Tip from taxi driver Noah - Sell wheat!

Steven Pearstein at the Washington Post takes a point of view that surprisingly few econ bloggers or reporters have taken - that the huge run-up in commodity prices is, in fact, a speculative bubble driven by hedge funds and other unregulated financiers seeking the Next Big Thing.

Most economists, despite the evidence of ages, are wary of believing in bubbles (our equations say they shouldn't happen). And most reporters have attributed the commodity boom to big stories they know about - the growth of China and India, peak oil, the collapse of the dollar, and the boom in biofuels. Who thought it could just be a good old-fashioned speculative bubble?

But I suspect Pearlstein may have the right of it. The run-up in commodity prices is too sudden and too big not to be driven by finance. And commodities are the most obvious refuge from inflation and collapsing stock markets - I've heard people from a fellow grad student to The Economist advise me to stash my money in farm futures. And that's the "taxi driver effect" - as soon as your taxi driver starts giving you stock tips, it's time to sell.

Which means the price of commodities is going to go down. Maybe not to its previous level - after all, China is growing, oil supply is getting more iffy, and the dollar is collapsing - but they will go down nonetheless. Which will offer some relief to all those scared rice consumers in the Philippines, hopefully before any of them starve to death.

But if I'm right, and commodities are just another bubble, then we have to ask ourselves - why all the big bubbles? Is it just because America deregulated its finance - and if so, could unilateral re-regulation stop the merry-go-round? Or is it fundamentally because of the insanely big piles of money still being accumulated by China and the Gulf countries - money that's fed back into the hands of America's financiers, and money that needs some place to go? That's what Pearlstein thinks. That's what I think too.