It is time to stop quivering in our boots in pointless fear of the future and just roll up our sleeves and build it.
- Ray Pierrehumbert

Friday, May 9, 2008

Good news of a sort

According to the NYTimes today:
The recent cyclone in Myanmar, formerly known as Burma, heavily damaged rice fields there and sent rice prices soaring in the country. But rice traders said this had not pushed up world prices because Myanmar’s exports were tiny and the country and aid agencies lacked the money to buy large quantities of rice on world markets.

“I don’t think the Burmese cyclone is having any significant effect,” said Korbsook Iamsuri, the secretary general of the Rice Exporters Association in Thailand.
In other words, "the demand for rice will not go up because the country suddenly lacking food is too poor to buy at today's prices."

Not that the Burmese junta is helping, but the pricing story is an independent factor based on the market optimizing for utility as it does so well.

3 comments:

Steven said...

Natural Disasters and Poverty


It is poverty in Burma that will make the difference in the estimated 500,000 death count from Cyclone Nargis and the relatively low toll of 1,800 from Hurricane Katrina.

Economic study shows that the strength and duration of storms has almost no correlation to the death toll. Poverty does.

Even in some of the poorest areas of New Orleans, many people had access to cars and homes that would stand during floods while families waited on the roof for rescue. Government policies in the 1930's led to a large demographic of poor laborers, stacked in federally funded housing, living in places marked as lakes on old maps. Without FEMA and nationally subsidized flood insurance, the natural population of New Orleans would have been less, and the demographic would be those who could afford the risk.

It is the economic prosperity of the US that allowed the rescue efforts in ways that go beyond the obvious. Much of the work done in New Orleans was by volunteers who came from all over the country. Only in an economically prosperous country could so many people afford to donate their time. Wealth of modern economies allowed the millions in government and private aid that came to Thailand after the 2004 tsunami, and the aid that is now moving to Burma.

The best defense against nature is wealth. It's not the disasters (that create such a high cost in lives and property damaged)- those have existed for thousands of years. Policies intended to help people in the short term often have unforeseen consequences- like overcoming natural risk aversion to live in flood and hurricane prone areas. Wealth and freedom allow people mobility and protection. It's poverty that kills.

Michael Tobis said...

The best defense against nature is "wealth", I suppose, in some sense entirely beside the point I am trying to make..

The point is that the market only optimizes utility if you ignore the desires of very poor people. The larger the spread in wealth, the less effective the optimization for utility.

The problem with economic disparity is derailing biofuels. The problem is not biofuels. The problem is that the marketplace cannot account for human dignity. Biofuels don't starve people. Hamburgers don't starve people. Lack of money starves people.

The best defense against starvation is not absolute wealth; it is relative wealth. The idea that everybody on earth can continually get richer is dubious given that the world cannot get larger. Resource limitations kick in and you are bidding against everyone else. If you drop into (or are born into) the low quartile worldwide, well, today's message is "hard luck".

Steven said...

This is where once again I think you miss the point that science exists to account for "resources" (in very minute and precise exchanges) and economics exists to account for human behavior related to VALUE.

Value and resources are not the same. Scientists can keep saying that XYZ number of atoms exist on planet earth and nothin more can be made. I take your point.

But MY point is that this tells you nothing of their VALUE. Those atoms can be arranged in more beneficial and less beneficial ways. And there are several billion individual actors- different arbiters of what value is.

I can tell by the way that you use "optimize" and "utility" in a sentance that you don't get either *in an economic context*.

I wasn't really talking about biofuels here. But since you bring it up, the problem isn't a lack of market account for human dignity. The "market" is 6 billion people. Nothing more, nothing less. Every individual actor accounts for his own dignity.

The "problem" re: biofuels is that an artificial subsidy has altered the natural market value- causing producers to shift their outputs. Without ethanol subsidy, and without agri-subsidy at all, corn and rice would be at even lower prices than they were before the current mess.

The idea that there is some "lower quartile" is false. At least when there *is* a market. In the US, we measure quartiles, but the people that make them up change over years. It's like referring to people in "the lobby". They will not be the same people at a later time.

Haiti and Burma are in the state that they are in specifically because there *is no market* in the real sense. Private property rights, rule of law, free entry and exit of the marketplace, etc.

The evidence on this is clear, the IMF, which insists on pro-market measures in order to help with assitance, began a growth assistance program in Haiti in 2005. 2007 saw a real growth of 3.5% which is the largest since 1999- and if those policies are continued and expanded, I expect we will see better things for Haiti in the future.

There are too many examples of countries laden with resources that failed due to lack of a market. There is also ample evidence in countries which are essentially nothing but a rock who have prospered greatly by nothing more than basic market protection.

The idea of relative wealth is what raiders on the desert practiced for hundreds of years. Wealth is created, because wealth does not measure resources, it measures value. This system though does allow for the most efficient use of resources, and the more trade, the more efficiency.

I have recommended it before and I will again. Don Boudreaux's book "Globalization" lays all this out very clearly. The first chapter is chock full of graphs that show the prosperity a country enjoys is not correlated with resources or population- but the amount of trade.