Are We Running Out of Food?
If we had free world markets, writes Kel Kelly, food would be exported from some countries, such as the United States and Europe, where food is plentiful, to countries where it is needed. This is because it would be profitable to ship goods to needy areas like Africa, where shortages were making prices rise.
The fact that this is not currently happening can be a result only of government price controls (which prevent prices from rising in needy countries), trade restrictions, or some other government barrier that prevents people from getting what they need. FULL ARTICLE
Comments (259)
Jake
Great article!
To quote Henry Hazlitt:
"One of the most stubborn fallacies about inflation is the assumption that it is caused, not by an increase in the quantity of money, but by a “shortage of goods.”
It is true that a rise in prices (which, as we have seen, should not be identified with inflation) can be caused either by an increase in the quantity of money or by a shortage of goods — or partly by both. Wheat, for example, may rise in price either because there is an increase in the supply of money or a failure of the wheat crop. But we seldom find, even in conditions of total war, a general rise of prices caused by a general shortage of goods. Yet so stubborn is the fallacy that inflation is caused by a “shortage of goods,” that even in the Germany of 1923, after prices had soared hundreds of billions of times, high officials and millions of Germans were blaming the whole thing on a general “shortage of goods” — at the very moment when foreigners were coming in and buying German goods with gold or their own currencies at prices lower than those of equivalent goods at home."
Published: May 6, 2008 8:51 AM
Deacon
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You'll not get any closer to
the truth about what's afoot with
Bush's GLOBALIZATION and
and this LOOMING FOOD CRISIS
than my below thoughts and links
((copy and send to friends and colleagues;
and note that I REPEAT MY PREMISE
OVER AND OVER AGAIN, TO DRIVE
HOME THE POINT)):
The Third-Way push of
socialism/capitalism to
equalize the world's
economies has caused
this looming food
crisis, NOT CAPITALISM.
Socialist/communist leftists
have captured capitalism
and enslaved it to EQUAL/
"FAIR" outcomes.
Of course, you'll have to
think more deeply to find
the truth.
Read and learn the truth:
What we are facing in 2008
is a Third-Way (socialist/
communist/capitalist)
conspiracy to equalize the
world's economies, as preface
to installing one-world
government; a plan hatched
during the 1940s GATT
formulations, which were
socialist/communist, in
effect.
Keep in mind that there is
no PEAK OIL crisis, only a
decades-long, purposeful
cap on searching and drilling
and refining for oil, in order
to put the world in crisis-mode.
Using food to produce fuel
is part of the conspiracy to
generate food riots, in order
to destabilize governments;
and this so-called "war on
terror" is also part of the
secret plan, although its
primary beneficially is Israel
in the exchange of blood
and treasury for oil--as
payoff for protecting Israel
from an ever-threatening,
encircling Islamic Arabism.
The secret plan?: to create
one-world government under
GLOBAL ECONOMIC SOCIALISM.
This is a conspiracy-driven
dismantlement of the West's
financial underpinnings,
for a certain purpose: TO
EQUALIZE GLOBAL ECONOMIES,
for future installation of
one-world government.
I've provided all the details
in my essay, "Planned
Destruction of America"
(linked below), which is my
report on Lt. Col. Archibald
Roberts' 1968 booklet: "The
Anatomy of a Revolution".
http://planneddestructionofamerica.blogspot.com/
Study my essay, then write as
if we're all being led down
a path to hell on Earth by
secretive, elite movers and
shakers on the Left and Right
(path to hell aka "Third-Way
Global Economic Socialism").
Read and learn and teach:
The EU and the coming North
America Union are products of
the 1940s GATT formulations,
and very few analysts are
aware of it ((GATT, NAFTA,
and CAFTA are socialistic
attempts at equalizing global
economies, in order to in-
stall one-world government
under THIRD-WAY Global
Economic Socialism)).
The NAFTA Debacle (1995)
http://naftadebacle1.blogspot.com/
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Published: May 6, 2008 9:09 AM
Deacon
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=======
Read this excerpt from my essay,
"The NAFTA Debacle":
"Because many nations' agricultural
production will decline under NAFTA
and GATT, in becoming dependent on
the more productive nations' capacity
to export cheaper product to them,
they'll become gravely vulnerable to
any of the exporting nations' food-
production declines, possibly resulting
from bad weather conditions or bad
economies. "Free trade" in food sets up
a looming catastrophe (read my essay,
GATT: Ubiquitous Treason). Wouldn't such
worldwide economic interdependence
necessarily set the stage for a worldwide
economic collapse should any one nation
seriously falter? Such a worldwide collapse
would make America's Great Depression
appear like good times. Why aren't the
NAFTA and GATT crafters arguing for more
economic independence for nations - for
rugged individualism among nations, rather
than building this One World interdependency
that their brand of "free trade" necessarily
engenders?
