jump to navigation

Crisis = dangerous opportunity July 3, 2008

Posted by ocmpoma in : economics , trackback

There’s a popular expression about the Chinese pictogram for crisis is made up of two other characters which is, of course, too true to be correct.

At any rate, here’s an op-ed that originally appeared in the Financial Times (link to the original at the end of the CFR copy) about how the current crisis involving rising food prices worldwide could just be an opportunity (albeit a dangerous one) for the Doha round of international trade negotiations.

I found two of the statements made in the op-ed very interesting, because they seem to go against what my (so far still woefully limited) reading of economics would indicate — but one of the authors is Jagdish N. Bhagwati, Senior Fellow for International Economics at CFR, so I assume he knows what he’s talking about much better than I. So, now I have to go figure out what I don’t know about the two claims:

1. “…a substantial reduction in agricultural subsidies… would reduce the supply of grains from some countries that subsidise them and increase it from other countries… The net effect on supply would be negative.”

Why would reducing the supply in some countries but increasing it in others, with no change in demand that I can see, produce a net reduction? Is this only in the short-term, until the supply can rise to meet demand again, or does it involve some sort of time-lag, or is it something else I’m missing?

2. “…the impact of reduced tariff barriers on agriculture would be to aggravate food shortages. The reason is that such tariff reductions would lead to reduced food prices and increased demand for grains within the OECD countries.”

So, if demand is increasing, is this again referring to the short-term, until suppliers can increase production to meet the higher demand? I realise that there is a finite amount of arable land on the planet, but a lot of that is currently not used for food production, because it’s not profitable — wouldn’t increasing demand be met by brining those lands into use, and isn’t there enough of it to meet demand, even taking good old Malthus into consideration?

Any way, color me slightly confused.

[?]

Comments»

no comments yet - be the first?