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Too much of a Good Thing

Written By: - Date published: 12:57 pm, January 24th, 2011 - 42 comments
Categories: exports, farming, wages - Tags: , ,

Higher commodity and food prices, we are told are a Good Thing. Our exporters (ie. Fonterra and foreign oil companies) get more money. But we consumers have to pay more to buy the same products, so are we better off? And what about the poor saps overseas who are paying more for less, or the really poor saps who are priced out of the market?

When you hear ‘rising export prices’ what you’re actually hearing is ‘inflation’ – nothing more is being produced but it is costing more money, that’s inflation by definition. As consumers, we pay more for the same amount (if we can afford it). It’s only good for the producer because their input costs aren’t inflating as fast as their prices.

Which brings us to the big input cost: wages. In theory, we should be compensated for higher food costs because our food exporters will increase activity, hire more people, and, so, push up wages across the country. This is how the gain for the country from higher export prices is meant to be spread through-out the economy. In fact, it’s not happening.

There is a concerted effort – from the government down – to deny workers wage increases. Apart from obviously contradicting the supposed goal of closing the wage gap with Australia, this means that the real value of most workers’ wages is falling (even ignoring the GST increase).

The corporate media is cheering on these wage cuts – we’re told we all have to do our bit in these tough times. But that just means the ‘benefits’ of higher commodity prices are limited to the exporters. Everyone else faces higher prices and lower wages.

The international story behind higher commodity prices is that there are more mouths to feed and more cars to fuel but the cheap oil is gone and food output isn’t keeping up. The disastrous grain harvest in Russia, the loss of crops in Queensland, and an expected poor rice harvest in Thailand are pushing up prices for these staples and also made the grain that feeds much of the world’s dairy cattle more expensive.

High oil and food costs are pricing the world’s poorest people out of the market. Food and petrol price riots have brought down the government in Tunisia and its neighbouring governments fear they may be next. Zimbabwe is experiencing fuel shortages because its foreign suppliers have insufficient supply. Riots are spreading around the third world and the death toll is rising. This is the real cost of that Good Thing – rising commodity prices.

42 comments on “Too much of a Good Thing ”

  1. IrishBill 1

    Which brings us to the big input cost: wages. In theory, we should be compensated for higher food costs because our food exporters will increase activity, hire more people, and, so, push up wages across the country. This is how the gain for the country from higher export prices is meant to be spread through-out the economy. In fact, it’s not happening.

    To be fair, the Dairy Workers Union have been instrumental in making sure that dairy workers get a fair go. Not that it couldn’t be more.

    • Marty G 1.1

      Good news but my point is about wages for the rest of us. This austerity mantra means most workers are taking pay cuts, and being tricked into getting angry st workers who demand more. So, the country’s income is rising but most aren’t benefiting, just paying higher prices

      • KJT 1.1.1

        83% rise in labour productivity since the 70’s. Greater rises than that in the costs of food and housing. 15% rise in wages. The median wage rise is a lot less.

    • The Baron 2.1

      Wow thanks Eve – that show looks really shit.

      • Armchair Critic 2.1.1

        I never even look at links to youtube, Baron, on the basis that all links to youtube are shit.
        I’m sure there are some exceptions, but not enough for me to bother.

        • Lanthanide 2.1.1.1

          You’re missing out on a lot of thought provoking and useful videos, as well as a lot of entertainment.

          • Armchair Critic 2.1.1.1.1

            Yeah, I’m regretting that comment now.
            I have observed that commenters who post links without much of an explanation as to what the link will tell me or why I should follow it tend to be a waste of time, especially where the link is to youtube. Exception – music videos.
            It occurred to me that maybe it’s the appeal to authority of youtube videos that riles me. Essentially, to appear on TV you need to be sufficiently “important” – youtube is like TV (moving pictures and sound on a small screen), so to be on youtube you must also be important. Except the flaw in the logic is anyone can get onto youtube, there’s no editorial control at all.
            Or maybe I’m reading too much into it.

            • McFlock 2.1.1.1.1.1

              what irks me is that often youtube links are used in the same way as links to nutjob webtext (of all colours of the rainbow), but it takes a wee while to figure out that the monologue / whatever is nutty. On a text website you can scan to the meat of the author’s discussion and pick up obvious stupidities and leaps of logic.

