Somehow the name "Stephen King" is less than reassuring. Has he written us a horror story ?

You might consider editing this line: "King's thesis is that economics is about the allocation of scarce resources." It didn't exactly originate with Mr. King. More of a "well, duh" statement.

As to point 1, higher commodity prices are a relative price shock felt much more in developing and poor countries where a much higher percentage of any goods consumed - food and other - is the basic substance itself and not value added. I assume you meant that somewhere in that paragraph.

Relative price increases are a tax on consumers, but so are all price increases. From the consumers' point of view, they can buy less per dollar either way.

Higher commodity prices may be inflation, not a tax.
With tax, the price increase goes to a government, & is distributed, spent or wasted as the government sees fit. Much of it is spent within the governed jurisdiction.
With inflation, the extra cash goes to the producer(often in a different country).

The short term effect on consumption may be similar to a tax hike, but the overall, longer term picture is quite different.

Such glib statements are not worthy of thoughtful people.

mtangent - For those who subscribe to inflation as strictly a function of monetary supply increasing relative to those things money can buy, inflation is like a tax. New money goes first to the government (or to banks who access federal reserve credit) who spends it. Yes the ledger still balances because future taxpayers now owe more, but in near time the government has money to spend at the expense of diluting other money-holders. So the government has gotten money to spend today, while private dollar holders shortly thereafter experience reduced purchasing power as a direct result. Sounds like government gets, citizen loses, all in the same action--just like a tax. Furthermore there is the matter of interest and principle on the treasury debt which was created in conjunction with the monetary expansion, which quite likely will have to be repaid from taxes at some point.

"Has he written us a horror story bampbs?

Yes! The choice for America is denial or default.

Isn't the issue that it's not a level playing field between developed and developing countries.

In manufactured goods, the developing countries are still able to maintain far higher import duties which bolsters domestic or regional (i.e. ASEAN) manufacturers at the expense of their developed world counterparts.

In agriculture, the developed world (EU, Japan, US) has a system of import duties and subsidies that benefits their own farmers at the expense of those in the developing world.

Can't the WTO knock heads together and force the developing countries to lower import duties (the countries would still have lower wage costs, and locally produced cars would still have lower shipping costs, but you'd get rid of the worst companies that only survive because of closed markets, and factories in Europe/US would have a chance to actually export (Mercedes, BMW do manage to export because there isn't local competition at the high end, but mass-market cars from Europe can't compete in large swathes of Asia where import duties mean a mini costs more than a locally-built 7 seater SUV), and at the same time open up the agricultural markets in the west to proper competition in exchange.

The free movement of capital (allowing investment offshore) without the free movement of goods (allowing manufacturers in different countries to compete on a level playing field) will simply continue to export manufacturing jobs from those countries with low import duties to countries with high import duties.

@bkk_mike,

History suggests that perhaps it is too simplistic to equate high import tariffs with job transfers from abroad. The import substitution policy prevalent in South America in effect did not create more jobs. If anything, the tariffs harmed local economies by making their industries uncompetitive. High import taxes in India has not benefited either its agricultural or manufacturing sector. On the other hand, Europe's stratospheric duties have not led to massive increases in agricultural employment or production, let alone exports.

And even if the developing world were to unilaterally reduce its tariffs, it would not necessarily stop jobs from migrating to emerging markets. Other things being equal, profit maximization is best achieved when costs are lowest. Thanks to free movement of capital advocated by the west, manufacturers in developed markets will continue to take advantage of countries with a lower cost base.

The job migration will continue, with or without tariffs.

HSBC's Philip Poole says its more a case of developing sectors rather than developed economies.
He says: "There should be winners and losers in both emerging and developed blocs and investment strategies flowing from this theme need to embrace both. It is these companies and sectors in DM that can, in my view, outperform the rest of the developed world.

"The emerging market consumption story is likely to be powerful as the world rebalances. Investors should seek out sectors and companies globally that will perform well/poorly as a result of this trend and bias the portfolio to overweight/underweight (short) accordingly."

http://www.mindfulmoney.co.uk/3278/investing-strategy/is-china-still-an-...

Yes there are books written on Economics left right and centre but at the end of the day the poor consumer gets licked bone dry.The Capitalist society is in the habit of discrete exploiting the masses. For instance why Macdonals petty is now cut with a microtone,why the sugar is not so sweet, why the tea bags are so light and why there are bubbles in tooth pastes and so forth. The world is a cheat and no body trust anybody, forget the the small print which is ubiquitous.Thank god I can afford alittle.

Thank You, Pacer.