The NAFTA Debacle (1995)
http://naftadebacle1.blogspot.com/
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=======
Published: May 6, 2008 9:22 AM
Jeffrey Villaveces
Dear Mr. Kelly,
I enjoyed the article. In fact I receive the Mises Report daily and read it daily. Working in the UN on humanitarian relief, I agree with many of the insights you provide. I think that the best way to frame the issue is in the context of access to financial resources, or liquidity. What the problem is with Mr. Krugman's analysis is that he looks at the symptoms and not the root causes. Those who are most in need of food assistance at this point in time are either in the area of subsistence farming or are part of the so-called 'urban poor'. Due to the hike in oil prices, fertilizer costs have skyrocketed, and hence they have been unable to plant crops. Now normally I would be in favor of letting the market run its course, ok so prices are high, great, now more farmers will plant. However, the reality of 2 billion people is that they earn $1 a day or less. Once you take into account how structural, on a worldwide basis, the current situation is (as compared for example to your Ethiopia case), what is in store is worldwide civil unrest. A hungry person is a person ready and willing to wage war on his government. Here we are not talking about the Chinese demand for food, but demand originating in countries with very weak currencies and economies, such as Haiti, Honduras, Egypt, the Philippines and Cameroon. Not all of these are the poorest, but all have urban poor, who depend on incomes from informal urban economic activities, the return on which is rapidly declining compared to both the price of oil and food.
I suppose that my arguments do not run against the crux of your conclusion, "the real cause of continually rising food prices is the printing of money by world governments. And the real cause of actual food shortages is the prevention of profitable global trade in food by the ill-advised policies of the governments of the very people who are starving." To that last point, in fact, I would add the most key examples of export embargos by many countries trying to reduce food prices nationally (which ignores the fact that these are rising largely due to fertilizer prices, so that food supply will likely decrease in each nation with these controls, even in the medium-term).
However, while I do not argue with these points, I do think that there should be more made of the size of the food crisis in humanitarian terms, to the degree that the isolated examples of Ethiopia and Zimbabwe are much more nationally-caused, while the governments of Cameroon or the Philippines are not really inducing either infrastructure problems at home or contributing to the global money supply expansion that you note. Rather, I think it would be useful to point out that spending items such as the war in Iraq are creating a structural climate in terms of this money supply expansion that will, over time, victimize whole countries and populations that are far removed from the root problem.
Best regards,
Jeffrey Villaveces
Published: May 6, 2008 9:59 AM
michael
I would like to point out a few very serious mistakes in the article Are We Running Out of Food. First, the author says "Krugman's proposed solution to these problems is for us to give more of our money to government, so that it can solve the problem the market is apparently incapable of solving."
I've looked over Krugman's article in some detail... and nowhere does he say that. In fact his implicit message is that we should remove subsidies for an ill-conceived ethanol program. So in fact he is suggesting that fewer taxes be paid toward energy production.
He does say "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." Is this the same as the author's telling us "Krugman's proposed solution to these problems is for us to give more of our money to government"? I don't think so. There are many areas in the world where there is food but insufficient money with which to purchase it. Any proposed solution would seem to involve getting some money into the right hands.
There are also many areas where there is just no food. The author comes off sounding like an economist when he says "First, the underlying cause of any shortage is the lack of a free market, since genuine shortages cannot appear in a free market."
Out in the real world there are occasions where there is either no food or insufficient food to be had, regardless of the shape or size of the market. One can't just wave his economist's wand and posit an infinite supply of the stuff. Yes, there are actually occasions where there is a free market but no food. Or, often, so little food that it becomes unaffordable for most hungry people, and sits in the hands of speculators pending some rich buyer.
"...the higher the price, the more the supply would increase to meet demand, which would then of course reduce the price. If we had free world markets, food would be exported from some countries, such as the United States and Europe, where food is plentiful, to countries where it is needed."