              If I’m moderately pressed for time I skip most of the video links, with maybe a mental note to catch up later if the comment summary seems coherent.

      • Colonial Viper 2.1.2

        Keiser is pretty good. His show where he also talks to Australia’s Assoc Prof Steve Keen is worth checking out.

      • travellerev 2.1.3

        I don’t know why I bother Baron because you are one of the most dim witted people to have ever graced this blog but there you go.
        Max Keiser has excellent credentials to be saying the things he is saying even though he is saying them online and not in a fancy TV studio. At least that makes him free to say what he needs to say. Fancy TV studio’s belong to the corporate Media and if you speak your mind in them you end up on the street as Keith Olbermann found out last week.

        Funny how Max Keiser talks about the Wall street scheisters eh? Oh oops I forgot you love our very own Wall street bankster turned Prime minister to bits.

    • M 2.2

      Unexpected PO, unexpected peak credit, pumping blood into a corpse LOL.

  2. Dilbert 3

    This is why I believe that only way that fair distribution of necessities like food/water/oil is able to occur is for them to be placed under the control of a global organisation like the United Nations.

    • Bazar 3.1

      “Fair” for who?
      “Fair” for those who have the most numbers? Then china deserves most of the worlds oil.
      “Fair” for those who own it, then they should be allowed to do with it what they please.
      “Fair” for those who need it most, then america should enjoy that resolution as they get oiled piped in.

      Or how about “Fair” for those who lead the global organisation, which China, France, Russia, the United Kingdom and the United States would love, since they have Veto power over anything they don’t like.

      The best way to transfer weath is to either trade for it on terms acceptable to both parties, or just take it by force.
      Having someone else tell you what you can and can’t do is negotiations by force. There is nothing fair about that.

      • Marty G 3.1.1

        Fair on a per capita basis is the only true fair, if you believe in the fundamental of humanity. The yanks don’t need it more just because they are able to pay more – which is the trouble with markets in general: they should maximise utility by getting a good to those who value it most but actually it goes to those who can afford to pay the most

        • Lanthanide 3.1.1.1

          Having stayed with my ex’s family in a small town in Wisconsin for 3 weeks – my god they waste gasoline. They would make at least 4-5 separate trips in the car per day to run errands or the like, instead of condensing them down into 1 or 2 trips. This behaviour seemed pretty normal.

      • Colonial Viper 3.1.2

        Having someone else tell you what you can and can’t do is negotiations by force. There is nothing fair about that.

        This is a naive view of the intracacies of power in relationships i.e. all relationships.

  3. Nick C 4

    “When you hear ‘rising export prices’ what you’re actually hearing is ‘inflation’ – nothing more is being produced but it is costing more money, that’s inflation by definition”

    No it’s not. Inflation is an increase in the general price level. If we’re talking about a few comodities such as dairy and oil, that could be nothing to do with inflation and be a manifestation of changing supply and demand for those goods: I.e. higher levels of demand from overseas.

    • Marty G 4.1

      Does that mean you don’t use the term ‘ wage inflation’? it is inflation when it takes more money to buy the same value. You can have inflation in specific goods as well as the general price level. These commodity rises will drive the increase the general price level.

    • Marty G 4.2

      Your final sentence makes no sense. Do you think that inflation happens by magic? It is created by demand/supply imbalances

      • Bazar 4.2.1

        “When you hear ‘rising export prices’ what you’re actually hearing is ‘inflation’ – nothing more is being produced but it is costing more money, that’s inflation by definition”

        http://economics.about.com/od/helpforeconomicsstudents/f/inflation.htm

        Read it for what inflation is, and what causes it.
        That indeed can be taken as inflation, but your definition is incomplete.

        Honestly the price of goods going up IS a good thing. It’ll create wealth, and promote expantion in the industry helping supply to catch up to demand.

        People dieing because they are being priced out of the market not so good, but thats reality.

      • Nick C 4.2.2

        No, because an increase in the scarcity of one or two goods does not equal inflation. Strawberrys are more expensive during the off season because they are more scarce and have to be imported. No one would say that is proof of inflation occuring. Increases in aggregate demand cause inflation, but one good does not equal aggregate demand.

        “It is created by demand/supply imbalances”

        There is of course considerable debate amoung economists about what causes inflation, and there is no consensus. Plenty of economists will argue that inflation is mostly a monetary phenomenon.

        • Marty G 4.2.2.1

          “Strawberrys are more expensive during the off season because they are more scarce and have to be imported. No one would say that is proof of inflation occuring.”

          actually, seasonal inflation and deflation occurs, but is adjusted out in the seasonally adjusted figures because it doesn’t represent an underlying change in the price level of a good or basket of goods.

          “Increases in aggregate demand cause inflation, but one good does not equal aggregate demand”

          a)one good is part of aggregate demand, especially when those goods are oil and food b) you can have inflation in a single good or service – you’re familiar with the term wage inflation, surely. It refers to inflation in the price of labour. There’s also an inflation index specifically for food and for a number of groups and sub-groups of goods and services.

          you’re confusing the CPI, the headline inflation figure, which is a change in the general price level with inflation, which can and does refer to nominal price increases in any good or service or basket of goods and services.

        • Colonial Viper 4.2.2.2

          There is of course considerable debate amoung economists about what causes inflation, and there is no consensus. Plenty of economists will argue that inflation is mostly a monetary phenomenon.

          And yet we have the Reserve Bank tasked with controlling inflation and pretending that it can do so without knowing where it actually comes from, but who are still willing to sacrifice peoples’ jobs by the thousands to do it.

          Economists, on the whole, should be regarded as storytellers and fortune tellers, good for light entertainment only.

          Nick, I don’t think you know much about this area of fortune telling apart from what the textbooks say, is that fair? And has been pointed out to you already, you haven’t really organised the interconnections between the different concepts in your head yet.

          • KJT 4.2.2.2.1

            I find it difficult to take modern economics graduates seriously when the are not even aware of such giants in economic theory as Keynes, Marx or even Schumpeter, let alone the New Deal and other economic events which contradict their rather narrow Neo-liberal education.

      • travellerev 4.2.3

        Actually it is created by irresponsible and fraudulent banksters and investment gamblers to cover their fraudulent tracks. Watch Max Keiser and learn.

  4. Colonial Viper 5

    If we’re talking about a few comodities such as dairy and oil, that could be nothing to do with inflation

    Technically correct, but if specific commodities and items are being affected, it will still impact the CPI.

    • mcflock 5.1

      particularly if those few commodities are at the root of the production chain for a large number of other products.

  5. Afewknowthetruth 6

    The mess we are in now has been coming for 50 years -Hubbert drew attention to peak oil in the 1950s, Carson drew attention to environmental degradation in the 60s, Meadows and company highlighted the resources/population time bombs in the 70s, Hansen drew attention to abrupt climate change in the 80s. We were off course for decades, headed straight for ‘the iceberg. We hit it around 2006.

    Now the ship is actually sinking we have criminals and clowns in charge who say there are no such things as icebergs, ships with holes in them don’t sink, and that we are headed for a ‘better, brighter future’ ….. blah, blah, blah… when in fact we are headed for collapse of western-style living arrangements.

    These are very good times when compared to what is on its way.

    Pretty damned scary really – especially the disruption of the stable climate conditions our food supply is dependent on. Then then are the bees … or rather lack of, acidification of the oceans, depletion of aquifers…

    The scariest one is the ignorance and apathy of the general public.

    We are yet to witness Peak Mayhem. That will probaly be preceded by Peak [official] Lies.

    • Bob Stanforth 6.1

      Im sorry, I have to ask – are you a productive member of society, or do you stay in bed all day, awaiting Armageddon?

      BTW, cant wait for Peak Mayhem, that sounds AWESOME! 🙂

      • Colonial Viper 6.1.1

        Uh , when you know trouble is coming down the pike you work pretty hard to position yourself for it. That means that hiding under the covers from Peak Oil like our current leadership is will not help.

      • Afewknowthetruth 6.1.2

        The scariest one is the ignorance and apathy of the general public.

  6. Tanz 7

    You can’t blame the National govt for this, much as you would like to. I await the great speech coming up, it should be good…State of the National…roll on.

  7. Tanz 8

    How come then, Labour never removed GST from food when it had nine years to do so, or at least on fresh fruit, as they’re advocating now? Wages have been low in NZ for decades, so you can’t lay the blame on National, now can you. Not all of it, anyway.

