Paul Krugman: Grains Gone Wild

Can anything be done to alleviate the food crisis?:

Grains Gone Wild, by Paul Krugman, Commentary, NY Times: These days you hear a lot about the world financial crisis. But there’s another world crisis under way — and it’s hurting a lot more people.

I’m talking about the food crisis. Over the past few years the prices of wheat, corn, rice and other basic foodstuffs have doubled or tripled, with much of the increase taking place just in the last few months. High food prices dismay even relatively well-off Americans — but they’re truly devastating in poor countries, where food often accounts for more than half a family’s spending. There have already been food riots around the world...

How did this happen? The answer is a combination of long-term trends, bad luck — and bad policy.

Let’s start with the things that aren’t anyone’s fault.

First, there’s the march of the meat-eating Chinese —... the growing number of people ... who are, for the first time, rich enough to start eating like Westerners. Since it takes about 700 calories’ worth of animal feed to produce a 100-calorie piece of beef, this change in diet increases the overall demand for grains.

Second... Modern farming is highly energy-intensive... With oil persistently above $100 per barrel, energy costs have become a major factor driving up agricultural costs. High oil prices ... have a lot to do with ... China and other emerging economies ... competing ... for scarce resources..., driving up prices for raw materials...

Third, there has been a run of bad weather in key growing areas. In particular, Australia, normally the world’s second-largest wheat exporter, has been suffering from an epic drought.

O.K., I said that these factors ... aren’t anyone’s fault, but that’s not quite true. The rise of China and other emerging economies is the main force driving oil prices, but the invasion of Iraq ... has ... reduced oil supplies... And bad weather, especially the Australian drought, is probably related to climate change...

Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels. ...[E]ven on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But ... even seemingly “good” biofuel policies, like Brazil’s use of ethanol from sugar cane, accelerate ... climate change by promoting deforestation.

And meanwhile, land used to grow biofuel feedstock is land not available to grow food, so subsidies to biofuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

Oh, and in case you’re wondering: all the remaining presidential contenders are terrible on this issue.

One more thing: Governments and private grain dealers used to hold large inventories..., just in case a bad harvest created a sudden shortage. Over the years, however, these precautionary inventories were allowed to shrink, mainly because everyone came to believe that countries ... could always import the food they needed.

This left the world food balance highly vulnerable to a crisis affecting many countries at once — in much the same way that the marketing of complex financial securities, which was supposed to diversify away risk, left world financial markets highly vulnerable to a systemwide shock.

What should be done? The most immediate need is more aid to people in distress: the U.N.’s World Food Program put out a desperate appeal for more funds.

We also need a pushback against biofuels, which turn out to have been a terrible mistake. But it’s not clear how much can be done. Cheap food, like cheap oil, may be a thing of the past.

Comments

[Bruce Wilder]

dday at Hullabaloo had a useful post on this subject, which included some links to places where you can donate.

This is a crisis, which will mean severe hardship and even starvation in parts of the world. Even small donations have a large human effect.

[Lafayette]

Article: Over the past few years the prices of wheat, corn, rice and other basic foodstuffs have doubled or tripled, with much of the increase taking place just in the last few months.

This IS the answer to food independence of importing countries -- higher producer prices.

Until now importing countries have been trying to negotiate, at the DOHA round of GATT, the stopping of government subsidies to farming in both exporter states, America and the EU. To no avail, apparently, since the DOHA round is in neutral because of the strong farm lobbies in each region. (And, it must be noted that the farm subsidies in both the US and the EU go mostly to farm conglomerates and NOT to Mom & Pop type farms.)

Because of these subsidies, local farmers could not compete with subsidized imported cereals, wheat flour particularly. The increase in price might just give them a chance to invest in the are, where that investment is badly needed to enhance productivity.

It is up to the IMF to look into such opportunities where they may exist, particularly in Africa.

NB: It would help also that a few African "breadbasket" countries get their political act together, namely Kenya and Zimbabwe. For the moment, they prefer stone-age politics, which leads to wide suffering of their own people. These two countries, in particular, had once successful farmlands producing and exporting that produce to the rest of Africa.

[reason]

Why is Krugman the only economist willing to bring these issues (serious resource shortages) up?

[Alex Tolley]

Lafeyette: The increase in price might just give them a chance to invest in the are, where that investment is badly needed to enhance productivity.

Unfortunately the bulk of the population now live in the cities, so higher prices aiding local farmers won't help them one wit.

We've argued before on this blog about whether we are finally reaching a Malthusian limit. It is possible that we are starting to see the early signs of it. Not mentioned by PK is the spate of new, untreatable crop diseases, one of which is a wheat rust that is spreading across the Eurasian wheat belt. The world has become very dependent on relatively few food crops, grown in monocultures with high energy inputs. We may shortly find out whether this is a robust system or not. My biological training suggests that this is a not a stable, robust system.

[reason]

Alex Tolley...
Sciam also talked about a banana disease in the latest issue. And lets not start to talk about the fishery disaster!

[gaddeswarup]

The reasons for scarcity may vary from country to country but here are some observations from talking to farmers in coastal Andhra in India during a recent trip. Many are small farmers cultivating between 2 to about 30 acres; about 40 years ago 10 acres seemed to be enough for a comfortable living. Now I found that among relatives and friends, only those who remained in farming are struggling. The reasons given are higher costs of production, high interests from local lenders, low prices soon after production, uncertainity in results, no insurance (no futures for agricultural produce),minimum prices guaranteed by the government are not usually good enough and there was a lot of talk about middlemen making profits. Some farmers have turned from rice growing to eucalyptus farms since investment is much less and the income is more cetain.