What's missing here is any recognition that in the absence of money, masses of poor, hungry people do not constitute a "market". In economic terms, they are a nothing. They do not exist. It's only in the real world that these people exist.
I leave it to the author to explain to us how, in the absence of anything resembling economic aid, affordable food can magically appear in the marketplace and be purchased by poor people suffering from hunger.
I also leave it to the author to explain how everyone can be amply fed in the instance where there is just less food to go around than there are hungry mouths. Should we simply posit fewer people? Or, in the absence of rice, should we let them eat brie?
Finally, the author seems stumped at the fact that the Chinese are (1) making more money and (2) creating more demands upon a finite globe in terms of food production. Not only are they eating more, they are eating higher on the hog. I believe everyone is now aware of the fact that it takes ten kilos of grain to produce one kilo of meat. Therefore when one graduates from eating grain to eating meat, his demands upon the land increase by a factor of ten. And the earth is simply not large enough for that to happen. Not when we are also starting to burn our grain in our gas tanks.
In sum, I think the thesis needs more work. Food is not like money, in that it cannot be simply invented as the need arises. There are times when the need for food outpaces supply. And we are living in them.
Published: May 6, 2008 10:10 AM
Don't forget suppliers.
You get to the point that I believe is the cause at the end. That is that governments in supplying countries, namely the US are A increasing credit supply and B paying more for this bio-fuel foolishness. These two policies mean food prices will go up un-naturally in the US. So what happens: Other food suppliers divert their products to the US who is paying an artificial premium on food. It doesn't take much to set all this in motion. In the near future you will see these other suppliers increase production, I am sure the Brazillians and Chileans are ramping up their production of food but this movement to stupidnol has been so sudden that even the best farmers in the world take time to react.
The saddest part is the poorest folks get double slammed as their own governments either tax or refuse to import food as the US sucks up food in a stupid bid to stop importing energy.
The most ironic part is that this whole stupidnol thing will end and when it does the US will have tons of crop land diverted to making it. The US will of course provide "subsidies" for the farmers to switchback to growing food for eating not fuel and thus cause a GIANT surplus of food driving prices way down causing a run as other governments subsidize their farmers.
Published: May 6, 2008 10:16 AM
Matt
"In sum, the real cause of continually rising food prices is the printing of money by world governments."
This " printing of money" is done also by various means other than using the printing press. Nonetheless it is the same as counterfeiting which in this case is legalized theft, those first at the trough
are the main beneficiaries those last go hungry.
Paul Krugman never addresses the problems caused by legalized counterfeiting, there seems to be some kind of mental block in his distorted logic that is unfathomable to those who think logical and long range.
Published: May 6, 2008 10:23 AM
TLWP Sam
Hmmm. Guvmints cause people to starve via ethanol because the land should be used to grow grain for people. Do us people likewise cause people to starve via eating meat as that grain should used be used for feeding people not cattle?
Published: May 6, 2008 10:29 AM
Nelson
"First, the underlying cause of any shortage is the lack of a free market, since genuine shortages cannot appear in a free market."
While I agree that this is usually the case, nature can indeed induce shortages, at least over the short term, unless you count people who don't have enough resources to afford the higher prices starving to death as a good thing... in that case everything reaches equilibrium and the theory stands.
Published: May 6, 2008 10:35 AM
Kel
Jeffrey and Michael,
Thank you for your comments. Since my article raises as many questions as it answers, I will do a follow-up piece where I address your comments (but Michael, some of your concerns are already addressed in the article).
Thanks,
Kel
Published: May 6, 2008 10:42 AM
fundamentalist
Krugman: “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.”
The failures of the UN in helping poor people are legendary. Thugs in government steal most of it and sell it to the highest bidder. Back in the 90’s a famine hit Mali, but the Mali government at the time refused to allow the UN to administer food aid coming from the West because of very poor experiences with corruption and theft during a previous famine. So the Mali government asked the Southern Baptist Missions organization in the country to handle the distribution. The Baptists didn’t have the personnel to do it by themselves, so they enlisted churches in every town to help. The church members knew very well who needed help and who was corrupt, so the distribution went very well and the Mali government was very pleased.
As for the causes, the author is right on the mark! Mainstream econ is totally and willingly blind to the disaster visited upon the poor of the world by monetary inflation. What should be done to help the poorest who live on less than $2/day? Send the money through private agencies such as World Vision, and church agencies.
Michael: “Out in the real world there are occasions where there is either no food or insufficient food to be had, regardless of the shape or size of the market.”
