Earlier this month, the Chicago Tribune ran a story by Cezary Podkul on concerns raised by the Missionary Oblates Catholic community regarding commodities trading. Titled “For Nuns and Analysts Alike, Bank Commodity Earnings Are a Mystery,” the story focuses on Rev. Seamus Finn, the Oblates’ top dog, and his fears that Goldman Sachs’ trading practices negatively impact energy and food prices.
Driven by a determination to invest in a socially conscious way, Finn’s group has been concerned about banks’ commodities activities since 2008, when a spike in energy and agricultural products caused food riots in Africa. The issue is whether banks’ trading activities artificially drive up food prices.
The Missionary Oblates are but one group affiliated with the Interfaith Center on Corporate Responsibility, which has dialed-up efforts to bring to heel any company run afoul of its decidedly progressive agenda – lack of spiritual underpinnings for these efforts notwithstanding. The Oblates and fellow ICCR members the Maryknoll Sisters and the Tri-State Coalition of Responsible Investing casually ignore all theology and doctrine as well as science and economics to further their efforts to promote what, for them, falls under the “social justice” rubric.
From the Summer 2012 issue of the ICCR’s The Corporate Examiner: The Company We Keep:
[F]ood commodities markets have surfaced as a potential red flag for responsible investors. ICCR members are concerned about reports that over-speculation or excessive hedging in food commodities markets may create global food price bubbles as these price spikes have been linked to malnutrition and famine in the world’s most economically vulnerable communities.
“Potential”? “May create”? Please. Could the increase in foodstuffs worldwide be in any way connected to yet another ICCR hobbyhorse, green energy? Why, yes, as acknowledged further in the essay:
[T]here is strong evidence that the food bubbles of 2007/2008 and 2010/2011 were caused by excessive speculation in food commodities markets spurred by both deregulation and the growing popularity of biofuels. Said Kate Walsh of the Tri-State Coalition for Responsible Investment, “ICCR members are known for seeing ahead of the curve, particularly when it comes to high risk speculative financial instruments that are wealth-generating vehicles without any underlying social value.”
Let’s unpack the above, shall we? With all respect due Ms. Walsh, government renewable-fuel mandates long-ago were determined to drive up food costs. Commodities speculation? Not so much. How is this “seeing ahead of the curve”? More important, however, is that corn-based ethanol mandates exist primarily as “wealth-generating vehicles” for crony capitalists in bed with government to the detriment of households faced with rising food costs – “without any underlying social value” indeed. So, in other words, Ms. Walsh and her ICCR posse despise deregulation when it allows businesses to thrive unfettered, but encourage it in the form of fuel mandates even when they identify outright that they are one culprit behind rising food prices.
“No one is arguing that the original purpose of the commodities futures market isn’t valid and necessary,” said Cathy Rowan of the Maryknoll Sisters. “Our concern is with participation in these markets by parties that have no use for the item being traded.” She continued “This is about food, and in order to feed the 9 million [sic] people on our planet we need to do everything within our power to make it accessible and affordable. Excessive financial speculation in food commodities markets literally gambles with people’s lives.”
This begs the question: Who has no use for food? Additionally, there has been no conclusive proof given to support Ms. Rowan’s theory that market speculation concomitantly impacts commodity pricing. Readers with access to an Internet search engine, however, can easily locate articles and essays that argue the opposite of Ms. Rowan’s assertions. My favorite is a 2012 essay by Tyler Watts in the Foundation of Economic Education’s The Freeman magazine (full disclosure: I also write for The Freeman and once worked and still “pal around” with Lawrence Reed, FEE president) in which Watts writes about oil speculation, which may also apply to food and other commodities speculation
In reality it’s the fluctuation in oil prices that brings speculators to the market. An economic analysis of futures markets reveals that not only are speculators incapable of sustainable price manipulation, their actions generally encourage healthy market functioning by mitigating price movements, reducing risk, and preventing shortages of important goods….
The only way to win at speculative trading is to have superior knowledge about future market conditions. Speculators are gamblers in a way, and they can lose big. But they perform a valuable function by taking the risk of price volatility off of hedgers’ shoulders. Because arbitrage ensures that erroneous (or shorting) can’t long endure, speculators typically move prices in the direction of long-run equilibrium, thus reducing overall volatility. This relative stability benefits consumers by saving them from roller-coaster prices.
Not only does this appear significantly better informed economically than the ICCR agitprop folderol, it also appears aligned far more with Christ’s mandate to take care of the least of our brethren.