[hari]

Let's try a contrarian point of view - there's a silver lining to Paul's analysis. Namely, what we knew has global poverty - some three decades ago - is receding into the background, however, gradually; Asian countries, in particular, are nourishing their families better now than ever. Last week I noticed, inspite of galloping inflation, Indian Gov decided to lift tariffs on imported edible oil(mainly palm oil from Malaysia).

India is deficit in edible oils production. It is a major cane sugar producer - and often a net importer too. Grain supply is more than adequate now including wheat. These are basics of Indian domestic food consumption. As poverty is irradicated, basic consumption across the board, will grow to feed +1 billion - +200 million on the land in countryside and poor. General election is next year....

China's protein consumption has more than quadrupled, some experts claim. Their PM went on record that basic food items will be price controlled including pork and rice. More than 200 million Chinese have left the countryside and migrated to coastal regions (urban centres) - more are expected to do same, as agri-industry becomes more and more concentrated with a view to supply growing domestic consumption demand. Demand for basic food items on mainalnd China are growing exponentially, and will continue to grow until poverty is finally removed, according gov edict.

Is the glass half-full or half-empty?

For those of us who have witnessed these Asian giants during the last three decades of development, there is now a definite paradigm shift in national policy imperatives. First, food sufficiency is a priority. Education and literacy is high priority. Heathcare and rural medical services is becoming more a fucal point of policy coordination between state-centre relations. And given their rates of growth, there is no way this macropolicy economic framework of poverty irradication stop any time soon.

It's a long march!

[reason]

Hari,
looking at individual countries is misleading. Look at world market prices and (especially) stocks and you see a different story, as PK points out. Extrapolating from the past is not always a good guide to the future.

[pgl]

We can make this even more basic. Paul notes events and policies that have either shifted the demand curve out or shifted the supply curve in. Graph this and you'll see that the price had to rise. I especially liked the part where getting 100 calories from beef requires 700 calories worth of animal feed since I've decided to eat less beef as part of my drive to get in shape and lose a lot of weight. At least my demand curve has shifted inwards.

[hari]

@ reason -

I don't think you've been trading commodities to understand the influence of volume on prices.

[reason]

Hari,
I must admit I have no idea what you are talking about. Yes more people can afford better food (as P.K.) in fact points out. Some countries are buying some sorts of food on the world market, and that and some supply issues are pushing prices through the roof. This is a serious problem for some very poor people. You saying that some people are richer than they used to be, is true but it doesn't change the main issue. Nor does it necessarily mean that this problem won't get even worse, because stocks are so low now. Food is necessary for survival, some people's survival is endangered.

[Lafayette]

AT: Unfortunately the bulk of the population now live in the cities, so higher prices aiding local farmers won't help them one wit.

You have never been evidently to either Africa or Asia.

And, those who ARE in the cities (in these mentioned regions) have come there seeking work because farming could not keep them in the countryside.

Europe and America depleted its countryside of farmers, having replaced them, decades ago, with intensive farming. So, now both are contending with the fact that intensive farming -- and the determination to cheapen farm product production by enhancing productivity -- has given rise to another altogether different set of problems. Namely, water pollution by pesticides. But also, tasteless fruit and vegetables. And, as of yet unknown derivative effects of genetically modified foods.

We thought we could trick Mother Nature. But, we cannot.

Technology as Economic Saviour has attained the status of a confirmed Religious Belief. That belief, I suggest, is misplaced. It's just another tool at our disposal, but one we must be diligent in its employment. It can cause as much harm as benefit.

[Lafayette]

pgl: Paul notes events and policies that have either shifted the demand curve out or shifted the supply curve in.

China is the culprit, should we need one.

The country is importing far more wheat and beef than ever before. (Petrol and iron ore as well.) It is formulating a genuine Middle Class who want the same standard of living that we acquired shortly after WW2, in the 1950s.

And, they will have it. Obesity, HIV, Cancer and Heart Disease are already on the rise, there. And, their Health Care system is inadequate to the task, particularly in the countryside. In the countryside it is practically non-existent. All the newly trained doctors prefer city living and there is plenty of demand there.

In the cities, it resembles America's -- if you can pay for it, you get it.

Good luck, China! You'll need it.

[gaddeswarup]

A post with predictions of trends from International Food Policy Research Insitute and US Department of Agriculture:
http://blogs.odi.org.uk/blogs/main/archive/2008/02/29/5520.aspx

[Elvis]

It's made out of people! It's made out of people. You gotta tell them. Soylent green is people!

[anne]

http://www.earthpolicy.org/Updates/2008/Update69.htm

January 24, 2008

Why Ethanol Production Will Drive World Food Prices Even Higher in 2008
By Lester R. Brown

We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before.

The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.

As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.

In industrial countries, the higher processing and marketing share of food costs has softened the blow, but even so, prices of food staples are climbing. By late 2007, the U.S. price of a loaf of whole wheat bread was 12 percent higher than a year earlier, milk was up 29 percent, and eggs were up 36 percent. In Italy, pasta prices were up 20 percent.

World grain prices have increased dramatically on three occasions since World War II, each time as a result of weather-reduced harvests. But now it is a matter of demand simply outpacing supply. In seven of the last eight years world grain production has fallen short of consumption. These annual shortfalls have been covered by drawing down grain stocks, but the carryover stocks—the amount in the bin when the new harvest begins—have now dropped to 54 days of world consumption, the lowest on record.

From 1990 to 2005, world grain consumption, driven largely by population growth and rising consumption of grain-based animal products, climbed by an average of 21 million tons per year. Then came the explosion in demand for grain used in U.S. ethanol distilleries, which jumped from 54 million tons in 2006 to 81 million tons in 2007. This 27 million ton jump more than doubled the annual growth in world demand for grain. If 80 percent of the 62 distilleries now under construction are completed by late 2008, grain used to produce fuel for cars will climb to 114 million tons, or 28 percent of the projected 2008 U.S. grain harvest.

