Monday, August 29, 2005

famine and free trade

Reading about the recent famine in Niger, it is nice to see that poverty groups like Oxfam have finally joined the economists cause of free trade by calling for an end to rich world agriculture subsides. The economist in me takes heart.

However, the contrarian in me thinks it is weird that since rich world crop subsides keep the world price of food low, then abolishing them would raise the world price of food in the name of eradicating poverty and famine.

Of course, the proper economic analysis is that crop subsides are very expensive (the rich world spends tax money about equal to the GDP of sub-saharan Africa each year), and that money would be better spent on other forms of aid. Furthermore, since poor countries are more dependent on agriculture than rich, raising the world price would improve their terms of trade, effectively helping their farmers more than it hurts their consumers, encouraging investment and producing jobs.
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