Friday, August 16, 2013

Say that again

Economics in One Lesson, redux, thanks to Kym Anderson, Maros Ivanic , Will Martin who look at the governmental responses to food price spikes on poverty...and conclude that they probably do more harm than good;
Governments responded in various ways, often belatedly, and only a few did so effectively. The most common response was to alter trade restrictions so as to insulate the domestic market from the international price rise (see Rocha, Giordani and Ruta 2012). And the most common justification for that action (tighter export restrictions or lower import barriers on food staples) was to reduce the number of people who would fall into poverty.
Can trade policy halt global poverty?
Did those trade-policy actions actually prevent a rise in global poverty? Certainly food prices rose less in countries that insulated themselves from the global prices, which may have prevented some consumers from falling below the poverty line. However, such policy actions have two other effects that have the opposite impact on poverty:
They summarize in this table;
Figure 2. Poverty effects of countries insulating themselves from the 2006-08 spike in international food prices

Source: Anderson, Ivanic and Martin (2013). 

When you only look at specific effect you get one result, but when you look at all effects, you get the opposite. Pretty much why Henry Hazlitt called it a fallacy; broken window.

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