Historically the food and energy economies have been largely separate, but now with the construction of so many fuel ethanol distilleries, they are merging....

[anne]

Though there has been complaint about agricultural subsidies, I have long supported increased use of agricultural subsidies in developed but especially in developing economies. But not just agricultural subsidies, rather subsidies for growing a variety of basic nutritionally important food stuffs. The problem with our subsidies has increasingly been how little attention there has been to food or nutritional quality, to the point where what should be basic food crops are being increasingly grown for fuel.

United Nations reports on the subtle problem of growth of crops for fuel have been appearing for a couple of years, but the problems have been localized, and bleed to concerns with crop health and posible climate change effects, so conclusion has struck me as difficult.

[paine]

"I've decided to eat less beef as part of my drive to get in shape and lose a lot of weight"

the reality basis of pgl's comments are improving

good luck mate

[paine]

i like pk playing global joseph

the level of social commodity storage
is an international policy decision
always opposed by powerful spec/producer type lobsters

---storage near points of risky consumption supply
not points of plentiful production -----

subs africa is a disgrace to the over producing north

btw the spirit of parson malthus
needn't poke
his pious prig of a snout
into this latest misery bout

rule one
its never mother nature's fault
never real demand growth never anything
but strictly policy driven dismality

[swells]

This is scary stuff. I am not sure there is a fundamental solution to the problem short of having fewer people in the future. Here's hoping that fertility rates fall voluntraily before people do it the old fashioned way, by killing each other in spectacularly bloody fashion.

[anne]

"O.K., I said that these factors behind the food crisis aren’t anyone’s fault, but that’s not quite true. The rise of China and other emerging economies is the main force driving oil prices, but the invasion of Iraq — which proponents promised would lead to cheap oil — has also reduced oil supplies below what they would have been otherwise.

"And bad weather, especially the Australian drought, is probably related to climate change. So politicians and governments that have stood in the way of action on greenhouse gases bear some responsibility for food shortages.

"Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels."

A difficulty in setting the problem of rising food prices in context has been Unite Nations reports finding so many localized though serious problems.

Somalia is a nation torn by invasion and occupation, but nations so torn have land agricultural prouction disrupted. Then too, environmental degradation and climate change are further problems. However, Somalia is even being effected by international pirates taking fish with no safeguards or compensation from territorial waters. Where then to begin to escribe even the problem in Somalia?

[anne]

Even not wishing to simply attribute war to all-encompassing problems, we really do need to follow the leads of Krugman and Stiglitz in asking the extent to which disruptions in fuel and food production from violence and threatened violence has been an international problem since 2002. War has been a selective food production problem from Somalia to Afghanistan to Pakistan to Iraq to Lebanon to Gaza to Sudan and I am not trying to enumerate carefully and think more broadly and specifically.

[paine]

swells

try to re think this...

population dynamics are trending in the zero net direction quite well in fact

no one has really declared a long range food emergency

this is not a global warming/climate change type problem

anymore then peak oil or peak water for that matter
are climate change type problems

triggering
the sublime and seductive
romance of catastrophe
ought to be save for "fictional flights "
not mixed in with the real news of the day

three winters in a row may be what we ourselves deserve
but mother nature is neither so strict or so simple
as to give us the alibi of "exceeding unseen limits "

nope we will continue to be
the sole authors
of our own misery

[paine]

and by this i mean sole authors
as social beings

NOT mal adjusted natural beings

[hari]

@ paine -

You are getting closer to reality in this discussion while Lafayette is pointing out the discord in supply/demand.

My point is going to be rather *cruel* this time around with Paul: I suspect he's playing (progressive?) politics again.
Prices will have to go thru the roof, if so, consumption will find a balance. If not, they have to produce domestically and bridge the gap. China can do it. India is a net exporter of grains today!

A lot of comments here are ignorant of how global commodity markets, including mineral, operate. @ Reason (I guess the bugger is an Aussie!) should know Australia is a major supply-chain of Asian demand today. Entire Australian economy is based on trade in commodities including minerals. There is hardly any industrial production of note....

This *scarcity* problem will go over, in time! The magic of the commodity market is *unit price*, and even sugar (which I've traded for long) has joined the march north. If there is disclocation of supply, I don't know.

Ethanol (from cane sugar)is a problem but not unsurmountable.
Brazil distills ethanol when oil prices explode! Otherwise ethanol unit prices are not competitive, as a fuel, unless subsidized as in US.

It would be useful if commodity traders could enter this discussion and identify the *State Trading Corporations* who are booking supply +24mths ahead of time.

I know, for expample, all basic commodities are booked ahead of time by the State Trading Corp of India - on schedule fixed by Gov Ministries.

If you want to know how the *futures* market in Palm Oil is trading, all you have to do is klick the floor of Kuala Lumpur (KL) Palm Oil - Futures Trading Market. The main market maker (not mover!) is none other than State Trading Corp (India). They consume a lot per capita of edible oil.
The Gulf States are also bulk buyers of edible oil....

[paine]

anne's

intercommunal failed state type wars
are indeed a proximate social cause
of local food shortages

but these wars themselves have a great game cause
just as they did when in what is now
new york the iroquois armed by the dutch
battled the hurons armed by the french

[swells]

paine, it is difficult for me to read your posts and glean your point because of the format you choose to use. Nonetheless, I can say this. In my lifetime, world population has gone from around 3.5 billion to approx 6.5 billion. If population is progressing in the zero net direction, what will the population be when that is achieved? 8 billion, 9 billion, 12 billion? What is the carrying capacity of earth? I certainly don't know but I suspect hitting that wall is something that would have catastophic consequences. I think a little more caution via the urge to reproduce might be prudential.