    We have been working for peanuts for ages, I was lucky once to get a fifty cent an hour payrise. This was three years ago. amd I was told to scape and bow basically, to the corporate management. No wonder people leave their jobs, it’s all take and no give from most bosses, these days!

    • Marty G 8.1

      “How come then, Labour never removed GST from food when it had nine years to do so”

      how come Holyoake didn’t introduce a flat tax? Just because Labour didn’t do everything it could ever possibly want to do in 9 years doesn’t mean it’s a bad idea. Indeed, you seem to be conceding that GST off food is a good idea, since the only argument you put up against it is so weak.

      “Wages have been low in NZ for decades, so you can’t lay the blame on National, now can you. Not all of it, anyway.”

      actually, wages starting falling when the neoliberal revolution started. They recovered during the 2000s under Labour’s stornger workplace laws and are now falling. (you can see various graphs of this in our archives under wages)

      Of course, the recession is the excuse but I’m glad to see you concede that National bears part of the blame too.

      “We have been working for peanuts for ages, I was lucky once to get a fifty cent an hour payrise. This was three years ago. amd I was told to scape and bow basically, to the corporate management. No wonder people leave their jobs, it’s all take and no give from most bosses, these days!”

      And yet you’re supporting a government that is weakening the bargaining power of workers through its policies (90 days/fire at will law, anti-union laws, piddling minimum wage increases, high unemployment) and, so, making it easier for bosses to give small or no payrises.

      I actually think you’re right at the edge of a breakthrough here, Tanz. You realise that bosses, if they can, will push down our wages. Therefore, to get the wages we deserve we need to be negioating from a stronger position – two things will do that for us:

      1)uniting together and bargaining as a group because an individual is easily replaceable, a group isn’t (ie join a union),
      2) a playing field where the rules are fair and not tipped all in the advantage of the boss (ie. a government that improves your work rights, doesn’t take them away)

      • Colonial Viper 8.1.1

        You realise that bosses, if they can, will push down our wages.

        And of course, its even more than that. Management has a responsibility to owners and shareholders to absolutely minimise the wage bill. Particularly in NZ where short sighted bottom line minded management seems to be rather common. Leaving money on the table for employees when it could go instead to investors and owners is a dereliction of management responsibility.

        Force wages down and keep them down. Take steps to make workers accept lower wages, no matter how grudgingly. Make it riskier for workers to leave for a better position elsewhere (90 day right to fire). Divert a larger and larger share of GDP to the top 1-2% of the population, and less and less to everyone else. Make no effort to retain the best workers onshore, just an executive elite. Install a Government who supports this overall programme without reservation.

        Its one way Westpac can afford to ship $6.2M in profits back to Australian shareholders from NZ every week.

        • KJT 8.1.1.1

          Partly it is down to the cult of managerialism in the Anglo Saxon countries. The incentive to managers and directors is to push staff wages down to allow room to increase their own renumeration.
          It has happened in both public and private enterprises. Ports, telecoms and power companies being a prime example where managers cut wages and service for short term gain. Usually to the long term detriment of the enterprise and its shareholders.
          Germany, Scandinavia and Japan seem to manage to retain good management without the extravagant salaries of NZ, Australia the USA and UK.
          In fact extremely high management salaries correspond, in most cases, with the worst performing enterprises.

      • Tanz 8.1.2

        I don’t support this govt, Marty G. Not while Smile and Wave is leading it, anyway. No substance at all, just loads of smiling. However, I think National is more aligned to my conservative, rightish views. Wish that English was in charge. Fat chance ! But I won’t vote the Nats, this year, no way.

        • Lanthanide 8.1.2.1

          We can only hope that Hide won’t win Epsom then.

        • fraser 8.1.2.2

          so… are you saying that if key wasnt leader and english was, the nats would be heading in a direction that addressed your concerns outlined in comments above?

  8. Well, once we are forced to stop being so reliant on oil and all that it does for us, we will have the lovely Cuba to draw upon as an example of what to do. Organic farming, working with the land instead of against it and using traditional and more efficient means to produce food. We are also going to have to lower our standards as a society. However, that will be more difficult in the Capitalist society that reigns the USA and Canada. If anyone is interested in watching, what I think is, a good documentary, check out “The Power of Community: How Cuba Survived Peak Oil”. It gives me some semblance of hope.

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