Commodity prices plunge is the big news in the markets today. According to Bloomberg today, commodities are–
. . . heading for the biggest weekly decline in more than 50 years, on speculation a slowing global economy will curb demand for energy, metals and grains.
Here’s what Tyler Cowen says:
In the long run price will adjust (even if you believe we are near “peak oil” this is true for most commodities.) People will substitute or find new sources of the commodity or find new ways of producing the commodity more efficiently. Infrastructure improves. But yes those adjustments can take ten years or more. And in the meantime we have a commodity price boom and on top of that a bubble to make these items look even more expensive.
We’ve written much here (also do a search on OpenMarket) about the ethanol boom stimulated by government subsidies and mandates and leading to rising corn prices.