Unless you think 6.5 billion of us is in some way not adequate. That said, I'm not for sterilizing folk willy nilly. I'm just hoping we don't find out the hard way that we did a bit too much of this whole "be fruitful and multiply" thing.

[wally]

There is currently a price bubble in a number of commodities as a flight to perceived safety.
This column makes no effort to quantify that; in my opinion it is the major part of the price rise.

[hari]

@ Swell -

Global population in my time as gone from 2.4 to 6.5 Billion. Population pressure is of course a problem for a lot of developing countries - but it's not as significant as it was some thirty eyars ago! Remember the Club of Rome...and their forcast? You'd be submerged by now, if you simply take their *brilliant* reasoning - all out of whack!

[markg]

What I don't understand is the U.N.'s World Food program appeal for more funds. How can more money buy food that does not exist. If 10 people each want to buy a widget but only 9 widgets are available, someone will go without. Will giving the person who loses out more money help everyone have a widget? Why most everyone sees the solution to problems is having more money is beyond me. Money is never in short supply in our era of fiat money - governments can create as much of thier own currency as they want. It's the goods and services that are in limited supply. And that problem is usually caused by bad policy - such as ethanol mandates and subsidies.

[hari]

Remember - UN World Food Programme is a bureaucracy based in Rome. Sometimes they've problem getting govs to fund their activities in Africa, in particular. Cynicism aside, they can't afford to lose their *taxfree* jobs in Rome - either!

[swells]

hari, I probably shouldn't even comment since I know so little about the issue. But, I have a hard time shutting up when my own ignorance should serve as a constraint.

I guess I'm having a knee jerk response to things like the potential for the collapse of oceanic populations and the cruelty that is involved in industrial protein farming. Yeah, when I was a kid we raised pigs and chickens and slaughtered them for food but we didn't keep them in little bitty cages and pens where they could hardly move about. At least while they were alive they got to be pigs and chickens.

[evagrius]

i like pk playing global joseph

You stole my line-

Joseph's dream is now a nightmare.

[anne]

http://krugman.blogs.nytimes.com/2008/04/07/right-on-cue/

April 7, 2008

Right on cue
By Paul Krugman

In today’s column, * I suggested a parallel between the vulnerability of today’s low-inventory world food markets to crisis and the vulnerability of our high-leverage, securitized financial markets. (Incidentally: yes, I reused a blog post title. ** I just thought it was appropriate.)

Sure enough, and right on cue, Bloomberg: Rice Run Prompts Curbs to Rival Credit Market Seizure: ***

"From Cairo to New Delhi to Shanghai, the run on rice is threatening to disrupt worldwide food supplies as much as the scarcity of confidence on Wall Street earlier this year roiled credit markets.

"China, Egypt, Vietnam and India, representing more than a third of global rice exports, curbed sales this year, and Indonesia says it may do the same. Investigators in the Philippines, the world’s biggest importer, raided warehouses last month to crack down on hoarding. The World Bank in Washington says 33 nations from Mexico to Yemen may face “social unrest'’ after food and energy costs increased for six straight years....

"The upheaval parallels turmoil in global capital markets that seized up nine months ago when subprime mortgages collapsed. The difference between what it costs the U.S. government to borrow and the rate banks charge each other for three month loans ended last week at 1.36 percentage points. A year ago the gap was 0.33 percentage point."

* http://www.nytimes.com/2008/04/07/opinion/07krugman.html

** http://krugman.blogs.nytimes.com/2008/04/02/grains-gone-wild/

*** http://www.bloomberg.com/apps/news?pid=20601087&sid=a0fU0S8MSK64&refer=home

[paine]

laff track primo line :

"We thought we could trick Mother Nature. But, we cannot"

its only
father time ..in the end ...
that seems never
to fall for our tricks dear soul
a blunt blind fact
as day follows day follows day
u must
ever more realize

but wonder of wonders
MN often proves indulgent

we hu-caps
get to win a few tricks
now and again
from the dealers
at her casino
just enough to keep it non infernal

[anne]

"What I don't understand is the U.N.'s World Food program appeal for more funds."

There is food available, but the food is increasingly expensive making funds the United Nations uses to buy food run short more quickly. The same will happen with domestic food services for the needy. We are not near too little food, but near too little afforable food.

Food in places of shortage becomes more expensive increasing the problem of affordability, even though food is readily available elsewhere.

[Jodie]

The rise in prices have been so persistent and so all encompassing I find it shocking that no one mentions monetary factors.

Must every generation relearn economic lessons?

Negative real rates are corrosive and eventually undermine peoples willingness to swap goods for money.

The Chain of causation might eventually pass through the supply and demand for each particular good or commodity but the underlying tide must still remain that the supply of money is much higher than the demand for it.

It is money that is losing its value.

[paine]

"What is the carrying capacity of earth? "
certainly well beyond three times the present figure
and at any rate
probably well beyond our capacity to reach it

after all
reproducing is not the only fun in life

i suspect much else well within
the range of our desires would snare us first

reproduction will never be our doom

[mark ii]

Thanks Wally...

Yes, the thing missing from Krugman's article is the fact that what we are seeing here is just the next big bubble: equities, housing, and now commodities.

All that money needs to go somewhere. I suppose we should just be thankful it hasn't -- until now -- gone into the necessities of life (is housing a necessity... no it's an investment).

[anne]

What will be especially important in this time of expensive food is that where historically food often flowed away from regions of shortage, increasingly democratic environments will generate food flows to difficult regions and to relatively poorer families in those regions. This is a remarkable advent and I think cause for considerable "optimism."

