Monday, June 24, 2024


Dhaka Tribune

Pay attention to prices

They can be a matter of life and death

Update : 10 Aug 2019, 09:03 PM

Farmers over in Gaibandha are suffering from the floods -- that's what farmers do when it floods, they suffer.But, more specifically, they’re having to sell off their livestock for whatever grossly small amount of money they can get because the floods have destroyed all of the forage for those animals.

Fields are underwater, the stored hay and so on is now water-logged and not fit for consumption. Thus the animals either die or get sold off. Clearly, given that the whole district is in the same position, this means a flood of animals -- cows, goats, sheep -- into the market and rock bottom prices for them.

This gives us two economic points to consider, both of them to do with the function of prices in an economy:

The first is that the farmers are having their plans ruined. Time was when such a failure would have meant starvation and we're doing better than that now. We may or may not restore to those farmers their lost profits but we are, righteously, going to make sure they themselves can eat until normality returns. 

The other, and more detailed, point is about the role of prices. Because, if we simply, and only, monitor prices in the varied markets around the country, we will know about and actually see such problems. The prices of that livestock in those markets around Gaibandha have fallen precipitately -- that's what's being complained about. Which means that if we just look at those prices then we know there's something to fret about in Gaibandha.

That is, prices are information about the world around us. Here, that there's something making the farmers sell their animals in a near panic. Get any price, now, before there is no price to be got for a dead piece of livestock. We can ameliorate these conditions, we can deal with them, sympathize, but first, we've got to know about them.

Which is what prices do for us.

In terms of famine relief this is actually one of the great findings of the past few decades. We don't actually have to wait for the price of basic foodstuffs to start rising in the markets.It's not necessary to wait for rice to become unaffordable to know that we've a shortage of rice. We have an early warning system in the price of livestock.

Repeated observations around the world, in myriad locations and farming regions -- and types -- tell us that, when the price of meat drops significantly, then this is an early warning sign of potential famine. Because, if the farmers can't feed the animals right now -- due to some weather phenomenon -- then it's highly likely that they won't be able to either plant or harvest the main crop. 

That might be months away, that effect upon wheat for bread, rice for the bowl -- but meat prices prefigure all that.The major aid organizations now include this in all their predictions of where there are going to be problems.

Say, meat prices in Niger generally collapse. Everyone starts looking, hard, at the grain crops simply because the same weather conditions are likely to affect them. We can then position aid as it is likely to be needed. I am not just using Niger as made up example either, it really has happened that way. 

A potential famine hit that country, signified by those livestock prices, aid was made available ahead of time, and extra deaths as a result of the crop failure that did happen were around and about zero.

That is, prices really, really, matter, they can be a matter of life and death. Not because some can afford and some cannot, but because prices are information about that reality outside the window. Given this importance, that means we've got to pay attention to prices. They're not just random numbers that we can or should change at whim. They’re that vital intelligence about what's going on out there.

This is also the point of having a market economy with those prices in them. So that we receive and can process this vital information. This is true whatever else we decide to do about the economy. Whether we're going to be capitalist or socialist, big business or sturdy independent farmers and artisans, we still need the market and prices to tell us what the heck is happening. 

For think on it for a moment, why would we want to have an economy where we don’t know what’s happening because we’re not using prices to tell us?

What is true of the livestock markets in Gaibandha is true of the more general economy that surrounds us. Prices in markets tell us things and we have to both -- have them and listen to them to work out what reality is trying to tell us.

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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