AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US

2/3/11

One has to be very careful when considering the events currently taking place in Egypt and should scrutinize them for clues regarding ramifications for our economy beyond the obvious.

The press would have you believe that the current bout of upheaval in the street in Egypt has its origins in discontent with President Hosni Mubarak’s trampling on the fundamental rights of the people, denying them the democracy they so ardently desire (See today’ other post on Egypt, AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US, PART II) with a little bit of economic discontent thrown in for good measure. But since when has Hosni Mubarak ever been respectful of people’s rights? When was he ever, since taking power, NOT been a dictator? And when have economic conditions ever been good for the typical Egyptian, who works, if he has a job, for slave wages?

The above questions are, of course, rhetorical. Something must be different today in Egypt to have sparked the demonstrations and counter-demonstrations that will lead to Mr. Mubarak’s ouster, one way or the other. What is different?

It seems to me that the skyrocketing prices of basic food commodities were the trigger in this case. Note that Egypt is both a poor country and the world’s largest importer of wheat. When the price of wheat goes up, the price of bread goes up. In a country like the United States, we hardly notice the change in the price of wheat because most of our foods, including bread, are highly processed and thus the prices of the underlying commodities are negligible in the retail price of the product. Further, in any advanced country, food is a relatively small portion of our household budgets. But in Egypt, where many, if not most, people buy their bread from local bakeries every day soon after it emerges from the oven, food comprises the majority of a household’s expenditures, and people are barely scraping by, an increase in the price of wheat is a BIG deal. It makes a tough life nearly unsustainable and obviously fosters discontent. From the comfort of the West, we can tut-tut about abuse of rights all we want, but for poor people just scraping by, the price of their daily bread is a far higher priority, as Mr. Maslow argued some time ago in his hierarchy of needs.

So what does this have to do with us, other than its obvious humanitarian implications? Perhaps we shouldn’t be so smug in our confidence that the skyrocketing prices of commodities are inconsequential because they have nothing to do with “core” inflation. Not only do increasing commodity prices have geopolitical ramifications, but they don’t always stay limited to commodity prices. Note two articles in today’s (i.e., Thursday, 2/3’s) Wall Street Journal: “Fearing Inflation, Firms Stocking Up,” page C1, and “Steel-Price (sic) Rises Pressure Supply Chain,” page B1.