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Weekend reflections

June 14th, 2008

It’s time once again for weekend reflections.Feel free to write at greater length than for a standard comment thread. As always, civilised discussion and no coarse language.

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  1. Ian Gould
    June 14th, 2008 at 23:26 | #1

    The latest New Scientist has an article on the global food crisis.

    An accompanying graph shows corn prices doubling in the past 2-3 years – and wheat and rice prices roughly tripling.

    Since so far as I know neither rice nor wheat is used on a large scale for ethanol production, this would tend to support my view that rising food prices are more attributable rising demand and drought in Australia and South Asia than to bio-fuels.

    (On a related note, much of the US corn crop is used to make high-fructose corn syrup, a cheap sugar substitute made because US tariffs keep the price of sugar artificially high. Next time someone blames “the greens” for high food prices I think I’ll blame Americans who drink non-diet sodas.)

  2. observa
    June 15th, 2008 at 00:05 | #2

    Commiserations to Hawks and Crows fans for having to sit through that scintillating display of ‘composure’ football tonight to see who would earn the premiership points. Why not save us all the pain and award them to the team that wins the toss and then we can all go home and watch soccer replays. Did anyone kick more than 25-30 metres in that abhorrent display of keepy off? The way the match finished with such a colossal whimper said it all. I was cringing in fear the whole night that one of the 44 players would make a mistake and be carried off to the stocks on the coaches’ orders. Late in the third quarter Wallsy commented deadpan that Roughead ‘showed great composure’ in not having a shot on goal and kicking it 20M sideways inside the fifty arc to some poor teammate who had to take the responsibility of the shot instead. As if that wasn’t bad enough, we had a bloke like the once mighty Blighty chirping in how fantastic it would be if this were a night GF. This from a bloke who could actually raise a pulse from the dead. What drugs has Demetriou got you on now Malcolm? The highlight of the night was Buddy boy actually bumping into another player and getting reported. Will he or won’t he get rubbed out folks? Stop the world I want to get off! If they rubbed out the players in the lad’s amateur footy match this arvo for such ‘unduly rough play’ neither side could field a single player let alone a team next week. I give up Osama. Where’s my bloody prayer mat! Then Sheik Demetriou can hand out the burkhas to his flock.

  3. Socrates
    June 15th, 2008 at 00:28 | #3

    Observa

    I just got home from the Hawks Crows game and partly agree; the atmosphere at the ground was thrilling, but the game was also frustrating. Composure football is not a word I would use for it. Pressure and intensity sure, but there were a lot of errors and even some panic in the face of it. There was a bit of dew at the ground but no rain and so conditions were pretty good yet there were a lot of errant kicks and handballs. Defence was excellent from both teams. Adelaide missed one too many set shots.

    I have a reform suggestion: why not ban runners? At times there was a small army of them on the ground issuing tactical instructions to players. Most were obviously defensive – telling them who to mark. They just get in the way; I’d say nobody but medical staff should be on the ground in the event of injury. Then we could see who actually knew how to play, and I suspect the game might open up.

    It will indeed be interesting to see Franklin’s fate. I’m a Lions fan so its academic but from what I saw there was definite high contact. If they are consistent with their protecting the head edict I suspect he is in trouble. I thought there were other similar incidents that went unreported though.

  4. observa
    June 15th, 2008 at 09:23 | #4

    Socrates, I’m sure it was real nail biting stuff for the fans directly interested in the outcome. The rest of us were interested in sitting down to a top 4 contest between 2 finely tuned sides humming along well into the season, to see what the AFL’s best can throw at us. All the more appetising if the trouble and strife is off to a chick flick and ditto the fruit of the loins elsewhere. A quiet ale in hand and the appetite whetted after an afternoon of the lad’s lesser lights hitting the body, contested marks and some real bloody passion. What do you get? Cardboard cutout, method actors being directed around the set in some agonising display of the AFL’s version of The Bold and the Beautiful, when I should have joined the missus and the girls for 27 Dresses and a real cry. The country’s finest footballers playing keepy off from end to end for three quarters and they manage 58 points and 55 points respectively on a perfect windless pitch, after they gave us a real flutter late in the piece with consecutive goals each. Is it half time at 27 Dresses I’m wondering? This is what our neutered, PC, method actors have been reduced to, with all those resources and brains behind them. But wait for it, what’s this..? In the last quarter Clarkson has let Franklin off the leash(better a leash than God forbid he chokes and loses)to do what he does best. Go out there, run around and play with some flair and passion without the leash Lance meboy and guess what happens? His team actually wins the prize, despite all his teammates’ best instructions to avoid doing so. Well fancy that eh? There’s no question now they’ll have to rub him out for a few weeks to bring him into line with current thinking and the modern game. RIP AFL.

  5. observa
    June 15th, 2008 at 09:59 | #5

    ‘Unduly rough play play’ is it? Makes you wonder what the SAS are doing in Afghanistan now doesn’t it? Never fear lads, there’s still the playing fields of Eton out there in the Amateur League and the SANFL to recruit from. They shall not fall!

  6. gerard
    June 15th, 2008 at 10:54 | #6

    rising demand and diminishing supply is pushing up the price of food – but double/triple in 2-3 years? it can’t be the only reason.

  7. Ian Gould
    June 15th, 2008 at 16:27 | #7

    Gerard, much the same has happened to the price of gold, oil, copper and coal over the same period.