[paine]

There is currently a price bubble in a number of commodities as a flight to perceived safety.
indeed
the dollar dive vis a vis yen pound euro
needs removal from the present surge
to isolate the "real" dynamic shifts

to wax pgl
at my own risk

i so commented at pk's blog trough
i never returned to see if
the nyt elves
allowed it to go up on ....santa's site

[paine]

anne hari swell

u hit a lot of clear notes on this subject

thanx

jodie

"Must every generation relearn economic lessons"

there's a once and for all time set
of iron law findings J ???

not sure we got the science down quite that pat just yet

[ken melvin]

Ah --- all we need do is invent synthetic foods and synthetic fuels. Course, there's still the matter of too many investors trying to live off production.

[anne]

Increases in food prices are not being driven financially or artificiallly, and would not be resolved by raising interest rates or cutting money supplies in some curious fashion. This is not a credit driven relative price increase, but a change in the relative availability of food stuffs.

[ilsm]

Not to worry the US war machine will protect you.

[ddt]

wow... not one mention of the rate cuts that drove commodities through the roof since august, which is clearly the single most important proximate cause, and something that EVERYBODY KNOWS.

While they do play a role, NONE of Krugman's theoretical causes could have possibly caused the short term 6-month price explosion that we have seen. They have all existed for a long time before the current crisis - just ask Jim Rogers, he identified them years ago. In fact ask him now - he'll tell you that the price explosion is entirely a function of the Fed's rate cuts. The correlation is undeniable.

As for causation: Look at it this way, as a desperate fund manager with 5bln in hot money to manage, your choices are:
- sit in depreciating cash position (negative real interest t-bills that get worse with each cut)
- buy overvalued volatile equities that could rapidly decline, putting your faith in an emboldened PPT (but in a weakening currency that gets worse with each cut)
- buy into a raging bull market in commodities (which maintain or even increase value with each cut)

hm gee whiz I wonder why food prices are going up. ah the wonders of executing a ZIRP with the world's reserve currency. There should be no doubt that starvation in the third world is the price that is being paid for America's pathological avoid-by-any-means fear of recession. DeLong & co. should know that clever schemes to inflate away nominal losses creates nominal increases in food price that reach far beyond the States, to populations that can't handle it. (see Frankel at Setser's blog)

It is important to understand that the cost of supporting the price of American assets = starvation and death throughout the world.

just remember that the next time someone tells you that "the alternative is worse"

[anne]

Paine is arguing importantly and needs to expand the argument....

"Must every generation relearn economic lessons"

there's a once and for all time set
of iron law findings ???

not sure we got the science down quite that pat just yet

[Jodie]

Increases in food prices are being driven financially, and would'nt have happened if interest rates weren't kept low for so long in this curious fashion. This is a credit driven general price increase, not a change in the relative availability of food stuffs.

[mark ii]

@ Jodie

I think that is what is known as inflation, correct me if I am wrong. Don't worry though, the fed knows how to deal with it.

@ paine

'certainly well beyond three times the present figure and at any rate
probably well beyond our capacity to reach it'

bollocks, reaching it isn't the problem, by definition we will never reach it. The problem is all the wars, starvation and suffering we have to hit to prevent us reaching it.

[anne]

United Nations reports, which I noted but did not think enough about, showed America's domestic ethanol emphasis was having the effect of increasing the growing of crops for fuel internationally. South African crops then were going for fuel as the market was being changed.

[lonesome moderate]

markg:What I don't understand is the U.N.'s World Food program appeal for more funds. How can more money buy food that does not exist. If 10 people each want to buy a widget but only 9 widgets are available, someone will go without. Will giving the person who loses out more money help everyone have a widget? Why most everyone sees the solution to problems is having more money is beyond me.

Sure, some people will have to do without. But, as Krugman points out, in this context "doing without" means some people eating a little less beef and a little more grain, or idling a few ethanol plants. Allocating a bit more money to feed people who would otherwise starve would in fact force an increase in food (and fuel) prices, but relatively little. It would not take much of an increase to reduce consumption from other sources by enough to feed the hungry.

[hari]

@ Swell -

I just got back from a long bicycle ride in brilliant spring weather - just about 11C!

So energy is in good supply...and Rogoff got a good bit of it. Don't worry about population pressure...I've been thru that cycyle long ago when I did survey in Indian villages. They taught me a good lesson - the next life will be better!

[lonesome moderate]

I like to use my phone conversations with my mother as a data point to political reality; she is retired and gets most of her information from Fox News, and almost always brings up some political issue whenever we talk. She has never mentioned a global food emergency to me, but she frequently mentions the hardship caused to Americans by increasing gas prices; last time she asked me whether the truckers in California were on strike, and whether this would be enough to force the U.S. government to "do something".

I'm afraid that, if you took a poll asking most Americans if they were willing to accept slightly higher gas prices in order to help feed starving people in places like Malawi and Tajikstan, the results would not be encouraging.

[reason]

Paine
3 times? At what standard of living? We could only reach that population with a MUCH more egalitarian and vegetarian society. And don't you know we could reach that in just 50 years without even trying? And don't forget the effluent!

Hari...
This just reminds me of the continuous background noise about oil price increases - "it is just the speculators". Oil is bulky and messy, you can't hide the stockpiling. The same with grain. If speculators are driving it there are stockpiles somewhere (or will be). Show me the production vs demand figures. And meanwhile people are starving.

[reason]

And hari, from what I've heard, the "limits to growth" is coming back into vogue.

[wuming]

How can the chinese be allowed to eat meat while the price
of food in western country are increasing? We must do something
to stop them before it is too late.

