Warren Buffet speaks common sense; alarms most Republicans

[Kuciwalker]

Heck yeah there have been natural disasters which have substantially reduced supplies. Remember the fires which swept through Russia as most of their grain crop was wiped out by drought? Remember how Australia has had drought for years with farms so dry not even weeds grow? We're talking about that happening across most of Australia's wheat belt. China has had massive floods which swept down their main rivers, which just so happens to be the area making up China's rice bowl. For more specific localized example is how bananas now cost ~$4 a banana (not a bunch) in Australia due to a cyclone destroying most of Australia's banana plantations.

Okay, even given those that helps my point, because QE obviously did not cause those disasters.

[Kuciwalker]

Has the Fed's policy inflated markets, including commodities? My impression from reading is that it has (I could be mistaken).

Kucis might say that the problem is that not much of it is making it through to the rest of the economy. Or, that there has not been enough of it to make businesses and individuals behave as if deflation were not imminent.

Many commodity markets have risen upon news about QE; I attribute this to the markets expecting that more QE would help economic recovery, which would increase future demand for commodities, which causes price rises now so that more of today's supply is reserved for future consumption. (This is an efficient outcome.)

With respect to food specifically, much of it cannot actually be stored for long periods of time, so the only mechanism to explain a price rise is some external reduction in supply, or an increase in the amount of money people (primarily poor people) spend on food. In the latter case, if QE is causing the price rise it can only be doing so by directly increasing poor people's incomes.

[Kuciwalker]

That's a bad idea, ask Argentina and Thailand. Food still costs next to nothing compared to incomes for most Americans so let the farmers cash in on world markets.

It was sarcasm.

[Dinner]

Okay, even given those that helps my point, because QE obviously did not cause those disasters.

I agree. I also agree that quantitative easing hasn't resulted in much inflation at all (we've done it in two small steps and the second was required because the first was so small we were still experiencing deflation after it) especially since the post bubble recession has resulted in percistent deflation in most catagories. The few catagories which have increased in price have mostly been raw materials (especially metals, food, and petrol) due almost entirely to demand in China & India. I think we agree that QE, both 1 & 2, isn't to blame for much of anything.

[Jaguar]

I agree. I also agree that quantitative easing hasn't resulted in much inflation at all (we've done it in two small steps and the second was required because the first was so small we were still experiencing deflation after it) especially since the post bubble recession has resulted in percistent deflation in most catagories. The few catagories which have increased in price have mostly been raw materials (especially metals, food, and petrol) due almost entirely to demand in China & India. I think we agree that QE, both 1 & 2, isn't to blame for much of anything.

TIPS spreads indicate that investors only think inflation will be 1.5 to 2% over the next few years.

[Aeson]

With respect to food specifically, much of it cannot actually be stored for long periods of time, so the only mechanism to explain a price rise is some external reduction in supply, or an increase in the amount of money people (primarily poor people) spend on food. In the latter case, if QE is causing the price rise it can only be doing so by directly increasing poor people's incomes.

It is the relatively rich around the world who paid more for food due to the price hikes in the time-frame we are talking about. The poor paid the same, they just got less for it. For example, during the oil scare(s) rice was up to about 15% more than it's usual cost here. Rice is easily transported and stored for relatively long periods, and most of the local farmers are growing it for themselves so it can't go up much. (Many other crops were 2-3x normal prices.) I still ate as much rice (and other things) as before. I paid more for it. I'm not rich in the US, far from it, but I'm rich here. Some days I spend more than my neighbors will spend in a year. (For the first year I was here I averaged more per day.) The result of the higher prices was that many of my neighbors ate less rice (those who don't grow their own) or borrowed from those of us who did have stores of rice.

Even those who sold rice locally didn't benefit from it. Producers were passing on costs increases for inputs (didn't help that there was a fertilizer scam going the same time). Given the way "financing" of rice production works here, the producers were actually worse off because the amount of rice kept to pay for fertilizer is not indexed to the price of rice at all. Most growers just used less fertilizer. This resulted in less rice for everyone's split, land owner, manager, and laborers. Only the relatively rich could afford to put the proper amount of fertilizer on their rice. The middle-men who sell rice at market were just passing on their increased costs.

The real result of all of this was that the poor people got a bit poorer. They were spending the same amount of money and got less in return for it.

It was the relatively wealthy who paid the cost increase nominally, and the actual poor who really "paid for" the nominal increases as their diets were worse. Prices came back down eventually, rice costs almost exactly now what it did in 2007... which should be ample evidence that the poor didn't get richer in the timeframe. Otherwise prices shhuld have held at those levels. Right?

I don't know how much if any QE was responsible for the increased costs of food. But saying that inasmuch as it did it was because of poor people with more money is just absurd. It ignores reality.

Now if we're talking about long term trends, the price of food is somewhat paid by increasing incomes of the poor. But even then it's not simply the poor's increased incomes that are paying for it. Middle class and even the rich (in countries which don't/can't manipulate their food prices with subsidies) are paying for it too, and probably more-so than the poor.

[Aeson]

I should note that in countries that do subsidize their food prices, they are still paying for it in taxes, and to some extent passing on the costs to those they export to.

