Goldman Sachs DID NOT Cause the Food Crisis

I haven't been, and will not be able to, respond to this silly article in Foreign Policy (no link--they don't deserve it).

So, let's just make this a place holder for now: Goldman Sachs, as evil as they may have been in facilitating the demise of AIG and causing the financial crisis, did not cause the food crisis.

Somehow, some way, we economists need to educate the public about when speculation is good (most of the time) and when it is bad (e.g., the 90s tech boom and the housing bubble).

At least so far, we haven't seen the bad kind of speculation when it comes to food commodities. Maybe it will happen in the future--in fact, I kind of worry we may have a problem in the coming years.  But so far, no.

The basic fact is the following: If prices are high when inventories are low, it is not a bubble.  End of story.

The tough call is going to be when prices are high and inventories are high.  That's not happening right now. But if it happens in the future there will be lots of hopefully intelligent debate about whether expectations about future growing demand or future shrinking supply are or are not reasonable. But right now, and in the recent past, the point is moot. Inventories are low.  Prices are driven by fundamentals: supply and demand.

Comments

  1. That would be the point is moot....

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  2. When all commodities and financial assets act in unison, it is a bubble. When commodities collapse, i.e., do not find a plateau indicated by supply and demand, it is a bubble. Goldman Sachs and derivatives made financial chips out of commodities, so when the casino plays, the commodities follow. It is not absurd.

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