What’s the chance the financial crisis was welfare-improving?

by on September 17, 2009 at 10:36 am in Economics | Permalink

The price of corn, for example, is down 56 percent since July 2008 on the Chicago Board of Trade.

Here is more.  I don't in fact think that the financial crisis has improved global welfare.  But we are trained to think probabilistically.  What is the chance that the gains from lower commodity prices — most of all for poor people who buy food — outweigh the losses from the collapse of world trade and lower overall growth?

Just wondering.

Addendum: Here are some related queries.

Thorfinn September 17, 2009 at 10:50 am

Wasn’t the high price of food judged a burden for the world’s poor farmers just a few months ago? It doesn’t look like there’s a clear line even for commodity prices and the welfare of the poor.

Barry Ritholtz September 17, 2009 at 11:10 am

Depends upon whether you are one of the 15 million people without a job or not.

If you have no income, the lower cost of foodstuffs is cold comfort

toto September 17, 2009 at 11:25 am

Lower price would cause less investments in agriculture etc.. For the future wouldn’t that tcause higher prices in the future… ???

Bill Harshaw September 17, 2009 at 11:27 am

Read something this week noting people who kept their jobs actually got an increase in compensation, because of the deflation. People who lost jobs didn’t.

josh September 17, 2009 at 12:02 pm

Compared to what? A world where housing prices continue to rise until they reach infinity or a world where there never was such a bubble?

Bob Murphy September 17, 2009 at 1:17 pm

Tyler, when we teach negative externalities to undergrads, isn’t one of the first things we point out that price changes net out to zero? I.e. a dollar gain to consumers is exactly counterbalanced by a dollar loss to producers? (And that’s why we don’t levy a Pigovian tax on Wal-Mart for hurting mom-and-pop stores.)

So to say the gains from lower prices to consumers, outweigh the losses to producers, means we are moving into subjective utility and adding them up for a grand total, right?

Robert Bell September 17, 2009 at 2:20 pm

“What’s the chance the financial crisis was welfare-improving”

Do you mean “will turn out to be?”. I thought events in the past were non-stochastic.

spencer September 17, 2009 at 4:08 pm

The 50% drop in corn after a 100% run up in 2008 still leaves corn well over $3.00, a level it has only reached at a few rate peaks historically.

It is like saying the current $70 price of crude oil is down 50% from its’ $145 peak and ignoring that $70 is still very high by historic standards.

Kyle September 17, 2009 at 9:29 pm

The financial crisis relative to what? Would we still have a massive boom in real estate and finance? That could be worse than the crisis on a pure misallocation of resources basis.

I bet you could spin a decent story about housing – now that we’ve made it so cheap it will lead to all sorts of benefits. Low cost of living encourages people to move closer together in a city, which has lots of external benefits of creative something or other. It’s like how overproduction of fiberoptic cable during the tech boom had lots of nice externalities in allowing for everyone to have a fast connection (as opposed to for-profit companies paying extra for fast connections and crowding out the craigslists of the world).

5%

netzwerkkabel September 18, 2009 at 5:31 am

See, According to the current market I can only say that the prices for commodities are going to remain the same because at present the market is in the direction of stabilising. So,till then we all have to cope up with the situation….

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