When headlines report shocks, whether war- or climate-related, this provides a context for price hikes on everyday goods. What is often overlooked, is the role financial speculation plays in dictating what consumers pay. These decisions, which escape legal and public scrutiny, can be impulsive, and fuel a sense of scarcity for the sake of profit-making. In this conversation, Price Wars author Rupert Russell explains the outsized role of financial markets in our current crises and why politics cannot afford to let them run wild.
Green European Journal: Looking around the world today, we see many signs of scarcity: wars and sanctions, energy shortages, heatwaves causing crops to fail… Is this scarcity at the root of the current cost of living crisis?
Rupert Russell: Amartya Sen famously said that all famines are human made. He points to a genuine shortage of food as the cause of certain famines in history that killed people on a horrific scale. But he also explains how, since the formation of modern markets and the global economy, local shortages no longer matter that much because almost all the world, except for some isolated regions, is plugged into global markets.
Sen’s point is worth keeping in mind when we see headlines around shortages and the cost of living crisis. In the US state of Mississippi between 2017 and 2019, 15 per cent of the population suffered from food insecurity. That means that they could not always afford to eat an adequate meal. Was this hunger caused by an absolute shortage of food? The answer is no. Price is the central prism through which we have to see modern poverty. The reason for food and energy poverty is simply that people cannot afford what they need.
But surely the war in Ukraine has a lot to do with the cost of living crisis?
Food and oil are global commodities that are more or less interchangeable. They are abundant and are sold all over the world regardless of war. We see headlines about the war, stranded wheat in silos, and Russia and Ukraine being jointly responsible for a quarter of the world’s wheat exports and then think that the sharp rises in food prices are rational. However, the price of all these internationally traded commodities dropped significantly in June 2022. What happened with supply and demand? Was there a ceasefire in Ukraine? Was an embargo lifted? No – the US Federal Reserve announced an interest rate rise of 0.75 per cent, and every single financial asset from Meta to crypto to commodities dropped.
Not only is the scarcity story around the war in Ukraine overblown and disconnected from the realities of the markets, but these are also not even physical markets – they’re financialised markets. The prices of financial assets are set by speculators, and nothing shifts the narrative more than the Federal Reserve. The gas situation is more complicated because it is a commodity that is hard to move, which is why pipelines are so important, and why Russia has been able to play games with Europe since the 1960s. It is also why the bombing of the Nord Stream pipelines is so significant. That said, we are rapidly moving towards a global market for liquefied natural gas as new infrastructure is built.
What we need to remember is that markets are social institutions, and it is their dysfunctions – whether Putin using gas as a weapon or the dynamics of financial markets – that are creating a sense of scarcity. We are seeing extraordinary failures of the institutions that we’ve built to distribute goods around the world. It is precisely the diagnosis that Amartya Sen gave for famines or what in the West are called “cost of living crises”, and many people may very well go hungry and die because of it.
Financial speculators may well be aggravating the cost of living crisis. But isn’t environmental change what is making food, resources, and water more scarce?
I’m no expert on the future of food production, but there have always been discourses of scarcity. You saw them in the 1920s and the 1970s; they go in and out of fashion. They also play into the idea that the world is overpopulated, and we’re soon going to have to start eating each other. Food prices were really low between 2014 and 2021. Now people see the news about a drought in India or a fire in California and think that is why prices are high. Has there been an increase in droughts and fires that specifically accounts for prices tripling? I would argue no.
The way we have built the modern commodity market means that any perceived downturn in production can be escalated into a global crisis or shock. We’re getting more and more data – whether directly from farms or from satellite data companies. This data feeds into these algorithms, and they amplify these effects. A critique of the climate movement is that it feeds into narratives of scarcity, which then further contributes to artificial volatility through the markets.
Price is the central prism through which we have to see modern poverty.
How does algorithmic trading work?
Algo-trading can take any form. There are lots of trend-following algos out there – algorithms looking for trends and betting on them. If there is a news event, a war, a pipeline blowing up, or whatever – a bot reads it and trades on it immediately under the logic “it’s better to be first than to be right.” The impact is that you get a lot of intra-day volatility. We’ve seen 30-dollar-a-day swings in the price of oil because of the war in Ukraine. One day, headlines about embargoes on Russia. Bam, price hike. Next day, headline: Russia is going to sell their oil to India, right – sell.
The crazy thing is that we have no idea what these speculative strategies are. Hedge funds that trade in these ways – Renaissance Technologies being the most emblematic – are very secretive. The price of food and fuel is so important to our lives, to security, to the economy, and to political stability, but then you realise that these decisions are made in a complete black box. We’re in a world where the decision-making behind the very things that govern whether we can afford to eat and heat our homes is secret, and where this secrecy is both protected by law and normalised. It is a sign of the madness of the market system that rules our world.
You travelled throughout northern Africa and the Middle East during the Arab Spring. In 2022, we’ve seen major protests from Sri Lanka to Iran to Chile. Why do price rises have such an incendiary effect?
The link between political instability and high prices for essential goods is as old as history. In Roman times, the emperors provided bread and circuses to keep the people happy. During the French Revolution, there was “let them eat cake.” These centuries-old comparisons re-emerged in a very vivid way during the post-2008 global food crisis, which was one of the driving forces behind the Arab Spring. Since 2021 there have been similar protests in at least 50 countries including India, Indonesia, Iran, and Tunisia.