[Cynthia]

Reason -- you ask,

"Why is Krugman the only economist willing to bring these issues (serious resource shortages) up?"

My answer: because Krugman is one of those rare economists who's in tune with Nature as it relates to the second law of thermodynamics.

[ken melvin]

All we need do is pretend and we can scour the oceans, over farm the land, pump down the aquifers, ... without consequence. There's no limit on growth, production, consumption, population, ...

[paine]

There's no limit on growth, production, consumption, population, ...

ken
it may have limits but no one has made a case
for the one way only crossing of the them

example ocean fishery collapse
fine but it can be regenerated

if the earth is to be our natural history museum
then i agree change is the enemy
but if the perpetual morphing ios kool with u
wehat's the cause for alarm
end of the world as we know it
means birth of a new world
we don't know
whether its a "brave" one
or not

[anne]

What and how we eat is a curious, important subject. Where I only eat brown rice, I accidently happened to change the way in which of several Nigerian families eat by having them to dinner when they were visiting my students and explaining why we were having not only brown rice but grainy sorts of bread. For Nigerians, as once for most an even still for many Americans, white rice and processed breads made for status eating, and nutrition was not considered.

Were I in China I would avoid the very grown meat I avoid here or avoided in Japan.

[paine]

"in tune with Nature as it relates to the second law of thermodynamics."

to think some law
we just discovered
less then two hundred years ago
and
that provides for very large counter trends
earth sized even
could bring u down Mme. C ...

[Alex Tolley]

BBC article on the current Indian food crisis:

http://news.bbc.co.uk/1/hi/world/south_asia/7327858.stm

[anne]

Cynthia is a prodigy....

The second law of thermodynamics is an expression of the universal law of increasing entropy, so what is tends to run down. A physics sort told me at dinner (I never buy) that entropy is the reason physicists argue time is directional (moving forward). We and what is around us tend to run down, so entropy and the need to run down as slowly as possible.

[ken melvin]

'Twould indeed be a brave new world, this you lead us to.

[paine]

anne
as u well know

in some very hip circle's
status eating culminates
in voluntary starvation
fasting is the highest form
of civilized consumption

thus can that society's
"spiritual caste"
reconnect " by material means "
with its huge
involuntarily deprived
social base

[Alex Tolley]

Lafeyette:

Global population is now more urban than rural.

http://news.ncsu.edu/releases/2007/may/104.html

Since the bulk of the planet's population is not in the old industrialized countries but in India, China and Indonesia, this means that these countries also must have urban rich populations.

It is irrelevant why that is so - when food prices rise substantially, the urban poor are going to be very hard hit.

[jean]

Two things: we have very little racial memory; and Mother Nature may be indulgent BUT SHE ALWAYS WINS. And as a corollary to that; species come and species go.
I have to believe we'd all be dead before 'she' would let us kill this world.
Hope folks see the light.

[paine]

anne

heat death speculations ???

how victorian

my favorite

a careful calculation by a very big science head
that the earth had only enough radiant energy
to last about 40 million years
and thus the cutting edge geologists
and evolutionists
hadn't the necessary time frame
they needed to be correct
about mother earth's many non miraculous hows

[trader walt]

I have to agree with Lafayette. "The cure for low commodity prices is low prices and the cure for high prices is high prices" old traders say.

I sometimes wonder if grain supplies get low enough, might there be a political deal between grain producers and the OPEC cartel. More oil production for less corn ethanol production. This would free up grain production for food.

Also, in the past when a devastating freeze or drought hits, governments in the affected areas restrict exports until world supplies rise and prices begin to fall. Then the cycle begins again.

If I recall correctly, it takes about 5 pounds of grain the produce 1 pound of pork and about 2 pounds to produce a pound of chicken.

[swells]

jean, I'm reminded of the adage ( I think from Richard Dawkins but I could be wrong ) that there are many more ways to be dead than there are ways to be alive. While I think the odds favor there being other worlds with other living things, it would be a shame to surrender the one we know about to oblivion. But, you are right. When it comes to nature, there really are laws that quite literally cannot be violated and we push the limits of natural systems at our own peril.

[Alex Tolley]

paine: "What is the carrying capacity of earth? "
certainly well beyond three times the present figure
and at any rate
probably well beyond our capacity to reach it

Based on what evidence? Or are you predicating that we change our cultures and all stop eating meat as a starter?As the population rises, we are going to need increasing technological "fixes" to meet resource scarcities - more fertilizers, more water recycling, etc. Given how hard that is to do in Australia and California, I wouldn't bet on it being that easy to do over the planet. Population increase is at a faster rate that we appear to be able to deal with it.

paine: example ocean fishery collapse
fine but it can be regenerated

Which important fishery collapses have regenerated? They may regenerate, but over what time frame, and under what conditions?

[paine]

alex

when i'm
busy
playing doctor strangelove in the age of brown out

don't bother me with mere details of proof

suffice it to say

"i.... mr president...have made
some crude
but i dare say informative....
calculations"

[lonesome moderate]

paine:example ocean fishery collapse
fine but it can be regenerated

Bad example, I'm afraid, because although oceans do regenerate over time, natural selection means they tend to regenerate inedible species. Anyone want jellyfish for dinner?

[paine]

"racial memory ???"

a mystery meat cloud shrouded
version of
...culture ..i take it

[paine]

"natural selection means they tend to regenerate inedible species"

jelly fish uber alles !!!

okay then
like the old joke goes

i went to see the doctor
i told him
"doc my left hand hurts when ever i move it"
doc"then don't move it "
application to here

"then don't eat sea food "

[paine]

Bad example, I'm afraid

are you really afraid ...

my girl friend always sez she's hurt
when she really means angry

next time
when u catch me
in a spoon full of bull shit slinging
try
"i'm most happy
to inform u senior ass hole ..."