[Kuciwalker]

Aeson, your story necessarily involves a very broad swathe of the Western middle class (and Western poor!) having substantial nominal wage gains. Otherwise there is no explanation for why they decided to spend more money on food.

The problem with this is that those nominal wage gains have not happened at all. The entire problem is that NGDP is far below trend.

I don't know how much if any QE was responsible for the increased costs of food. But saying that inasmuch as it did it was because of poor people with more money is just absurd. It ignores reality.

Have you paid any attention, at all, to the rate of growth in China, India, and other similarly situated countries?

[Aeson]

Otherwise there is no explanation for why they decided to spend more money on food.

Because we ****ing want to continue to eat...

[Kuciwalker]

That's circular. Prices rose because nominal spending rose. Nominal spending rose because prices rose. Why? How was this a consequence of QE?

[Dinner]

Have you paid any attention, at all, to the rate of growth in China, India, and other similarly situated countries?

I have to agree with Kuci here as well. Let's just look at meat consumption: In 1970 your average Chinese family had maybe meat with one meal per week, probably a fatty bit of pork, where as now even the poor are eating meat 3-4 times a weak, and often more of it each time with even more expensive beef in the diet. The middle class and rich (neither of which existed in communist China in 1970 unless you count the political elites) have almost western style diets eating meat every day and sometimes in multiple meals each day. Since it takes several pounds of grains to raise one pound of meat and because there are 1.3 billion Chinese... You can see how even small changes can amount to HUGE increases in demand for grain & meat which push up prices for the entire globe. Also what China has done over the last 20 years is being replicated by India which also has over a billion people.

Food prices are going to keep going up as are raw materials prices and it has almost everything to do with increased demand in the 3rd world.

[Aeson]

That's circular. Prices rose because nominal spending rose. Nominal spending rose because prices rose. Why? How was this a consequence of QE?

If we were to assume QE raises all nominal values equally then it would be because prices for everything (including labor) rose. In that case, the price of food increases similarly because everyone who makes food has to have their incomes double too, and everyone still has to eat. Doesn't matter if they're rich, poor, or inbetween. (Though the rich and in between have more room to cut out unnecessary food from their diets... but given obesity rates in the first world it doesn't seem that that is happening much.)

It won't work like that in practice because there are inefficiencies in distribution and pricing of a great many things (including labor). There are tarrifs and subsidies. There are minimum wages that effectively set labor pricing without being indexed to anything in particular except something a politician pulls out of their ass. There are long term labor contracts. There are people who live in areas that just aren't going to see any benefit from QE in any reasonable timeframe, but will have to almost immediately deal with short term changes in prices for imported goods.

In the end, your claim that the price on food can only change due to the poor's ability to pay for it increasing is absurd. If you drop the "only" then it becomes much more reasonable, but still misses the point that QE doesn't necessarily raise poor people's wages nominally or otherwise if it increases the price of food. There are plenty of other factors involved in whether poor people's wages increase or not.

[Aeson]

I have to agree with Kuci here as well. Let's just look at meat consumption: In 1970 your average Chinese family had maybe meat with one meal per week, probably a fatty bit of pork, where as now even the poor are eating meat 3-4 times a weak, and often more of it each time with even more expensive beef in the diet. The middle class and rich (neither of which existed in communist China in 1970 unless you count the political elites) have almost western style diets eating meat every day and sometimes in multiple meals each day. Since it takes several pounds of grains to raise one pound of meat and because there are 1.3 billion Chinese... You can see how even small changes can amount to HUGE increases in demand for grain & meat which push up prices for the entire globe. Also what China has done over the last 20 years is being replicated by India which also has over a billion people.

Food prices are going to keep going up as are raw materials prices and it has almost everything to do with increased demand in the 3rd world.

None of this has anything to do with QE in the last 3 years. Kuci's statements that I was responding to were specifically about the (hypothetical) effect of QE in the last 3 years.

I've already said a couple times that over decades food prices can rise because poor people are being raised up to higher income levels. It's still silly to claim that the only reason is poor people being raised up though, especially for short term price spikes.

[KrazyHorse]

You are an idiot. QE moved the needle on expected inflation a couple of dozen basis points. The effect on worldwide food prices was negligible relative to the size of food market volatility.

[Aeson]

You are an idiot. QE moved the needle on expected inflation a couple of dozen basis points. The effect on worldwide food prices was negligible relative to the size of food market volatility.

I have been very clear in this thread that I am not saying that QE did (or didn't) have an effect. I have qualified it in my posts.

I don't know how much if any QE was responsible for the increased costs of food.

Kuci though did claim that QE increased the price of food:

Prices for those things were only low because people didn't have enough money to buy them and weren't expected to for a long time. QE brought expectations of some degree of economic recovery, which meant that in the near-ish future people were going to have a lot more money, some of which they would spend on oil and food! Thus, the price of oil and food rise immediately so as to distribute those good intertemporally according to expected demand.

@ KH the ****ing moron who doesn't know how to read

(I am willing to retract that if you are talking to Kuci. Just because it would be funny for you to call Kuci an idiot after cheerleading for him earlier in this thread. "Glad to see kuci and jag keeping you numbskulls in line.")