Pater Familias

CREATING A MARKET FOR GRAIN. This article by Roger Thurow from the July 1, 2003 Wall Street Journal illustrates the difficulties of encouraging economic development. Just five years ago, Ethiopia was confronted with a famine. Ironically, the article attributes much of the shortage of food to an emphasis on increasing food production while dismantling the government role in the agriculture sector. The private sector was inadequate to take on the burdens of inadequate storage and distribution facilities. In the old days, Communist governments which scorned the role of the middlemen who provided services, and valued only physical production, wound up with food rotting in the fields. Just as it is easy to overlook the importance of distribution, it is easy to overlook the active role that American governments have played in the agricultural sector. The new Ethiopian Commodity Exchange has a lot of problems to deal with.

HOW ETHIOPIA IS IMITATING CHICAGO. Roger Thurow had an article in the Wall Street Journal for February 27 about the Ethiopia Commodity Exchange, which was scheduled to open in Addis Ababa in March. The new exchange is patterned after the Chicago Board of Trade. Small farmers with a few acres produce 95 % of Ethiopia’s crops. They usually sell to the first merchant that comes along, leading to very low prices at harvest time. The article said that in the early 1800’s, before the Chicago Board of Trade came into existence, most grain was sold shortly after harvest, which resulted in very low prices. It is intended in Ethiopia that there will be a network of new warehouses so that farmers can store grain and trade the warehouse receipt on the Exchange when they find an attractive price. The article speaks of hopes that the Exchange can connect farmer to world grain markets, but I would think it would be a success if the grain is stored and moved to food-short areas in Ethiopia or elsewhere in Africa.

SOME COSTS OF MIGRATION. Thirty-five years ago we saw BREAD AND CHOCOLATE, a memorable movie about a Sicilian and a Turk trying to find work in Switzerland in order to send money home. Leaving home is hard. There is the difficulty of the new culture and the loss of the old culture. Dilip Ratha’s older sister frets that Ratha now eats with a fork. Ratha says, “On bad days, I do feel lonely in a way that I can’t explain.”

SENDING MONEY HOME. Jason DeParle has an article in the New York Times for March 17 about an economist who has measured the amount and the importance of remittances that are sent home to poorer countries by migrant workers. Dilip Ratha established that remittances for the Philippines were fifty times greater than had been estimated. For some small countries, remittances are more than twenty per cent of national income. Remittances are three times larger than the total for world foreign aid. They also have advantages over foreign aid–they can’t be skimmed and their use is usually well-monitored by the grantor. Ratha grew up speaking Sambalpuri, a language which “lacks a written script.” A teacher says that students in his village are “astonished that this young man from Sindhekela flies around in planes.” Sindhekela now has three cellphone towers; all the children now have shoes. Ratha attributes this to internal migration–remittances from migrants to India’s cities.

A VOICE FROM 1873. An article in yesterday’s New York Times by Edmund L. Andrews is headlined: “Fed Chief Shifts Path, Inventing Policy in Crisis.” and continues in the text that: “Mr. Bernanke [Ben Bernanke, the Chairman of the Federal Reserve Bank] is inventing policy on the fly.” The policy change was in connection with a Fed bailout of Bear Stearns. The novelty in the policy is that the Fed is buying a different kind of security than is its custom: “In a move that would have been unthinkable until recently, the central bank agreed to accept potentially risky mortgage-backed securities as collateral.” Kids, from another point of view, what the Fed is doing — even the acceptance of potentially risky collateral — is in accordance with the traditional role of a central bank. In 1873, Walter Bagehot wrote LOMBARD STREET, which set forth his concept of the role of a central bank (the Bank of England for Bagehot; now in the United States, the Federal Reserve Bank). Bagehot argued that in a credit crisis, the central bank should act as the Lender of Last Resort. Meyer Burstein in MONEY summarized: “Bagehot showed a fine appreciation of what has come to be the accepted doctrine of central bank behavior during a domestic crisis of liquidity: namely to stand ready to purchase broad ranges of securities, damping cumulative speculative forces feeding an internal drain.” Burstein noted that Bagehot wanted the Bank of England to lend on a very broad base of collateral, which is what the Fed has just done.