional judgment that Wall Street, the principal bulwark of the American financial system, is at the mercy of persons with the maturity of kindergarteners -- or of preschoolers?

Solow: It's at the mercy of very, very nervous people.

Now, the world's poor are more than nervous. They're hungry. Very hungry.

Elizabeth Palmberg is an assistant editor of Sojourners.

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