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Relentless rising prices

Bob Morris, on May 16, 2007, 4:34 pm

Corn prices are up 46% in a year in the US. Gas is over $4 a gallon retail in some areas now.

In Guatemala, the price of corn is also soaring due to it being exported for use as biofuel in the US. This means the poor there may no longer be able to afford this basic and important food. Corn prices are expected to go much higher too. All so Americans can continue to drive their cars without concern for comsumption.

But Americans are hurting too, all greatly due to the US “policy of belligerent imperial capitalism” which is now hurting its own citizenry.

Category: News | 6 comments - (Comments are closed)

  • http://www.asymptoticlife.com DJ

    Conventional economic wisdom has generally been that exports are good for a third world economy. However, across the globe, when farmers switch from subsistence farming to export crops, they become poorer. In Thailand, it was fruit: they gave up growing rice and grew fruits for export to Japan. The price of fruit went up so high that Thais, who live in a paradise of tropical fruit, were getting malnutrition because they couldn’t afford to buy their own produce!

    So now it’s Guatemala and corn. The country and the product may have changed, but I’ll bet the rich Guatemalans are getting richer while the poor suffer.

    Meanwhile, in the U.S., prices are rising. That should be no surprise. As my (conservative) macroeconomics professor used to say, “Inflation is always and everywhere a monetary phenomenon.” And what has the Bush admninistration been doing since it took office? Spending more dollars than it has, creating trillions of dollars of “funny money” debt. That’s inflationary. I don’t know if it’s imperialist or not– to me, destroying your own nation’s economy is just stupid.

  • http://polizeros.com Bob Morris

    Short-sighted greed can be that way.

  • Joe Hartley

    Short-sighted anything can be that way. Extant examples of central planning won’t give you the warm-and-fuzzies, either.

    “The Great Hunger” is a book about the Irish famine of the 1840′s. Throughout the period, as the Irish potato crop was destroyed by fungus and the Irish starved, Ireland remained a food-exporting country.

    That being said, it seems a bit odd to me that corn is being exported from Guatemala. Most of the value-added crops are tropical and raised on plantation. I don’t remember seeing any great waving fields of corn in the highlands OR lowlands, unlike, say, Texas or Iowa or Illinois.

  • Joe Hartley

    I didn’t think the idea of Guatemala exporting to the US made sense, so I did some research and read the original Cuban article on which the blog entry was based.

    In fact, like Colombia, Mexico and Costa Rica, Guatemala IMPORTS corn from the US. That, of course, means that as prices rise in the US, they will rise in Guatemala, although it could have the effect of making Guatemalan corn competitive on the world market. Since there aren’t great planatations of corn in Guatemala, this could have a positive effect on Guatemalan income, as the Council on Hemispheric Affairs, hardly a right-wing organzation, noted about a year ago.

    The major problem at the moment appears to be a shortfall in expected corn production. For 2006, Us production was estimated at 2040 metric tons; the actual harvest was around 1967. Biofuel uses (all us old moonshiners prefer to think of it as massive bourbon making) were about 80 million metric tons, about 4% of the use.

    DJ’s old conservative economics professor probably has a better handle than I do on whether 4% of the market is signiificant in setting the price. The Cuban article suggested that it was; they posited a connection without support or discussion. It’s not impossible; one of the things we see in California is that oil prices are closely tied to refinery capacity, and small adjustments can make large swings in price. Of course, the problem with that analysis is that it undercuts most of the conspiracy theories about the oil companies, so you can pick your poison in terms of what theory you want to support, but you can’t explain both with a theory that automaticlly blames the producers or users.

    So, anyway, there do not appear to be any exports from Guatemala, which is not to say that the situation is favorable for the Guatemalans. Facts, however, are important things to get straight, as a recommendation based on faulty assessments of the actual conditions can lead to bad results. I give you, as an example, Iraq.

  • http://polizeros.com Bob Morris

    The Irish potato famine was at least in part due to the Brits *forcing* export of potatoes, making the shortage in Ireland even worse.

    Post edited to reflect that Guatemala imports. The rise in price is certainly due at least in part to corn being used for biofuel.

    The price of corn, like most commodities, is driven by the futures price, so small changes in production can make for large swings in price too.

    Hmm, a refinery going offline could certainly be used to pump the price unmercifully, especially when driven by the futures market. So it can easily be both factors at play.

  • http://www.asymptoticlife.com DJ

    If, as my prof argued, “Inflation is always and everwhere a monetary phenomenon,” then fluctuations in one commodity, like corn, do not inflation make. In this theory, when one price goes up, since there is a finite pool of money, another price (like wages or real estate) must go down. More accurately, when more is spent on corn, less is spent on wages or whatever.

    Inflation comes from the creation of more money, which devalues the currency. Government debt is one way to do it– and the U.S. has plenty of debt these days.