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February 24, 2011updated 10 Jan 2016 3:32pm

Food for (Revolutionary) Thought

By Spear's

Not why, but why now is what we should be asking about the revolts across the Arab world, says David Livingston of Thurleigh
COLONEL GADDAFI HAS been leader of Libya since a coup in 1969, Mubarak has been president since 1981, Ben Ali was President of Tunisia from 1987 until he was forced to flee the country last month and Abdelaziz Bouteflika in Algeria is in his third term as president and has been in office since 1999. Why are so many disillusioned now by their leaders if they’ve been in power for years?

High youth unemployment has been present since the global financial crisis but add significant food price inflation and it leads to widespread poverty. On January 5th 2011 The Food and Agriculture Organization, a body of the United Nations, reported that prices hit a “record high” in December 2010. The poorest countries are paying as much as 20% more for food than in 2009.

The initial protests started in Tunisia last December. The catalyst for action may well have been twenty-six year old Mohamed Bouazizi, who set himself on fire in protest to his treatment by the local police. He died on January 4 which led to further mass protests. By January 14 Ben Ali fled to Saudi Arabia. On January 16 thousands of people surged into the streets of Cairo chanting “Ben Ali, tell Mubarak a plane is waiting for him too.” With urban inflation in Egypt rising to 10.3% in December it is evident to see why people were disenchanted. By the end of January Yemen and Algeria had joined with the protests and by the end of February Syria, Kuwait and Bahrain had all had public protests. We witnessed a tipping point and the fire has spread across the Middle East and North Africa.

In my view the protests had little to do with the political system itself but rather are a reaction to worsening living standards. Food prices are a major part of the emerging world expenditures, so small changes can have catastrophic effects. People want change and need hope in dark times. Interestingly the US is seeing the opposite force, a rise of the more fractured, more extreme political factions. The thread holding these together is popular disillusionment; high unemployment and poor economic prospects lead to people wanting change and someone to blame. Politicians have never been more unpopular. Even Berlusconi who to all intents and purposes owns the Italian media is finally getting into trouble.

Indeed if food price inflation was the main cause of riots in the Middle East and North Africa then what has been the cause of inflation? World monetary policy in aggregate is extremely loose – the two largest world economies China and the USA have especially loose policy. These low rates however have made investors and corporations go abroad to buy assets which in turn leads to increased prices. The Fed’s Monetary base has exploded but for good reason –with interest rates at historic lows house prices are falling again and core inflation still only stands at 1.1%. If however the money multiplier recovers – i.e. the demand for money increases – then inflation in the US could be savage.

Add to this food supply shocks stemming from floods in Australia and droughts in China. Indeed China may be next to have civil unrest. A drought of massive proportions – the worst in 60 years – has led to 35% of their wheat crops being affected. The main difference in China is that wage growth is running at 14% per annum year-on-year so people are becoming wealthier and can afford to pay higher prices.

There is a good chance that oil could go a lot higher from here if Libya’s production is stopped which would put significant pressure on world growth. With the disinflationary era coming to an end, the prospect for future years is an economy with much higher inflation.

Never has the world been more connected; what happens in Washington and Beijing affects almost every person on the planet. As it turns out it even affects the Middle East and North Africa’s political regimes.

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