Brookings: Spectacularly Wrong on Food Prices

As an academic, I like the Brookings Institution. As an academic in a policy school, I like that they have a long history of conducting rigorous policy analyses and believe Brookings has contributed positively to public policy scholarship throughout the years. As a development economist, the Brookings Africa Growth Forum is one of the best conferences I have ever had the chance to attend.

But everyone is wrong from time to time, sometimes spectacularly so. From a piece posted on the Brookings Institution website back a few months ago:

“As an initial point, it’s worth stressing that the crux of the food price challenge is about price volatility, rather than high prices per se. It is the rapid and unpredictable changes in food prices that wreak havoc on markets, politics and social stability, rather than long-term structural trends in food prices that we can prepare for and adjust to.”

Is that so? The piece quoted above includes no reference whatsoever to back up the claim that food price volatility, not high food prices, is the problem. Here is a scholarly reference — to my latest working paper:

“Do food prices cause political unrest? Throughout history, riots appear to have frequently broken out as a consequence of high food prices. This paper studies the impact of food prices on political unrest using monthly data on food prices at the international level. Because food prices and political unrest are jointly determined, the incidence of natural disasters in a given month is used in an attempt to identify the causal relationship between food prices and political unrest. Empirical results indicate that between January 1990 and January 2011, food price increases have led to increased political unrest, whereas food price volatility has been associated with decreases in political unrest. These findings are consistent with those of the applied microeconomics literature on the welfare impacts of food prices.”

In other words, there is solid evidence that high food prices cause political unrest, and no evidence whatsoever that food price volatility causes political unrest. If anything, the empirical evidence indicates that food price volatility is associated with decreases in political unrest.

As a technical aside, see here for a study of the impacts of commodity price volatility at the micro level, which is in line with the conclusions of the aforementioned working paper. Indeed, the fact that food price volatility leaves consumers largely unaffected or slightly better off in the micro context supports the finding that food price volatility does not cause political unrest, since political unrest should be the end result of decreased welfare.

(HT: Chris Barrett.)

2 comments

  1. Viktor Bengtsson

    Marc, please explain this to Mr. Sarkozy (I’m sure someone can give you his number). I’m getting tired of the steady stream of low-brow yak-yak coming out of the Elysée about price volatility and the evil speculators.

  2. Marc F. Bellemare

    Thanks for your comment, Viktor. The goal of all this is indeed to make policy makers aware of the crucial distinction between mean and variance. I think we may be getting there slowly. Stay tuned for something that might well reach a broad audience sometime this week or the next.