Brazil and Argentina came out last Friday against a French proposal on the G20 to regulate commodity prices, as Yahoo News have announced. As we know, the call for commodities and primary products have been growing since aproximately 2003 and this, with also the scarcity of fertile fields because of the expansion of cities around the world that consumes suitable lands to cultivate, not to mention the generally negative weather conditions on the globe to make the supply grow, have made their prices to go up and up without any sign of deceleration.
Off course, this policy sugested by Sarkozy it's only a derivation of the economic collapse of the European Union becasue of their fiscal indiscipline put together with the impact of the US housing bubble pop in 2008 that punished the European Economy in a unpredictable way. Now, they want to put things in order so they're trying to reduce the amount of imports desperately by attacking developing economies whom exports these products. I would compare this with an invisible tax to equilibrate the welfare distribution nowadays.
Yes, I'm talking about welfare distribution and not about wealth distribution. Welfare it's an status in which every economic agent can get what it's expecting to get by doing the actions that they have to do to get it. Wealth is nothing but an amount of assets valued with a market's reference.
I support the position of Argentina and Brazil, because of I think that a regulation on commodities as France has proposed will lead to a negative consequence for global trading. First of all, supply will go down and there are going to be incentives to leave primary production and this can cause shortage of essential commodities as soya or corn. Also, developing economies will be seriously jeopardized and the cost of the policy will be absorbed mainly by the people in these contries (that clearly are much unprotected against critical hits of the economy than European people due to the absence of enough compensations and subsidies). To conclude, the investments (national and foreingers) in the primary sectors will lose their profitability abruptly and they will fly away to another markets causing a deceleration of growth (maybe a recession in some countries) spiralizing the shortage of primary production which may affect the commodities markets in a exact oposite way to which the French policy is looking for: rising their prices a lot more than the low down that the regulation achieved.
Well, for more about this I recomend the lecture of The Cost Of Price Regulation: Lessons from Railroad Deregulation, an essay by Kenneth Boyer that can enlight this affair (we can be sure that Sarkozy hasn't read it). Pay attention to the references that this author of the Michigan State University gives us and read some of them for more information.
Greetings from Argentina,
Expecting to your thoughts and questions,
JMR