[hari]

"....And when there is no evolution, there is stagnation, entropy, disorder, and decay." Chopra

[paine]

more serious answer
to my legion of sincere ... detractors

the planet is tending toward a vast park

ie we will need to stock restock fiddle and faddle

sorry virginia
but there 's no more ...virginia

[dale]

When I read Paine's remarks here I am reminded of a book collecting dust somewhere on one of my shelves- Marx on Malthus. When we think in terms of Malthusian limits to growth, etc. we need to remember that the old preacher was not doing objective science- but was a player in the class struggles of his day. Predicting ruin for the working classes right on the cusp of the greatest era of wealth creation in human history.

For us in the here and now- I think we should always keep a balance between our Malthusian framed environmental concerns and our liberal-radical politics. We can't count on technological or even social-political change to bail us out. But we mustn't take to the dark side either. Maybe better yet- find a way to take Malthus out of our environmental-sustainability discourse.

[hari]

It seems to me Paul has gone *wild* with his grains - inspite of his trade policy DNA.

[paine]

hari :
indeed
and the necessary
selection pressures for evolution
come in many forms
not all are innocent of intentions
not all have wonderful outcomes
as far as results wise speaking

but hey
it's somethin' new at least
as they may have said
about gas warfare

btw
a resort
to quoting chopra??

what a cruel blow

[hari]

Sorry!

I do meditate sometimes of the *impossible* and *uncertainty* as it has a tendency to release energy....

[anne]

http://krugman.blogs.nytimes.com/2008/04/07/column-writing-meta/

April 7, 2008

Column-writing meta
By Paul Krugman

From experience, I generally start with a column idea that can be covered, more or less, in the space available (roughly 805 words, including hed and blurb). But often the first draft runs long, and needs to be tightened; in addition, sometimes it turns out that the vagaries of typesetting (where the line breaks fall, and which layout I’ve got — long and skinny has the most room, across the page the least) ends up forcing some more cuts.

Today’s column suffered from both of these problems. The first draft was about 850 words, so I had to go back and find ways to make it shorter; then the thing still came in 5 lines over, so I had to look for ways to kill widows.

Anyway, here’s the moral of the story: each of these painful cutting processes made the thing read MUCH better. If I hadn’t faced the physical constraints of the printed page, it would have been a much more flabbily written piece.
Sometimes, playing with a net really does improve the game.

[paine]

"Sometimes, playing with a net really does improve the game."

now anne you go john donne on me

a clever figure

mother nature's laws
as a hu -cap
performance enhancing
" tennis net "

[hari]

China has just signed a first FTA with - of all countries little - New Zealand today. However dairy products from NZ will take sometime before entering free-and-free! China is allowed to *export* surplus labour to NZ....

[paine]

"it has a tendency to release energy...."

choprathink??
an energy release ??

hari i guess i get u

we use to call it
precisely that
when we farted in chapel

[Jim Harrison]

Will the fish stocks come back? Maybe they will. The problem with paine is not that he claims one thing or another, but that his predictions, always delivered in oracular form, seem to be based on a generalized, almost programmatic optimism that is the mirror image of the tendency of Malthusians to rejoice in the prospect of disaster. Economics is supposed to be the gloomy science, but lots of economists sound like Pangloss: "Whatever is, is best!" Well, the Fable of the Bees may have been right that greed and vice can lead to happiness and prosperity. They can also lead to gout and the clap. It depends.

Or am I the arrogant one when I assert that I don't know whether the cod will return to the North Sea?

[paine]

"think we should always keep a balance between our Malthusian framed environmental concerns and our liberal-radical politics."

liberal radical ??

moi ??

dale i guess you gave me
and my greying red guard pals
a hall pass there

[paine]

the cod will return to the North Sea?

the oracle answers

the cod will return
but with three eyes and
a nice pair of hind feet
to walk apon the bottom of the sea

oh cartoon oracle
but will they taste good ???

nope ...unless you prepare em right

get a barn board
butter up the board thick and nice
put the neocod sans head
on the well buttered board
bake it all
in a pre heated oven at 350 degrees
for 45 minutes
take it out
throw away the cod
and eat the barn board

[paine]

i rejoice
in the prospect of political revolution

[hari]

"...the prospect of a revolution" - paine.

Now that's what I'd like for my seventieth (soon!) to see Barack *release* some real energy to change the paradigm of American politics....

[You know BO has been reading up a lot on Nietsche's "Beyond Good and Evil"!]

[Tim Bratten]

What drew me to comment on this article was the use, in the unabridged New York Times piece, of Argentina as an example that high food prices are a "crisis". I feel it's important to realize that, at least in the case of Argentina, Krugman's treatment is at best misinformed (perhaps Krugman really doesn't know what's going on here), if not an obfuscation of the facts, on his part, to make point.

Here is what Krugman says:

"Food-supplying countries, from Ukraine to Argentina, have been limiting exports in an attempt to protect domestic consumers, leading to angry protests from farmers — and making things even worse in countries that need to import food."

First a bit of background. Since Argentina's economic collapse in 2001/2002, the competitiveness of a devalued money coupled with increasing food prices has revived the farms, which were dying out in the nineties. This has converted what was a huge national trade deficit into a huge trade surplus, it has given the government billons more dollars in tax money to spend and it been a huge factor in cutting the national poverty rate in half. I'm quite certain that any economist who honestly and carefully looked at the recent economic situation in Argentina would come to the obvious conclusion that expensive food has been one of the primary motors that has driven Argentina's amazing economic recovery.

