Indian pols revert to Third World type:
NEW YORK (MarketWatch) — India is reportedly considering a ban on futures trading in food commodities, as the government struggles to curb soaring inflation and the rising cost of food has become a major international concern.
India’s finance minister Palaniappan Chidambaram said Monday that he was considering a blanket ban on trading in food futures, according to a report in The Financial Times.
Chidambaram said that governments across Asia share his worries over speculation in the commodities markets, the FT reported.
India is “facing a very grave crisis on the food front,” the minister said on the sidelines of the Asian Development Bank’s annual meeting in Madrid, according to the FT.
India has already banned futures trading in rice and wheat. The latest remarks from India’s finance minister come as his government confronts growing pressure at home to curb rising inflation.
On Friday, official data showed that India’s inflation hit a 42-month high of 7.57% in the week ending April 19.
“It’s indicative of the fact that there’s a real issue here and governments are scrambling to find some kind of solution,” said Cameron Brandt, global markets analyst at EPFR Global, about India’s idea to ban trading in food futures.
“I don’t think it’s a great idea especially given that their food futures market is fairly modest,” Brandt said. “If you take that away, you lose pretty important market signals. One thing the food futures market is telling us is plant more food.”
[…]
There’s not much to say about this except that India still has a ways to go to become a first-rate country.
Also, the ignorance about basic economics of many of the commenters on economics and finance websites never ceases to surprise me.
Unfortunately, our current U.S. Presidential candidates are pretty much at the same level of economic comprehension.
Because of our history and economic strength, bad decisions here are at least not likely to actually starve anyone to death. Yet.
US pols can be idiots and still not cause much damage, because our rules and institutions (formal and informal) usually prevent implementation of the worst ideas. Other countries lack our institutional buffers and depend much more on the wisdom of the current government. A US administration that attempted to ban futures trading would face substantial organized opposition from the agricultural, energy and financial industries and their Congressional representatives. In India, however, it appears that power is so concentrated in the hands of government that the finance minister can float the idea of a draconian futures-trading ban without having to worry about political repercussions.
People always blame “speculators” when food gets scarce, especially when people really go hungry when food gets scarce. India is a democracy. Politicians respond to political signals. This is normal, however stupid it may be.
The same kind of thing used to happen here 100 years or more ago, but then it was usually farmers complaining that their woes were caused by railroads, banks, futures markets, the gold standard, etc. Some of their concerns were addressed by legislation and regulation. It happens.
People shoot the messenger when the news is bad. That is pretty much a universal fact. Market signals people don’t like are no exception.
Food isn’t getting scarce, it’s getting expensive. The expensiveness is what prevents scarcity. Hiding price signals by demonizing speculators and abolishing markets is what leads to shortages.
The USA hasn’t shut down its futures markets since the Second World War when there were price controls. Since then there have been numerous occasions when demagogues responded to high commodity prices by calling for the punishment of speculators, yet we have kept our markets open (thank God). We continue to have plenty of demagogues and idiots, so I suggest that the issue in India is the relative lack of accountability of their government.
Our Constitutional system tends to buffer our strongest, least thoughtful democratic impulses as well as the worst governmental power grabs. Otherwise I suspect that we would by now have ratified the Kyoto and Law of the Sea treaties, banned guns, shut down various markets, stopped executing murderers, etc. India needs to develop further its own cultural and political buffers. I don’t know enough to know what that will take. However, it’s obvious to me that they aren’t there yet if a govt minister can threaten to shut down an entire market segment without concern for political consequences.
Not to mention bans on the export of food that some countries have imposed on their producers. Not just because the countries that otherwise would have received the food have to do without, but also because the prices for foodstuffs in the countries that do no longer export them is dropping, reducing the incentive to raise crops.
“Food isn’t getting scarce, it’s getting expensive.”
A distinction without a difference.
Indian politicians recognize that they have unsophisticated and often illiterate voters who face literal hunger as a result of higher prices. There is also a lot more ideological leftism in India than here. The urge to “do something” is irresistable to a politician under these circumstances, especially since a real or potential opponent will beat him at the polls if he does not.
If things got bad enough here we would see similar demands. Carter’s gasoline rationing was economic madness, but only became unpopular after people saw how it worked in practice.
The Indian voting public is going to have to learn everything the hard way, just like we did.
“especially since a real or potential opponent will beat him at the polls if he does not.”
Or a hungry mob beating him in the street. This is economic stupidity driven by anxiety. Peasantry can endure almost unimaginable collective suffering with little recourse but the French and Russian Revolutions both began with bread riots by city people who were used to eating regularly.