Thursday, April 17, 2008

where every day is a struggle

UPDATE: NYT has a great article on rising food riots and the inability of millions to feed their families. Get familiar.

Also, check biocrime's photo stream for visual aids.

Okay so quick (ha) economic post. There is a lot - a LOT - of stuff going on in the world which, in isolation, could spell widespread suffering and disaster, but in conjunction with everything else may be something the world has never seen. Let me preface this diatribe by saying I'm taking some fairly advanced undergrad courses in development economics, international finance, and political and economic crises. It's a nice coincidence for all of my coursework to directly relate to what's going on in the world this semester and it's really helpful (and terrifying at times) to get perspectives on the events from distinguished professors. Pretty much everyone agrees this whole subprime mortgage - financial speculation - food/famine crisis - global warming combo could spell out enormous changes for our world order, financial/capital markets, and standards of living (especially for Americans).

I was just going to post about several points but this turned into a bit of a longer post so I'll just focus on ethanol and the rising food crisis for now - I think it's most pressing. We all know about global warming, the high cost of gas and oil (which just reached a new record of over $115/barrel), etc. There is a lot of talk about what we as Texans, as Americans, and as world citizens can do for the environment. How do we reverse the damage that we've done? There's a lot of hype about ethanol as an alternative fuel - how to harness ethanol to be used for cars, etc. America has put the biggest push behind corn ethanol but there is also sugar based and other starch based types (i.e. wheat) of production. In Brazil they've focused on sugar based ethanol and something like 50% of cars there can run on just ethanol. How many people do you know with ethanol run cars? The most widespread solution we've seen in the US is an ethanol-gas combination which is just going to be more popular as gas gets to be over $4/gallon...$ get the picture.

The US is finally pushing alternative fuel and they're pushing the wrong one. Why? Corn based ethanol requires a substantial portion of the US/world corn harvest to be earmarked directly for fuel uses. The US actually requires roughly 5 billion gallons of renewable fuel be used a year which amounts to a substantial amount of the US grain harvest (upwards of 20%). Supposedly the grains used would have been used for animal feed but as demand increases the amount of food going to fuel will only increase. Corn also requires a relatively high amount of energy to grow, irrigate, process, etc (especially when compared to sugar cane)-- Co-op America goes so far as to say 8 barrels of oil go into producing 7 barrels of ethanol but I'd be (mildly) surprised if that was completely correct.

Regardless, our reliance on alternative fuels in inherently tied to fossil fuels for production and transportation.
The main (?) issue is that the diversion of the corn crop (which is a major US export and goodness knows we need all the exports we can get right now) has already contributed to the enormous price increases in many food commodities, since prices of grains tend to move together,
especially corn and wheat. It probably won't hurt you much, depending on where you live, if corn increases 70% in six months or wheat up to 130%. Unfortunately not everyone in the world is blessed with such a long lag time from the harvest to the grocery store.

The Mexican diet, especially that of those in poverty, is
built around corn and corn tortillas as sources of protein and crucial calories. Food riots have already started breaking out there as well as in roughly 30 other countries over skyrocketing prices. Corn ethanol is not wholly at fault, there are contributing factors found from the government to the farm, but it's definitely making the situation worse and will only increase as American puts an even bigger push behind corn ethanol as the magical solution to all of our environmental and energy problems.

This food crisis is no small potatoes (pun intended - but seriously...). When people lose their shirt in the stock market it can lead to increased levels of suicide, heart attacks, etc. but basically that's not wide-spread. Hopefully if you're smart enough to play the game then you're smart enough to keep some change for a rainy day. I'm by no means saying we're not doomed for disaster with our financial situation -that's another post for another day- but if you can't feed your kids, then what? If it hits hard like it is for many 3rd world countries (where people were previously making it, although just barely) right now then that's it. It's literally fight or die.

I can't go three hours without snacking on something so I can't even wrap my mind around what widespread famine looks like. People are starving in America but it's largely unseen, and I'm talking in-your-face-everyone-around-you-your-children-crying hungry. If prices of food increase that much while your wages are the same then you're not going to make it where you were BARELY making it before. That's the type of situation these people are facing in Mexico, Pakistan, Bangladesh, Haiti and more.
Google it.

Co-op America has more brief facts, although with a biased perspective.

Now I didn't have time to look up every fact and cite my sources but these are issues that I hold to be relevant and true so don't hold it against me if you read something else. The issue with our society today - living in height of the Information Age - is that there is SO much information that not anyone understands everything, how we're all connected, the interplay of the elements. That's one of the major questions with financial regulation: no one can tell what's legit and what's not because no one understands all of the super advanced financial derivative tools that have been exploded into the market.

"All that we call human history--money, poverty, ambition, war, prostitution, classes, empires, slavery--[is] the long terrible story of man trying to find something other than God which will make him happy." --C.S. Lewis "Mere Christianity"

No comments: