28 May 2008

Wrong Way Right Way

...to cope with surging food prices.

Hosni Mubarak, dictator of Egypt, has (correctly) blamed misguided ethanol policies for the rise in wheat prices that is making food expensive in his country, but he (and others in the region and world) also messing around with prices, by raising them suddenly, capping them, subsidizing them or otherwise interfering, i.e.,
Mubarak announced a 30 percent salary increase for government employees earlier this month in an attempt to ward off more food unrest. But the government increased fuel prices by more than 40 percent and cigarette prices by 10 percent, raising concerns that the measures would trigger additional inflation and diluting the benefits of the salary increase.

Egypt also got outside help from the United Arab Emirates, which donated a million tons of wheat to the country last week, said the Emirates state-owned news agency WAM.

Egypt is one of the world's largest importers of wheat, and prices shot up by more than 50 percent over the last year.

The Emirates is also struggling with rising food prices. The government has signed agreements with supermarkets to keep prices on more than 30 basic commodities at last year's levels.
Bottom Line: The government's erratic interference with prices, wages, exchange and interest rates will lead to more harm than good. If people (and special interests) can get the government to deliver special treatment to certain sectors -- instead of general policies targeted at "deserving" groups (e.g., cash income transfers to poor people), then people will spend more time lobbying the government for handouts and less time finding ways to cope with changes in the world market for food. OTOH, Mubarak and other dictators probably like it that way -- and that's bad news for the poor.

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