Sarah Palin Doesn’t Understand Economics

| November 18, 2010 | 0 Comments

It’s comical just how many politicians and members of the media have no understanding of economics.  No clue.  This utter lack of economics comprehension couldn’t be more apparent than with my least favorite politician, Sarah Palin.

For whatever reason, the media loves Palin.  Every speech she gives is covered by the news, ad nauseum.  Now, one thing I will credit Palin for… she’s really good at grabbing the spotlight.

But in my opinion, Palin needs to stick to reality shows about Alaska and (bad) jokes about being a hockey mom.  The last thing she should be doing is talking economics.

And she has no business criticizing the Fed.

Of course, Fed bashing is everyone’s favorite activity these days. Recently, the Federal Reserve is taking criticism from members of Congress, foreign officials, economists, and even Alan Greenspan.

I’ll tell you what… if Greenspan wants to criticize the Fed, he’s more than entitled to.  I think he’s earned the right after running this crazy government institution for over 18 years.  But Palin… not so much.  As far as I’m concerned, she’s not qualified to criticize the local Nome, Alaska bank, much less the Central Bank of the United States of America!

But Palin had no qualms about jumping on the Fed bashing bandwagon.  And in a recent speech, she blames the Fed for today’s higher grocery prices.

Needless to say, she’s wrong.  And here’s why…

Anyone who’s been to the grocery store knows food prices are on the rise.  And everyone’s been blaming the Fed for these high prices.

But that’s simply not the case.

Palin’s just echoing the party line because it’s in vogue right now.  Your loaf of bread is ten cents higher?  Hey, let’s blame the Fed!  The price of ground beef is up… blame the Fed.

Frankly, I find this sort of politics to be irresponsible.  Palin, and many other politicians, need to take Economics 101 before they go spouting off about the Fed causing higher grocery prices.

So then, why do your groceries cost more?

Well, it’s not because of the Federal Reserve.  Here’s where Economics 101 comes in… it’s supply and demand of course!

There are plenty of explanations why groceries are going higher and they have nothing to do with Fed policy.

Take global weather patterns.  Have you seen how crazy the weather’s been this year?  Remember the drought in Russia – you know, the worse one they’ve seen in 130 years.  Or how about the huge flood in Pakistan.  Yeah, it destroyed about a quarter of the country’s crops.

Is it possible, just maybe, fundamental factors could be driving up the price of commodities?

As of matter of fact, it’s exactly what’s going on.  Supplies of grains and other agricultural products are falling to historic lows due to extreme weather factors.

Meanwhile, demand is soaring.  In countries like China, the demographics are shifting.  More and more families are spending more on food.

It’s the perfect storm – lower supplies and higher demand.  So of course your grocery prices are going to go up. How could they not?

And then there’s the dollar…

This is where Palin and her cohorts are getting their ammunition. Remember, a lower dollar typically means higher commodities prices.  And Palin is blaming the Fed for the lower dollar.

But here’s the thing…

Last time I checked, the dollar has been at or near these levels before, like 1991, 1992, 1995, 2005, 2008, and 2009.  Just look at the twenty year chart of the dollar below.  Funny, the Fed wasn’t doing any sort of quantitative easing at those times.  You see, the dollar is linked to the economy… and when the economy stinks, the dollar is soft.

As a matter of fact, since the Fed started QE2 in earnest, the dollar has actually strengthened.

Let’s face it, prices of agricultural commodities are higher due to fundamental factors.  That’s why your grocery prices are higher.  It’s true the weak dollar is helping their cause… but there’s zero evidence the dollar would be any stronger if the Fed had taken a vacation over the last two years.

And for that matter, why is everybody so interested in a stronger dollar?  I guess that’s a topic for another day.  Or maybe Sarah Palin can explain it to you with her vast knowledge of economics…

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