What about the limitations of exports? When it comes to grains, Argentina has not limited exportation and the government charges high "retention" taxes (40% on soy) which have given the government billions in tax dollars. It is true that the government has frozen meat exports, to try and bully producers into controlling prices. Of course this hasn't worked, and has instead resulted in meat production going down and meat prices going way up. For example, many smaller producers, who would rather produce meat, have turned to planting soy, in order to survive. My point being that it is not at all clear that consumers were "protected" by exports being frozen, as Krugman suggests.

Now, what about the claim that "limiting exports" lead to angry protests by farmers. This is so off the mark that I feel compelled to elaborate. While it might be true that the government's bad meat policy had something to do with the recent "lock out", the straw that broke the camel's back was the sweeping "mobile" increase of retentions on soy, applied totally out of the blue, and a few days before the harvest time, coupled with the way the President publicly ridiculed the farmers for their protest. There is also the fact that the money from these taxes is not spent in the localities where it is produced. On this last point, farmers feel that their local money is being sucked up by Buenos Aires, since retentions are taxes that are discretionally managed directly by the President, and she chooses not to put this money back into the areas where it is produced.

If international grain prices were to crash, the Argentine economy would go down the toilet in a matter of weeks. So who says expensive food is all bad?

[paine]

"bollocks, reaching it isn't the problem, by definition we will never reach it. The problem is all the wars, starvation and suffering we have to hit to prevent us reaching it."

other than the gross britspracht exclam-a-tion
right there at the outset

i love this passage

hegel called history
the slaughter bench of ...progress

well he used some spooky word for it
not progress
but one about
as close to that benthamite banality
as a double domed dutcher kin git

we marxicocals call it
"ma clio's social cleavage struggle pro-pell-er "
or for short ......" the class screw "

[hari]

@ Tim Bratten -

Don't worry too much about Paul's claim...he must also pay for his rent.

There is little or no chance of global grain prices crashing.
Frankly what's happening is some suppliers are trying to use OPEC type of high-jacking of prices - by witholding supply. That's a market function sometimes to get a better reward, and I hope it is not carried too far. Rice is plenty in supply; but sudden weather changes have affected Punjab wheat fields and yields may be reduced drastically, they claim.

In this day and age, news filters with the magic of a klick!

[hari]

Punjab is the bread basket of South Asia!

[anne]

Paul Krugman:

"Food-supplying countries, from Ukraine to Argentina, have been limiting exports in an attempt to protect domestic consumers, leading to angry protests from farmers — and making things even worse in countries that need to import food."

From my readings, this is precisely what is happening in Argentina, including the "angry protests by farmers."

[anne]

http://www.nytimes.com/2008/04/01/world/americas/01argentina.html?ref=world

April 1, 2008

Argentine President Offers Concessions to Striking Farmers
By ALEXEI BARRIONUEVO

President Cristina Fernández de Kirchner of Argentina offered some concessions to striking farmers on Monday but refused to reduce the tax increase that sparked the nationwide rebellion nearly three weeks ago.

Mrs. Kirchner went on national television again to persuade the farmers to end their 19-day work stoppage. "In the name of all Argentines, I ask you one more time" to "let the trucks through," she said. "We are open to dialogue."

She also urged them to "think like you are part of a country, and not like landowners."

After the speech, the leaders of four major striking farm groups said on television that the government's announcement had not persuaded them to halt the strike, which they vowed would continue until at least Wednesday.

But the embattled Argentine president continued to refuse to roll back a new sliding scale of taxes on some farm exports that is the focus of the striking farmers' demands. Small farmers have complained that they have been unfairly singled out by the government's move on March 11 to raise export taxes on soybeans from 35 percent to as much as 45 percent.

Instead, Mrs. Kirchner joined Economy Minister Martin Lousteau in offering a package of concessions that included transportation subsidies for far-off farms, new credit plans for dairy farmers and the creation of the position of rural under secretary.

She said the export tax increases were intended to help slow rising inflation, which officially topped 9 percent last year. The projections of independent economists were closer to 20 percent....

[anne]

http://www.nytimes.com/2008/04/03/world/americas/03argent.html?ref=world

April 3, 2008

Farmers' Strike in Argentina Is Suspended for Negotiations
By VINOD SREEHARSHA and ALEXEI BARRIONUEVO

BUENOS AIRES — Agricultural groups on Wednesday suspended a nationwide farmers' strike that shut down highways across the country for 21 days and caused food shortages, in what has become President Cristina Fernández de Kirchner's biggest test to date.

The striking farmers said the suspension would last 30 days while they entered into negotiations with the government over the tax increase on exports that caused the strike....

The protesters had insisted that they would remain on the highways until the government rescinded the tax measure. But analysts said that concerns that they would miss the coming harvest and fears that prolonging the strike would turn popular opinion against the farmers pushed them to lift the measures for now, at least.

With Argentina already suspending some exports of its most important agricultural exports, the next 20 days are the most crucial for the harvest of grains, said Dante Sica, the lead economist at Abeceb, a consulting firm in Buenos Aires....

[Tim Bratten]

Anne:

The angry protests were not about limitations on exports. They were mainly about about the way exports are taxed and the way this money is spent At any rate, this was the straw that broke the camel's back.

Another point was that freezing meat exports was not an "economic" initiative, it was an attempt to bully farmers that harmed, instead of "protecting", consumers.

Finally, my main point is that much of the recent economic growth in Latin America and the subsequent reduction in poverty (especially in Argentina, where I live) is due to price increases in commodities (grains, in particular for Argentina).

[dale]

the hall pass is more for myself paine. I self-describe as a radical bound by liberal proceduralism. Malthus needs to be stood on his head and transformed into a call for a radical transformation of social relations and human-natural-world relations.