VIEWPOINT: Look for the real cause of price hikes

Remember back when electricity prices suddenly went through the roof?

  • Thursday, June 26, 2008 12:30am
  • Opinion

Remember back when electricity prices suddenly went through the roof?

I remember reading about the causes — power plants down for repairs, really hot weather and surging demand. Those selfish California citizens, it was written, have only themselves to blame; they need to stop turning their air conditioners down to 60 and running the washing machine with only a pair of underwear in it.

I remember thinking, “Well, there’s got to be more to it than that.” There can’t be so many new houses or new irresponsible consumers every day to make prices jump that dramatically every day. Do you remember what the cause really was? Speculation and market manipulation by Enron.

Do you remember the Internet bubble, when Internet stocks rose to crazy heights? Were they really “worth” what people were paying for them? No, but as long as people think the price will keep rising, traders will keep trying to make money on the momentum and the stock will keep rising to ridiculous heights.

Fast forward to 2008 and oil prices.

Sure demand for oil is rising — but not by that much every day. In fact, the oil rich countries just told Bush that they wouldn’t increase supply because demand hadn’t increased! This is just another speculative bubble that, like all, will burst.

The really scary part is now those same pressures are starting to act on food, whose price on the markets is spiking higher on a daily basis.

Droughts in Australia, they say, and bio-diesel. I think that’s baloney, or, rather, it’s partly, or even mostly, baloney. Those droughts have been going on for years. I think that speculators looking around for the next big wave focused, unfortunately for the poor, on food.

The electricity spike was caused by a group of speculators who were actively and illegally conspiring to raise the price of electricity. In cases like that, you can catch and prosecute the evildoers.

But it’s not illegal to try to make money in the markets by buying low and selling high—in fact, that’s the whole point. I don’t think that traders are necessarily conspiring to increase the price of food—it could just happen as a natural consequence of their normal activities.

I’m not an economist or a financial guru. I don’t know how to prevent or even lessen the catastrophic effects of a speculative run on food prices. We can’t ban markets. We’re talking about traders who live all over the world, after all. Our power to make them change their ways is pretty darn limited.

But you have no chance of finding a solution if you don’t understand the cause. Increasing supply doesn’t help if the cause is speculation, so Bush begging the Saudis to up production was pointless, even if they had agreed to do it. But we better start figuring it out pretty quick, because a big speculative bubble in food prices would get really ugly really fast. You can postpone house buying or trips till prices come down next year. It’s pretty tough to postpone eating for very long, especially if you are poor and already struggling to buy any food at all. All the countries in the world aren’t rich enough to supply food aid to the billions who would need it.

Let’s cross our fingers and pray it’s just a little bubble and the traders will soon move on to some other target.

Sharon Emerson is a Langley resident.

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