Comment by kelnos | Hacker News Reader

Comment by kelnos | Hacker News Reader

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Sorry, they did no wrong. They live in the USA and they have the right to manage their trading/strategies/prices the way they like.

I don't think I agree. Let's think about the situation (assuming the posted article is correct): the price of wheat was relatively stable, on the order of $3-$6 per bushel. This system was fine, and stable, for years and years.

Then some financial analysts come into the picture and decide that this is an untapped market where they can make some money. So they do their magic, and -- again let's assume the article is correct and this was actually the cause -- wheat prices jump like crazy.

The result, in real terms, is that a larger portion of the world had to be considered "food insecure," and I'd imagine that some people actually went without food that wouldn't have otherwise.

Is a financial firm's ability to make money (legally, even) more important than people's ability to eat? Or even just more important than people's ability to feel safe and secure in knowing where their next meal is coming from?

From my perspective, that's a resounding no. The ethical and moral obligations easily outstrip the financial benefits.

As you say, maybe it had positive aftereffects, that the Tunisian government stepped back and decided it needed to take local action to make the country self-sufficient. And that's great, but I don't know that that would work everywhere in the world.

I know there are exceptions. Places where there isn't enough water for example. But let's get a closer look, most of the famine is in Africa. Yet, they have enough lands and water to produce what they need.

So the problem isn't in the price; but in the economy and policy of these countries. If the USA wants to do something about these countries, they just need to stop supporting dictatorial systems.

> So they do their magic, and -- again let's assume the article is correct and this was actually the cause -- wheat prices jump like crazy.

If you are not going to explain prices in terms of supply and demand, you need to have clear, compelling alternate explanation. Magic and assumptions don't cut it. If the "natural" (i.e. where supply meets demand) price of wheat is $3, it would be very difficult (and likely expensive) to establish an artificial price of $6. I am curious to know what that story is, exactly.

Read TFA. :)

Extremely short & simplified version, because this is complicated stuff: Goldman, among other places, got an exemption to laws limiting how many futures speculators could own. This law was meant to prevent people from buying up tons of futures in order to manipulate the price. With that exemption gone, people who otherwise had little to no interest in the relevant commodity markets would buy tons of them and hang on to them.

The supply actually went up. But because people would repeatedly say things like "give me $N worth of oil," eventually others got wise and started selling oil for $N a barrel.

I've probably skipped important details and garbled something, but that seems like an OK thumbnail sketch.

Food prices are not perfectly elastic when it comes to the basic staples like wheat, especially in the short term. People need a certain amount of food, and their choices come down to eat if you can afford it, or die. Demand by households doesn't change much with price, but they will pay anything from zero up to everything they have.

The price is therefore depends on the suppliers. Normally, competition between suppliers will bring the price down to near the cost of production. However, if there is a futures market filled with overly confident speculators, who buy the grains at a high price and push it even higher, the cost to all the owners of the stock when delivery is due will be far higher than the cost of production; if most of the market paid this same price, there will be no-one with the volume who can afford to compete and push down prices; the final price is likely to strike a balance between the loss of value from throwing away wheat because some people had to starve as they couldn't afford the price, and the revenue from selling the wheat at the highest price.

In effect, against inelastic demand, a futures market and confident speculators have the same effect as rational price fixing by a cartel.

Demand for grains is actually quite elastic. When the price of things like corn and wheat is low, farmers feed them to animals and people consume more meat. When the price increases, people consume less meat and more grain, and in doing so, consume a lot less grain.

In economies where people are too poor to afford meat, fluctuating food prices are a much bigger issue. But in the US, we use more food than we need to in order to enjoy a luxury commodity.

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