Monday, October 20, 2008

Oil and other commodities becoming cheaper .... is bad?

More on whether falling oil prices are good or bad .... And grains and metals and a whole bunch of commodities are also experiencing significant price decreases ..... I suppose critical thinking means that we never take anything for what it seems like on the outside .... Ray Fisman explains:
How are commodities prices connected to civil strife? Poor farmers impoverished by lower crop prices may be eager recruits for rebel groups who can promise a better livelihood from stolen loot than what the soil can provide (not to mention protection from pillaging, since unaligned farmers may be easy prey for either rebels or government troops). A cheaper cup of joe may thus translate into conflict in the coffee-growing world. ....
Then again, lower prices may also mean less conflict. One of the great ironies of modern economic history is that natural resources can be less an economic blessing than a curse (the so-called natural resource curse). One reason for this apparent paradox is that resource-abundant countries suffer through frequent civil conflicts as competing factions struggle for control over oil wells, diamond mines, and other sources of natural wealth (and use the resulting revenues to fuel further conflict). If
resource prices fall, then there's less wealth to bicker over, less reason to fight, and less cash on hand to purchase further armaments.
Given these two opposing forces, when should we expect price drops to trigger more violence, and when should we expect less? [ Oeindrila Dube and Juan Vargas] argue that the critical difference is the "labor intensity" of extracting a resource—that is, the value of workers relative to the cost of buildings and machines. For example, a farmer tending his land may need little more than a strong back and a shovel, but an oil rig may cost billions and a pipeline billions more. Subsistence farming is labor-intensive; oil drilling is capital-intensive.

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