No, there are no places without access to food. Transporting food is quite easy and cheap. What people lack is the money to buy it and they do need help, but help from the UN is worse than no help at all.
Michael: “I also leave it to the author to explain how everyone can be amply fed in the instance where there is just less food to go around than there are hungry mouths.”
As the author writes, there is no shortage of food, just a shortage of money to pay the inflated prices caused by monetary inflation by governments. The US is a major exporter of food.
Michael: “Finally, the author seems stumped at the fact that the Chinese are (1) making more money and (2) creating more demands upon a finite globe in terms of food production.”
The Chinese are also growing more food than ever before. In the 1970’s and 80’s, Chinese were starving and the US and Europe kept them alive with massive exports of grain. Those shipments ended in almost the same year that Deng opened the Chinese economy to a small taste of free markets. Food production shot up dramatically. The world’s food supply is no where close to finite. It simply lacks better technology. Most farming in the world is done with a short-handled hoe. The productivity level isn’t even as high as that of the middle ages in Europe when farmers used oxen. In area like India and the Ukraine, where the quality of farm land is the envy of American farmers, socialism and tradition hold productivity back. The Ukraine enjoys such excellent farm land that they could probably feed the world by themselves if they weren’t so incredibly stupid. Hitler wanted to invade Russia for the sole purpose of getting to the Ukraine’s farmland.
Michael: “I believe everyone is now aware of the fact that it takes ten kilos of grain to produce one kilo of meat. Therefore when one graduates from eating grain to eating meat, his demands upon the land increase by a factor of ten. And the earth is simply not large enough for that to happen.”
I find those numbers suspect. Hogs eat mostly scraps for most of their lives and cattle eat mostly grass. Farmers feed them grain only during the last months before butchering in order to fatten them and improve the flavor of their meat. Hogs are the preferred meat for many of the world’s poor because they are so cheap to feed.
Published: May 6, 2008 11:21 AM
Kel
Jeffrey and Michael,
On second thought, I'm not sure I'll have the time soon for a whle new article. If you're interested (and if your concerns are not addressed by others on this blog) please send your remarks to my email address and I'll address each point. This is so that I do not take up blog space with more of my own writing. If anyone on the blog would like to see my email responses to Jeffrey and Michel, I'll be glad to forward them if they also write to me.
Thanks,
Kel
Published: May 6, 2008 11:33 AM
Inquisitor
Michael, it is almost as if you only read the article half-way, or at points that you do not understand what is being spoken of. When more money is made reference to, it is money printed by the central banks, not extra wealth that comes by increasing productivity. Aid is surely fine (investment better yet), but only when it comes out of genuine wealth. Otherwise, inflation ensues, further diminishing the purchasing power of the individuals in question. The article addressed these points, and it is hardly a flaw that it "comes off" as an economist's writing (or did you miss the bit on 'real demand'.)
Published: May 6, 2008 12:00 PM
Eric
Micheal doesn't seem to accept that when you posit a "free market" you are talking about a market free of force (usually from government, but sometimes from government substitutes, such as criminals or rebel forces).
To ignore everything in the article that discussed the limiting forces to free trade, such as fighting in areas which makes transportation costs to that area rise, and rise greatly. Tarrifs and embargos and all the other regulations of government stop free trade.
In addition, one needs to address why various countries are poor - i.e. they are unable to produce something that other would want to trade for food, or tools to grow food etc. In almost all cases, extreme poverty is found only in places where there is lack of free trade. Just check out the Index of Economic Freedom and see which countries have the least poor and which have the least economic freedom.
Also, one needs to look at which countries engage in free trade agreements with other countries. These agreements are anything but - they are actually agreements as to how much interference each country is permitted.
A true free trade agreement would be one sentence: No government or forceful interference with any trade between two willing parties.
Published: May 6, 2008 1:20 PM
Owen
The simple fact is that the DAMAND from those people for food is not high enough to compel any producer to make it for them. Now, most of us can DEMAND food because we have high wages.
But not everyone does. Some people do not even have enough to demand (because goods must be demanded with money) enough to live on.
In a free market there will ALWAYS be those that sometimes through no fault of their own, cannot DEMAND the food (or any good in question). Beside the idealism of charity the free-market has no way to ensure these people who cannot demand goods are able to live.
Published: May 6, 2008 1:45 PM
Owen
There has never been and likely never will be a supply problem with food.
