Commodity prices: scarcity bites

Today Krugman writes about commodity prices (oops, missed the link the first time).  To me, anyway, he looks right on all counts.

1) I've seen no evidence that the spike in 2008 was a speculative bubble.  That goes for the current fledgling rise as well.

2) I don't think the commodity prices bear significant influence on inflation.  Most of what we buy is comprised of domestic wages and rent, neither of is likely to much influenced by commodity prices, so inflation will remain subdued.

I wonder if Julian Simon were alive today, whether he would be willing to make another bet with Paul Ehrlich. We'll never know.  But if he were alive, and he were to repeat that bet, this time I think he'd lose.

Comments

  1. Michael,

    Interesting comment: ” I wonder if Julian Simon were alive today, whether he would be willing to make another bet with Paul Ehrlich. We'll never know. But if he were alive, and he were to repeat that bet, this time I think he'd lose.”

    I agree with you, but I am curious about your thinking/and or reasons for saying it.

    I know my response would be to cite difficulties inherent in increasing crop yields to match projected population trends. Maybe Monsanto’s plant breeders know something I don’t (very likely, but still…), I still think it will be difficult to “…help farmers double yields in our core crops of corn, cotton and soybeans between 2000 and 2030, while producing each bushel or bale with one-third fewer resources in aggregate (such as land, water and energy)” as they have pledged.

    I would also cite uncertain and increasing input costs.

    Finally, I would also cite the potential huge “hammer” of climate change.

    Best

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  2. James,

    I agree with you on all points.

    For agricultural commodities, it appears the yield trend will have to accelerate to keep up with demand growth. The evidence I see, with the possible exception of corn (I'm skeptical), is the opposite: the trend is leveling off.

    If we add to this: depleting soils, depleting aquifers, and climate change, it's hard to see how technology will keep up.

    I know less about energy and metals, but the story looks similar. It's just that demand is growing so much faster now. While supply will keep up with demand one way or another, the only way I see that happening is with progressively higher prices.

    A health dose of uncertainty should be tacked onto all of this. Sometimes things change fast. Big natural gas finds a couple years ago are a good example.

    Also, this is all armchair reasoning and extrapolation from all the data I've looked at. I'm not in a position to make statistical forecasts right now. Past modeling hasn't been very good at this. But maybe someday I'll give it a shot...

    ReplyDelete
  3. Speaking of Julian Simon, a recent blog posting in the NY Times speaks to this very thing:

    http://www.nytimes.com/2010/12/28/science/28tierney.html?_r=1&hpw

    ReplyDelete
  4. I would rather be an optimist but, tend to be Malthusian by nature. I really think we are now pushing the limits of the earth as we approach 7 billion.

    By the way…very interesting visual study of how hard we are pushing the earth in terms of plant production for food that was presented at the recent AGU conference couple of weeks ago and nice presentation by NASA here:
    http://www.nasa.gov/topics/earth/features/carbon-capacity.html

    ReplyDelete
  5. James:

    Great link to NASA--thanks for that.

    I'm reticent to use the word "Malthusian." For most economists, me included, that brings in a whole world view that doesn't really fit reality as we've seen it since the dawn of the Industrial Revolution.

    But I'm not particularly optimistic, either.

    The difference between my view and a Malthusian view is that I don't think the great majority of humankind is doomed to live in misery. Rather, I think a significant minority of the world's population--say the poorest third--may be doomed to misery or worse. Also, it's per-capita consumption of the richer half, at least as much as population growth, that is straining the world's natural resource base. Finally, I think the good ol' economic price system would solve the scarcity problem with little misery at all if there were not massive economic disparity in the world.

    If you say the word Malthusian, you'll lose a lot of economists, probably for the wrong reason. The issues are more complex than that.

    ReplyDelete

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