The Bernanke revolution?

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Monday, February 7, 2011; 8:14 PM

DOES BEN S. BERNANKE, the Federal Reserve chairman, deserve the blame - or the credit, depending on your point of view - for Hosni Mubarak's plight? Some seem to think so. Last August, Mr. Bernanke announced further Fed asset purchases known colloquially as "quantitative easing II," or "QEII" for short. The goal was to ease monetary conditions in the United States and fuel growth. But cheaper money lowered the costs and raised the rewards of speculating on food and energy, relative to some other investments. The latest rise in commodity prices began around the time of Mr. Bernanke's announcement; expensive food triggered unrest first in Tunisia and then in Egypt. Ergo, Mr. Bernanke undermined Mr. Mubarak - or so the argument goes.

Is it a fair accusation? Well, yes and no. QEII does, at the margin, enable commodity inflation, both by incentivizing speculation and by stimulating U.S. growth, which makes demand for food and energy stronger than it would have been otherwise. International commodity prices are set in dollars, so QEII means more dollars chasing the same supply of goods. The Food and Agricultural Organization calls the dollar's post-September 2010 weakening a "leading factor" in commodity inflation.

Still, Mr. Bernanke was probably right to deny that the Fed is "primarily responsible" for the current price run-up. The spike in wheat prices, which determines the price of bread in Cairo, began before QEII, when drought destroyed Russian crops. Subsequent floods in Australia have destroyed more wheat. As for other foodstuffs and oil, the continuing rapid growth of investment and middle-class consumption in China and India probably explains much recent inflation - just as it will probably drive future price increases in those goods.

This is not to say there's no U.S. effect. Subsidies and consumption mandates for corn-based ethanol divert scarce crops and cropland - and taxpayer dollars - to a purportedly "green" industry that actually yields very little environmental benefit. Other U.S. policies - such as protectionism for sugar producers and direct payments to cotton farmers - also distort prices. Reforming those misbegotten programs would probably improve global commodity markets more than abolishing QEII, which ends in a few months anyway.

Higher food prices do, indeed, hurt the poor. But the focus should be on alleviating their suffering - not on alleged political effects. Costlier food all by itself is not destabilizing; there are no food riots in democratic India or the Philippines. As Egypt and Tunisia prove, it's the combination of misery and tyranny that's combustible.


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