The stupidity, it hurts – the mainstream media gets it wrong on food speculation
I FIND it to be actually physically painful when I see some ghastly lefty nonsense being picked up as the obvious truth across the political divide. We expect the comies to say that we should wipe out the bourgeoisie but it would be odd to see the Mail or Telegraph agreeing with them. I feel the same pain when obvious nonsense moves the other way, don’t worry. Seeing the vile racism of the right being reflected in the supposedly internationalist left’s sometimes attitudes to immigration for example.
Today’s example is this from the Torygraph:
Finally, there is the pernicious effect of speculation. About 80 per cent of the global food trade is now speculative, and firms such as Goldman Sachs, Merrill Lynch, Deutsche Bank have spent billions gambling on the price of food, artificially driving up prices.
This is just canting nonsense. It’s driven by the very stupid idea tht if commodities trading is done by men, in offices, with money, then it must be evil. It’s a view put forward by the likes of the World Development Movement (who, most amusingly, manage to disprove the contention in one of their own reports) and it’s leaked across to such as Oxfam, and so on.
The actual effects of speculation on food prices were accurately described by Adam Smith here. Start at paragraph 40. It’s a long read which is perhaps why so few have managed to grasp it over the past 236 years.
The short answer is that speculation moves future high prices forward in time. The effect of this is that those future high prices are not as high as they would have been without the speculation. Thus, speculation reduces food prices, not increases them.
I don’t mind if the Teenage Trots want to bleat about how capitalism oppresses the poor. But I do when their stupidity infects the mainstream: thus my pain at seeing this this morning.