It is always one of demand. Where there is demand, there surely follows supply according to the process of the market.
Where there is no demand (in $$$$$) i.e. Africa, there is little or no supply.
The reasons Why African has low demand which are largely historical and political (i.e. colonialism, unequal trade, wars) aswell as cultural (as with many pacific Island nations Africa has cultural systems that don't always accept free-market ideas)
It would seem that there is almost an ethical obligation towards the (mainly European) countries that created alot of the mess, to fix it.
In the extreme short term food aid is needed because a free market cannot supply food to someone with no demand.
In the medium term it is about breaking down some of the political barriers that prevent these people from creating their own demand (i.e. production).
Published: May 6, 2008 1:54 PM
President
As the president of the united states, I here by authorize the FBI to confiscate all of OWEN's wealth and export it to Africa. I also authorize the Leviathan to provide OWEN with 3 Big Mac meals a day.
Published: May 6, 2008 2:11 PM
John
Very good article.
Published: May 6, 2008 2:14 PM
John
"(because goods must be demanded with money)"
I am not being picky, but it is more accurate to say that goods must be demanded with "value". Consequently, if whom ever is making the demand for food, has in that demand anything of enough value (as perceived by the food supplier), then that person is likely to receive the food in consideration for the provided value. It (the demand) does not have to be enforced with money. It can be enforced with goods, services, favors, promises or actions (also remembering that inaction is also an action).
Published: May 6, 2008 2:28 PM
olmedo
i like this article because it is one of the first to aknowledge the role inflation has in food prices and distorsions across the supply a demand relations on any product.
however, i beg to disagree that "free trade", or lack of it, only relates to "micro" stuff like tariffs , subsidies, taxes. monetary disruptions have as much (in effect much bigger) consecuences in trade releations across countries and industries.
just an example: in the last six years the us dollar has fallen to the euro for more than 65%!!!! and that means that the "cost structure" between to of the most industralize blocks in the world will diverge for more than 65%. which is a lot more than the gross profit in any modern highly capitalize industry(including agriculture). in a few words, thre will be trouble in urope and america!!
yes, people would say: what about currency futures and options to hedge??. well futures and options can only covert you for a short term and for a cost beyond that you are "naked".
the problem is that the industry cycles for most modern industries can last for a lot more than five years or a future hedge so, then what can you do?
in this case ill tell you that there is no other resource than the dreaded "tariff" , currency manipulation or, in an ideal world, an international gold standard.
and what about the poor?? well, do you remember what mises said about the non neutrality of money???
i like to further discuss this so if you can write me to: olmedomiro@yahoo.com
Published: May 6, 2008 3:00 PM
Owen
President - as long as such confiscation is proportionate to all taxpayers. Therefore I hope you'll enjoy those big macs too!
Good point John, but it doesn't change mine - those who are without food simply have no VALUE to exchange for it. Money is a means of exchange and store of value.
Published: May 6, 2008 3:05 PM
michael
Thank you all for your enthusiastic responses.
Eric comments "Micheal doesn't seem to accept that when you posit a "free market" you are talking about a market free of force (usually from government, but sometimes from government substitutes, such as criminals or rebel forces). To ignore everything in the article that discussed the limiting forces to free trade, such as fighting in areas which makes transportation costs to that area rise, and rise greatly. Tarrifs and embargos and all the other regulations of government stop free trade."
Okay, let's posit Haiti.
1) No forcible dislocations in the market. No pressures from insurrection, from taxation, from regulation or from civil disorder.
2) No transportation problem. No tariffs. No embargos.
3) No jobs. No money.
4) No food.
Given the single available tool of making such a market more and more "free", solve the problem of creating more food. Then direct this newly appearing food toward hungry people's mouths. Remember, no cheating! Don't even think of involving the government, or employing any money in the service of a solution.
Then Inquisitor says "Michael, it is almost as if you only read the article half-way, or at points that you do not understand what is being spoken of. When more money is made reference to, it is money printed by the central banks, not extra wealth that comes by increasing productivity. Aid is surely fine (investment better yet), but only when it comes out of genuine wealth."
The problem is that in half the world you have people making less than two dollars a day. So they can only afford the cheapest of foods, like rice. Then the cost of rice doubles and then triples, worldwide. Do you have a solution that can correct for this in a reasonable amount of time, given that it only takes a couple of months to starve to death?
