Streetwise Professor

February 2, 2011

Aucune de Theorie? Aucune d’evidence? Pas de Problem!

Filed under: Uncategorized — The Professor @ 4:49 pm

I wrote my Regulation piece expressing skepticism at arguments blaming speculation for commodity price spikes–“No Theory? No Evidence? No Problem!“–with the US Congress and certain folks at the CFTC in mind.   But commodity Know-Nothingism has gone global.

French President Sarkozy and European Commissioner Michael Barnier have both been demonizing speculation of late, and placing blame for recent commodity price spikes on speculators.  Sarkozy has announced that controlling commodity speculation will be one of his priorities during his chairmanship of the G20, and Barnier has been right behind him giving his full support.

And in carrying out their vendetta, Sarkozy and Barnier are doing a Gallic imitation of Alphonso Bedoya: “We don’t need to show you any steekin’ evidence!”

Indeed, Sarkozy and Barnier are pointedly and almost mockingly ignoring the evidence:

So it is quite a surprise to find the European Commission has censored its own research into food prices under pressure from President Sarkozy. As Andrew Peaple discussed in a Heard column last week, there is no evidence speculation is responsible for the current high food prices. A new E.U. study came to exactly the same conclusion, finding no evidence of “a correlation between the substantial increase in index fund positions and commodity futures prices.” But curiously, the draft report containing this conclusion was first delayed and then finally published today with the offending sentence removed.

Mr. Sarkozy has admirably decided to make tackling high food prices a priority for France’s presidency of the G20 this year. Less admirably, he has clearly already made up his mind to blame speculators regardless of the evidence. As my Dow Jones colleague Caroline Henshaw reports, he even joked about this at a press conference last month saying: “I will recommend a date for the publication of a study showing that speculation does not result in global price rises of raw materials: 1 April.”

In the end, Mr. Sarkozy didn’t need to delay publication because he had an ally in Michael Barnier, the French European Commissioner in charge of markets regulation who saw to it the report contained no mention of speculators either good or bad, thereby ensuring Mr. Sarkozy wasn’t embarassed. Mr. Barnier bizarrely then went on to tell the post-publication press conference that: “Agricultural products are turning into financial assets, which is why we want to share with you our concern about this,” ignoring the fact his own directorate’s report expressed no such concern.

“Don’t bother me with the facts” is not a recipe for good policy. But that probably doesn’t bother Sarkozy and Barnier (and their fellow travelers) because this is about the politics rather than the policy. There is a major problem–spiking commodity prices. Their are no policy tools at hand that will truly address the problem–or those that would have an impact are out of Sarkozy’s hands (and in Ben Bernanke’s), or are politically unpalatable (e.g., reforming EU agriculture, or eliminating ethanol subsidies).

So Sarkozy does the policy equivalent of kicking the dog after a bad day. It does nothing, but it makes him feel better. Or something.

More to the point, it is a demagogic tactic that has wide appeal and resonance.

And it won’t create an additional kernel of corn or drop of oil. Nor will it affect the demand for either. So it won’t have any effect on price. Moreover, by focusing on a non-issue, it distracts attention from devising practical, effective policies.

Sarkozy is one of the most difficult national leaders to peg. He is insightful and cunningly realistic on some issues, and foolish and demagogic on others.

But perhaps not so difficult: you just need to know the code.

Though of Hungarian origin, he is in many ways quintessentially French (perhaps not surprising as this is necessary to get to the top of the French political ladder). On foreign policy matters he is unromantic and realistic and pretty ruthless in his pursuit of French–not European–interests. On matters relating to markets, he is not a socialist, but he is definitely French in his deep suspicion of markets and his fondness for dirigisme. His anti-speculation fulminations are a manifestation of this.

Whatever the origin, the Sarkozy-Barnier approach is intellectually bankrupt. The almost smirking refusal to consider seriously the evidence–indeed, the open willingness to suppress evidence–makes that plain. And makes it plain that they really don’t give a damn.

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1 Comment »

  1. One would think that the recent flooding in Australia, droughts and failed harvests elsewhere, combined with the asinine policy of the EU to pay farmers NOT to produce has much more effect on pushing up prices than speculators.

    Comment by Andrew — February 2, 2011 @ 11:02 pm

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