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Fogelman College Alumnus Featured in The Economist

For release:  June 8, 2013

David Jacks, graduate of the Fogelman College of Business and Economics, was featured in The Economist regarding his research on inflation trends and the short and long-term effects on the economy. The Economist is regarded as one of the most prestigious publications in the field.

David Jacks was a FCBE economics major. Upon graduation from the University of Memphis, he proceeded to earn his Master’s from the London School of Economics. He received his Ph.D. from the University of California at Davis and he is currently an economics professor at Simon Frasier University in Canada.

Please see below of click the link to view David Jack’s full article in The Economist. http://www.economist.com/blogs/freeexchange/2013/06/commodity-prices

Rocks for the long run
Jun 12th 2013, 12:30 by R.A. | WASHINGTON

SINCE late last year commodity prices have been on a long, slow downward slide. Yet many in the markets, like Jeremy Grantham, a British money manager, reckon that the commodity-price spike of the past decade is but a taste of what's to come. This week's Free exchange column looks at a paper that seeks to show what history has to say about future price moves:

David Jacks, an economist at Simon Fraser University, assembles figures on inflation-adjusted prices for 30 commodities over 160 years...Over the very long run commodity prices display a marked upward trend, having risen by 192% since 1950, and by 252% since 1900. But an upward trend has clearly not translated into global famine, and not all commodities are alike.

Chart
Long-run rises have been most pronounced for commodities that are “in the ground”, like minerals and natural gas. Energy commodities especially have boomed, soaring by roughly 300% since 1950. Prices of precious metals have also risen, as have industrial ingredients like iron ore. In contrast, prices for resources that can be grown have trended downwards (see chart). The inflation-adjusted prices of rice, corn and wheat are lower now than they were in 1950. Although the global population is 2.8 times above its 1950 level, world grain production is 3.6 times higher.

Yet over shorter horizons prices can move far out of line with the long-run trend. A price series will sometimes enter a generational departure from trend known as a supercycle. Mr. Jacks finds that supercycles tend to cluster around periods of mass industrialisation or urbanisation, when soaring commodity demand butts up against supply that is slower to respond. Unsurprisingly, many of the commodities Mr. Jacks tracks entered a supercycle as of the late 1990s, as extraordinarily rapid Chinese economic growth began to take off.

But Mr. Jacks finds that supercycles tend to peak within 15 to 20 years. That, one supposes, is generally long enough for demand growth to ease amid soaring prices and supply to take off. And that suggests that a supercycle peak is looming, assuming the world has not passed it already. It is quite possible that the next decade or so will bring commodity-price growth that is below the long-run trend level.

There are no guarantees, of course. To the extent that producers anticipate easing price growth they may delay or idle exploration and production activities, propping up prices. Emerging market demand could accelerate unexpectedly. But while in the very short run markets can throw off wild price signals, over longer stretches of time they still seem to do a good job responding to surging demand and bringing prices back—eventually—to manageable long-run trends.

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