In today's Charlotte Observer, Krugman’s thesis is that rising global prices for basic commodities is due, not to action by the Federal Reserve Bank, but to increased demand owing to a nascent middle class in emerging countries. Attributing the price pressure to increased demand from developing nations is plausible, but the tone of his article sounds more political than analytical.
He makes the point that the USA is a “price taker” rather than a “market maker” on the global exchange for commodities: oil, gold, cotton, wheat, copper, and so on. Again, a very credible view. However, his underlying purpose seems primarily to discredit anyone who accuses the Federal Reserve Bank of managing the money supply without due concern for the ensuing inflation. I am only mildly sympathetic to his goal of elevating the quality of public discourse – trying to counter non-productive partisan arguments in hopes of illuminating the genuine economic forces at work. My lukewarm feeling stems from the suspicion that the thrust of his argument is to deflect the criticism, thus creating room for the Fed to carry on with the status quo.
He stops short of mentioning substantive factors influencing prices: the crazy quilt of political structures and spheres of influence that impede efficient matching of demand and supply; goals for social justice and sustainable resources; and, the Fed’s monetary and fiscal policies that do influence the foreign exchange value of the dollar. A weak dollar makes dollar-denominated commodity prices higher.
Mr. Krugman, it would please me if you would carry on with commentary that is economic instead of political.