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Your investment decisions can have global effects

If you could choose only one, would you choose to (a) save a thousand people in a foreign country from dying in an earthquake, (b) save a hundred people in your home town (but that you don’t know) from dying in a plane crash, or (c) save your best friend from dying in a car accident?

Most people will answer (c), and will choose (b) over (a). (Up the ante by changing “your best friend” to “your child” and all but the most Vulcan-like among us will answer c.) You could call it egoism–the view that humans always act based on rational self-interest–or emotionally-motivated behavior or just plain selfishness; but given the choice, people almost always choose to do what benefits them, even at the detriment of other people, especially if those other people are distant strangers.

This is healthy human behavior; we value what we have and what we know, and we act to protect what we value. Rationally, however, if we assume that human life in general is valuable, we know that (a) is the most logical choice. Most of us don’t worry too much about this, since saving one’s best friend from death is pretty big, and after all, it’s just a hypothetical dilemma.

Now let’s talk about the food crisis. Chances are you’ve heard that food prices are rising and seen it for yourself. There are a number of factors causing the higher prices: increased demand, low reserves, the weak dollar, the high price of oil…and speculators. This Washington Times article describes how investors are putting money into futures markets for corn, wheat, and rice (among other things), which actually drives prices higher.

Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-users.

…As with the credit bubble before it, the explosion in commodities prices has its origins in a global savings glut and massive trade imbalances…The difference this time, however, is that even before it bursts, this bubble is causing economic discomfort for households and businesses around the world, and misery for hundreds of millions of hungry people who suddenly cannot afford a bowl of rice or scrap of meat.

Generally speaking, your financial decisions affect you, your family, and maybe a corporation’s profit margin or a stock broker’s bonus. But this is a new twist in financial decision making, where deciding to make some money could mean making a family just like yours–even if it’s on the other side of the world–go hungry.

If you could choose only one, would you choose to (a) feed a hundred starving people in India, (b) feed ten hungry people in your home town, or (c) make a little extra money off the stock market?

Choosing to invest in the stock market, even in the commodities market, won’t directly bring you to that choice, of course. But it’s true that thanks to our truly global economy, your financial decisions can now truly affect people in foreign countries. What would you choose?

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2 Responses to “Your investment decisions can have global effects”

  1. Investment Tool says:

    i don’t think that far when i am investing. From now on, we should be more careful with our investment choices.

    to be honest, i would choose c because i need to feed my family first, after that maybe b and then a.

  2. Jason says:

    It depends on what ethical creed you subscribe to. (A) is only a logical choice if you think like a utilitarian. Socially responsible investing has been around for a while, and the jury is still out on whether or not it provides good returns. I dislike the idea for several reasons:

    1) The average individual investor rarely has the clout to make any sizable movement in the market.

    2) Ought implies can. Investors not investing in futures will not in and of itself reduce agriculture prices. I imagine that price controls via governments play an even bigger role. Farm subsidies do more to distort the market then futures could ever hope to. As such, I’m not sure that there is an obligation to invest ethically.

    3) SRI has some pretty onerous requirements if you take the idea seriously. Simply investing it an SRI fund, or not investing in agricultural commodities, does not discharge you of your moral responsibility. Do you own an I-Pod? That is an investment/financial decision. It costs 25 cents to feed a child for a day. For about 300 bucks, you could feed children for over a year. Most people draw a line somewhere, but a lot of the times that line is arbitrary. I’m not advocating an ascetic lifestyle, but I suspect too many people simply stick money into an SRI fund to feel good about themselves.

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