All governmental systems – monarchies, dictatorships, democracies – rest on an implicit agreement between the ruler and ruled that life must be liveable. The historian Steven Kaplan once wrote that it was Charlemagne who established the state as the guarantor of the price of bread in Europe, with the king as the “baker of last resort”. This stays with us today.
Protests that happen during food price spikes are not necessarily mechanical responses to hunger but rather to the failure of a government to do its job, symbolised by high prices. In some ways, Europe’s cost of living crisis began with the gilets jaunes protests between 2018 and 2020 in France, sparked by the introduction of taxes that increased the price of petrol. The same happened in America. Petrol prices can become a lightning rod for protests and instability. With all these neoliberalism, house prices can also be integral to social contracts. Houses have become more than just a place to live; they are a form of financial security in place of the social safety net that has been eroded. In the context of the current crisis, we need to stop thinking about these different commodities as separate markets that reflect what is going on in the real world and realise that they are all part of the same financial house of cards.
Protests are not necessarily mechanical responses to hunger but rather to the failure of a government to do its job.
Governments in Europe are subsidising energy to help contain the cost of living crisis. Meanwhile, central banks are raising interest rates to curb inflation. What do you make of these responses?
Politicians and central banks have found themselves backed into a corner. The war in Ukraine has turned what seemed like transitory inflation created by the pandemic and the supply chain crunch into something much more durable. So central banks have felt forced to respond with interest rate rises.
On the one hand, the politicians who were almost laughing at the idea of price controls as recently as early 2021 are having to impose them because populations and businesses are simply unable to pay their bills. The question is: who pays, and who benefits? There is an assumption on the part of both central banks and elected politicians that this crisis is rational and reflects an underlying reality. This is resulting in enormous transfers of public money to commodity producers – all because of the price rises that have been massively inflated by speculators’ overreaction to the war in Ukraine.
On the other hand, it is true that if you raise interest rates high enough, you will bring down inflation. But when [Federal Reserve Chair] Paul Volcker did this in the early 1980s, he not only engineered a recession in the United States but also triggered a developing-world debt crisis that went on for decades. The humanitarian cost of this strategy was extraordinary, and the contagion effect from the Global North to the Global South multiplied the human suffering and misfortune caused exponentially.
We need to ask ourselves whether there isn’t another way to deal with this. Intervening at the price level is definitely a short-term fix. So far, governments have preferred to fork out cash even though regulation could be just as effective. Just think how much renewable energy such an investment could create over the next two or three years. What is happening in the United States – and I think this is a step in the right direction – is a movement towards “supply-side progressivism”. The idea is to improve efficiency, increase productivity, and decarbonise as quickly as possible.
So the role of the state will have to grow to fill the shortfalls?
It’s common sense. In France, we have seen the massive nationalisation of the country’s main energy producer because they simply had no choice. Governments have been backed into this corner because, for over 40 years, we’ve lived under the markets. It was a system that worked but that was extraordinarily fragile and had all kinds of interdependencies within it. The fragility metaphor extends all the way from the financial system to supply chains. Europe’s dependency on cheap Russian gas was one of the greatest fragilities. As far back as 2012, then-Polish prime minister Donald Tusk was warning that relying on Russian energy was really not where Europe wanted to be.
Over 40 years of neoliberalism, the shock absorbers have been hollowed out of the system. Now we are bouncing from crisis to crisis. We have to start unwinding that fragility.
The crisis of 2008 provoked discussions on the reform of the financial system. But many of these conversations subsided as the economy recovered. Does the cost of living crisis bring these bigger economic questions to the fore once again?
I shied away from making too many policy prescriptions in Price Wars. The one message I wanted to convey is that we are living in a world of prices, but are in denial. Prices provide the structure of constraints and opportunities that we all live in – from Biden and Putin to Mark Zuckerberg – and enable and limit all our decision-making and ability to act. These numbers run the whole world.
This endpoint was the whole purpose of neoliberalism. It was an anti-democratic project to say that markets are more efficient voting systems than democracies, with their special interests and trade unions. We’re living in that world now, but it was a political decision to empower prices, and prices in turn constrain politics. What we need is a political imagination that tries to move beyond that, and this is what I see people in some parts of the green movement trying to do when they talk about degrowth or decommodification.
Recessions and periods of inflation are very difficult for progressive forces as they are often followed by austerity and the rise of xenophobia. What narratives should Greens and progressive parties use to explain the current period of insecurity?
During the early days of the pandemic in 2020, there was a brief sense of “we’re in it together”, which flourishes when the state intervenes in a big crisis and is backed by a sense of collective action. I think this was real. It’s not a made-up story. People care.
We don’t need to treat people as atomised consumers. They recognise that being given 400 euros to help with their electricity bill that’s gone up by five times that amount isn’t really helping them. People’s household budgets will speak for themselves. The atomistic neoliberal contract becomes implausible when your pay just doesn’t match your outgoings.
The Greens and the centre-left in a broader sense need to offer a response that can lean into feelings of patriotism, community, and collectivism. Here’s a collective answer to your individual problem. It’s an exact flip of the neoliberal idea that for every systemic problem you need an individual solution. The time has never been better for that break.