Sometime back, a friend of mine writing an article for the ST Mirror commented that I have a passion for "Liberal Economics". Immediately, that label is confusing. After all, economics is just, well, economics. There's the good economics, the bad and the very ugly, adding a political modifier to what is essentially a science can only lead to confusion.

There's perhaps no word in the English language subject to more abuse than the world "Liberal", Americans (mostly) use it to refer to democrats, the kind who thinks that governments should take care of people from cradle to grave. In Europe, the term (which derives from the Latin word Libre meaning free) largely retains it's original meaning of individual freedom manifested in it's political, cultural and economic sense. In places like India and Sri Lanka the label is even more confusing where people claiming to be liberal can come be from all over the political spectrum. My guess is the thinking here, particularly among the Colombo elites (whom I fondly call Colombo Liberals) have been influenced by American political language, which is completely incompatible with the local political landscape and hence, the confusion.

Personally speaking, although I'm often accused of being one, I religiously avoid using the term Liberal to describe my political leanings. When I have to, I use the term Libertarian to describe my politics which is the political philosophy of Classical Liberalism (true liberalism in my opinion).

Coming back to economics, it is true that economists may have certain political goals, therefore the term "liberal economics" may not be a total misnomer. But given the amount of confusion of the term generates and given the fact that no serious economist relies on politics to describe or justify their work, the label is little more than annoying if not completely wrong.

For more on the abuse of the term by the American left see Jonah Goldberg's book Liberal Fascism and India Uncut's Amit Varma's take.

As you probably know, the world's food prices are soaring. So far I've come across two basic explanations which I find reasonable for the hike in food and commodity prices.

• Increased demand, constraint supply.
  
  This one is straight from your basic Econ 101 textbook. The increase in demand is attributed to the high growth rates in china, the newly richer Indians and Chinese demand more food. The supply hasn't kept up with demand hence the rice in food prices.
  
  The reasons for the supply constraints are attributed to the use of agricultural land for bio fuels (ethanol in the U.S. for example). This is yet another example of how climate change hysteria and resulting policy is actually doing more harm than the climatic effects of the supposed phenomena (I call it Al-flation).
  
  Second reason (See Tyler Cowen's excellent piece in the New York Times) there isn't enough international trade in food stuff and the everywhere in the world there's a plethora of government interventions in the agriculture markets distorting price signals which stops the produces from responding to the increased demand.
  
  Also the resulting panicky situation creates even more government intervention like putting in place price controls to combat the rising prices in rice in Sri Lanka and banning export of rice in India all of which destroys incentives for increased production
  
  
• It's a created by loose monetary policy.
  
  This time the culprit is the U.S. Federal Reserve. The explanation is the monetary expansion in the U.S. via lower interest rates is causing higher inflation and a weaker dollar. Most commodities (including food stuff) are priced in dollars, and when the dollar weakens the prices of commodities in terms of dollars go up. This also invites speculation of future declines driving up the prices further. See this chart from WSJ for example,
  
  The chart shows rapid increase in the price of oil in terms of dollars since September 2007, about the time the US Fed started it's loose monetary policy practices. The hike in oil prices in terms of euros is fairly moderate, the WSJ says, "had the dollar merely retained the same purchasing power as the euro, today's price of oil would be below $70 a barrel"
  
  Add to this picture that some developing countries (like Sri Lanka and India) partially pegs it's currency to the U.S. dollar basically importing U.S. inflation in addition to creating it's own inflation by printing money to finance government expenditure at home, we have a hike in almost all prices including that of agricultural commodities.

What is the true story? I think a bit (or a lot) of both. Sri Lanka being a net food importer is directly seeing the effects of these increases particularly the poor who spend most of their earnings on foodstuff. One of Sri Lanka's main problems is that it has a more than 20% inflation even without food prices factored in (food inflation stands at about 34%)

A pertinent question to ask is whether the high price of rice in particular, which didn't have much interaction with the global markets until recently be explained by generally high inflation alone. General inflation is probably the driving factor, but somehow I don't think captures the complete picture. It's possible there is an increased demand locally for rice due to people abandoning close substitutes like bread given the high price of wheat.

Something I'd love to see some numbers supporting that, something which is unfortunately lacking in Sri Lankan media.

Related articles on food prices:

• Fed's blender (interest rate explanation)
• Freer trade could fill the world's rice bowl (Cowen - recommended)
• Food Fight (trade-based explanation)
• On rice and corn laws
• How low interest rates are driving up prices
  

In typical Sri Lankan fashion - about a month late and for a few more than one hour. Ok so it was an island-wide power failure. Given the frequency of these failures, (multiple times a month where I live) the folks at Greenpeace or WWF should nominate the Ceylon Electricity Board for the Nobel Prize this year.

To me the whole Earth Hour idea is symbolically a catastrophe, and today this reminded me of a post in Cafe Hayek on the subject. Here's a key excerpt from a letter written to WWF: Do read the whole thing.

unlike those anti-globalization types, who tend attribute globalization to everything they don't like (poverty, war, disease, job-loss, etc.) I tend to use Tom Palmer's non-moralized definition , "The diminution or elimination of restrictions on exchange across political borders". That pretty much sums it up. But a friend of mine emails me this more funnier definition :

Question : What is the truest definition of Globalization ?
Answer : Princess Diana's death.

Question: How come?

Answer : An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was drunk on Scottish whisky, followed closely by Italian Paparazzi, on Japanese motorcycles; treated by an American doctor, using Brazilian medicines.

This is sent to you by a Sri Lankan , using Bill Gates's technology, and you're probably reading this on your computer, that uses Taiwanese chips, and a Korean monitor, assembled by Bangladeshi workers in a Singapore plant, transported by Indian lorry-drivers, hijacked by Indonesians, unloaded by Sicilian longshoremen, and trucked to you by Mexican illegals.....

That, my friends, is Globalization!!!!

Now, they have porn for blind people. Thankfully, the web is not regulated.