Tuesday, February 01, 2011

Could Tunisia and Egypt Lead to Change in Latin America? Also, What About Food Prices?

Boz has a stimulating essay on the potential for the Middle East protests to spread to Latin America. He absolutely understands the massive differences between the two regions, but also suggests that 2011 could be a "year of crisis" for Latin America due to unstable governments and the inability of leaders to follow through on economic promises. He also rightly notes how a globalized media and access to information can spread tactics and movements around the globe in a short time.

Boz mostly writes about the potential impacts of widespread protests rather than speculate on precisely how they might come about. But he alludes to what I think may be the most important issue in the possibility of 2011 being a year of global instability:

If this is linked to global commodity prices and we think those prices are going to increase this year, then we could be looking at a very tough May or July or October that makes January 2011 look easy.

Bingo. Rising food prices have contributed on an immediate level to the Egyptian crisis. If you are irritated at your government anyway, the inability to feed your family 3 meals a day can be a real catalyst to get you in the streets. I absolutely see food prices being the single most important issue in global instability for 2011 at least and perhaps moving forward. Given that these rising prices are driven as much by speculation and the American need to turn corn into ethanol as actual food shortages, there's going to be good reason for people to be angry.

In a related issue, King Abdullah of Jordan has dismissed his cabinet, responding to protests that have stemmed in part from rising commodity prices. Kevin Drum notes that it makes political sense for leaders to subsidize food in order to ensure their political survival. On the other hand, Drum notes that this is less than ideal:

One of the staples of op-ed page commentary is complaints about third-world governments that subsidize food and fuel to keep prices down. It's inefficient! The market should set prices! And so it should. But events of the past couple of weeks certainly make the decision to subsidize a lot more understandable, don't they? If it's a choice between market efficiency and keeping your head off a pike, market efficiency is going to lose every time.

Really? It drives me crazy to see leading progressive writers accept free-market capitalism as fundamentally a good thing. Isn't it not only politically feasible but morally correct to subsidize food? Isn't ensuring citizens can eat one of the fundamental jobs of a government? We subsidize things all the time. Americans subsidize the oil industry so it can make massive profits. We subsidize farmers to produce as much corn as possible, even though they lose money on the product. In this particular case, the U.S. government is already subsidizing corn and other farm commodities, except that instead of ensuring low prices for consumers, we give the money to producers and to food companies in order to create new (and often disgusting) products out of this excess food.

So it seems to me that Drum is awful naive in stating that the market should set prices. Moreover, it's a legitimate argument that no, the market shouldn't set food prices.