Joseph Stiglitz argues against inflation-targeting and as always shows skepticism over the prospect of free trade, especially due to the existence of farm subsidies and other price distortions in the West.
Advocates of trade liberalisation touted its advantages; but they were never fully honest about its risks, against which markets typically fail to provide adequate insurance. Over a quarter of a century ago, I showed that, under plausible conditions, trade liberalisation could make everyone worse off. I was not arguing for protectionism, but rather sounding a cautionary note that we must be aware of the risks and be prepared to deal with them.
When it comes to agriculture, developed countries, such as the US and European Union members, insulate both consumers and farmers from these risks. But most developing countries do not have the institutional structures, or the resources, to do likewise. Many are imposing emergency measures like export taxes or bans, which help their own citizens, but at the expense of those elsewhere.
If we are to avoid an even stronger backlash against globalisation, the west must respond quickly and strongly. Biofuel subsidies, which have encouraged the shift of land from producing food into energy, must be repealed. In addition, some of the billions spent on subsidising western farmers should be diverted to help poorer developing countries meet their basic food and energy needs.
Most importantly, both developing and developed countries need to abandon inflation targeting. The struggle to meet rising food and energy prices is hard enough. The weaker economy and higher unemployment that inflation targeting brings won't have much impact on inflation; it will only make the task of surviving in these conditions more difficult.