    Which tends to suggest that if there are other factors involved they’re unlikely to have much to do with bio-fuels.

  8. Salient Green
    June 15th, 2008 at 16:43 | #8

    Perhaps rising beef consumption has more to do with rising grain prices. The Swedes think so.

    http://www.treehugger.com/files/2008/06/swedes-say-ethanol-better-than-beef.php

    The price of most resources impacts on food production in some way and when they rise, everyone along the way to the consumer gets their snouts in for an orgy of profiteering.

  9. gerard
    June 15th, 2008 at 22:06 | #9

    I wasn’t suggesting that biofuels were responsible. I’m more interested in recent developments in the world’s financial system.

  10. Ernestine Gross
    June 16th, 2008 at 13:22 | #10

    Re 9. gerard,

    I followed your posts on the topic of sudden and significant increases in food and oil prices and questions arising from it from the perspective of an econometrician. However, I may have overlooked or forgotten subtle or even major points – apologies in advance for such oversights.

    It seems to me you don’t reject the ‘increasing demand-decreasing supply’ hypothesis per se (because it is a truism in some sense) but you wish to explain (understand) the origin of these apparent supply and demand changes, including their speed.

    I looked for some output data on basic food stuff production (rice, wheat)to get a feel for things. One source on rice, which looked most promising, proved to be inaccessible for me (corrupt)http://www.irri.org/science/ricestat/. Another one contains data indicating that the total world supply of rice declined from 1999 to 2003
    http://www.foodmarketexchange.com/datacenter/product/grain/rice/detail/dc_pi_gr_rice0602_01.htm. This site also contains some price data and some comments which challenge the ‘demand/supply’ hypothesis. I stopped at this point (data reliability, etc, etc.)

    Regarding financial markets, you may not be surprised if I say all markets (consumer, producer, labour, physical assets, financial assets)are interrelated (Radner’s work from the mid-1970s is for me still the best conceptual, albeit very abstract, model to see the big picture). I would not be surprised if a non-trivial number of ‘investors’ switched from financial assets into commodity markets from around November 2007 onward. One of the commentators on one of the threads on this site talked about ‘speculation’ being useful in smoothing prices. ‘Speculation’ is a rather broad term – any investment is, in a sense, ‘speculative’. Technically (in a G.E. model) if a person (‘investor’) buys say rice and stores it in anticipation that the price will rise in the future, is ‘a producer’ who buys rice at time t, provides storage facilities, and then sells the rice at a later date. In this case prices are ‘smoothed’. However, this result relies on ‘the producer’ being ‘small’ in relation to the market and hence cannot measurably affect the price. Otherwise, the situation would be better modelled as a ‘strategic game’ where outcomes, commonly referred to as attempts to corner the market, are possible.

    So, I probably told you what you already know. My excuse is that time available to an individual is finite and my comment may be yet another observation of humans operating under ‘bounded rationality’.

    it may not surprise you if I say that all markets (consumer, producer, physical asset, labour, financial) are interrelated.

  11. Ernestine Gross
    June 16th, 2008 at 13:25 | #11

    Sorry, I forgot to delete the last two lines in the foregoing post.

  12. gerard
    June 16th, 2008 at 21:28 | #12

    thanks ernestine, the other day somebody posted a link to the Oil Drum which was quoting George Soros in 1994 on the subject of ‘reflexivity’. I assume that this type of phenomenon is at work in commodity price speculation at the moment, helping to account for the suddenness of the recent increase.

    I must state at the outset that I am in fundamental disagreement with the prevailing wisdom. The generally accepted theory is that financial markets tend towards equilibrium, and on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it. In certain circumstances, financial markets can affect the so-called fundamentals which they are supposed to reflect. When that happens, markets enter into a state of dynamic disequilibrium and behave quite differently from what would be considered normal by the theory of efficient markets. Such boom/bust sequences do not arise very often, but when they do, they can be very disruptive, exactly because they affect the fundamentals of the economy….

    Classical economics was modeled on Newtonian physics. It sought to establish the equilibrium position and it used differential equations to do so. To make this intellectual feat possible, economic theory assumed perfect knowledge on the part of the participants. Perfect knowledge meant that the participants’ thinking corresponded to the facts and therefore it could be ignored. Unfortunately, reality never quite conformed to the theory. Up to a point, the discrepancies could be dismissed by saying that the equilibrium situation represented the final outcome and the divergence from equilibrium represented temporary noise. But, eventually, the assumption of perfect knowledge became untenable and it was replaced by a methodological device which was invented by my professor at the London School of Economics, Lionel Robbins, who asserted that the task of economics is to study the relationship between supply and demand; therefore it must take supply and demand as given. This methodological device has managed to protect equilibrium theory from the onslaught of reality down to the present day.

    http://www.geocities.com/ecocorner/intelarea/gs1.html

  13. Ernestine Gross
    June 17th, 2008 at 01:50 | #13

    Thanks, gerard. While I would agree with Soros first paragraph but I have difficulties in relating his second paragraph to general equilibrium models I know of.

    How would you relate the quote by Soros to contemporary (post 1950) general equilibrium theory?

  14. Ernestine Gross
    June 17th, 2008 at 10:45 | #14

    gerard, I withdraw my question. While I’d like to have your thoughts on this, the time and space constraints may be too severe.

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