And to Fundamentalist, I would remind you that the animals you consume no longer subsist on table waste and barnyard scraps. That was back in the nineteenth century. If you're unfamiliar with modern meat management, and the amount of grain required to put beef and pork on our tables, the materials you seek are abundantly available on the web.
Published: May 6, 2008 4:00 PM
michael
Deacon says "The Third-Way push of socialism/capitalism to equalize the world's
economies has caused this looming food crisis, NOT CAPITALISM."
But we don't have socialism anywhere, other than a tiny handful of very marginal economies. What we DO have is a worldwide food crisis. One that has arisen in the context of a capitalistic, globalized worldwide market. One with a minimal number of distortions like trade barriers or currency issues.
On this level playing field we see a very simple issue playing out. The world's food crop is being over-bid upon. With absolute shortages of food amid a great abundance of money, the prices are being bid up.
This is very simple, and impossible to deny. The culprits are the expanding use of grain and other food crops for biofuels, the transition of affluent consumers from a grain diet to a meat diet, and an absolute rise in the number of humans, while acres under plow worldwide and crop yields are remaining pretty much flat.
It's called supply and demand. More mouths chasing less food.
Published: May 6, 2008 4:15 PM
Ireland's Great Famine
Hello,
one related topic from history is Ireland's Great Famine. I'm being told that during the time food was actually exported from Ireland. Because the people starving there to death were unable to pay for it, owners sent it abroad, where it was sold with profit.
How does this example play with the "free market solves it" principle? Or are these facts twisted?
Thanks for bringing some light to this.
Published: May 6, 2008 4:18 PM
Owen
Ireland's Great Famine:
You are exactly right. It was not a supply problem (there was plenty of food in the world at that time) it was a demand problem (Irish were subjugated in their own country and not able to earn a living wage as virtual slaves to the English).
Now we are being told that the situation in Africa is a supply one or that the 'free-market' can solve it. Pitty that a free-market rewards no-one without money or value to trade.
Published: May 6, 2008 4:31 PM
Owen
michael:
Are you a malthusian (overpopulation) theorist?
Published: May 6, 2008 4:33 PM
Ireland
I'm sorry, have found this:
http://mises.org/freemarket_detail.aspx?control=88
"What Caused the Irish Potato Famine?" by Mark Thornton
/me ashamed joins Bart and the blackbord: "I will use Google before asking dumb questions." :-)
Owen:
thanks, that comment about slaves clarifies both Ireland history and today's Africa: free market would solve the hunger/poverty issue. But free market will only work if someone/something solves the freedom issue first.
Free market has some prerequisites to operate, if these are not met, it will not happen. No matter how loud we'll proclaim the mess to be "free market", it will not be.
Published: May 6, 2008 4:46 PM
Francisco Torres
Owen,
In a free market there will ALWAYS be those that sometimes through no fault of their own, cannot DEMAND the food (or any good in question).
This would be true if they do not have anything to offer in exchange, but this is highly unlikely - there is always something that can be exchanged for food.
Beside the idealism of charity the free-market has no way to ensure these people who cannot demand goods are able to live.
Only comatose or seriously handicapped people could not offer something in exchange. But those are extreme cases. You are talking about people with little income. However, even in that case, freedom to exchange can provide them with food.
Where there is no demand (in $$$$$) i.e. Africa, there is little or no supply.
You make an incorrect assumption - that only money can be exchanged for goods. But this is not the case - there are still barter economies in some parts of this world, like in the mountains of Peru, for instance.
The reasons why African has low demand [...] are largely historical and political (i.e. colonialism, unequal trade, wars) a[s] well as cultural (as with many [P]acific Island nations[,] Africa has cultural systems that don't always accept free-market ideas)
So, which one is it? Because you are basically admiting there is no free market in Africa due to cultural issues. So how can you say the free market cannot deliver goods, if there is no free market to begin with?
It would seem that there is almost an ethical obligation towards the (mainly European) countries that created a lot of the mess, to fix it.
To fix, what? And how?
In the extreme short term food aid is needed because a free market cannot supply food to someone with no demand.
You mean, the free market cannot supply food to someone with no money (Demand is not the same as having money)? Again, you make a false assumption - people can exchange other goods for money. Also, farmers are going to have surpluses and, unless they have access to international markets and sophisticated logistics, theirs will be a local market. As long as they are free to exchange their wares, there is no reason to think that people are not going to be able to get food.
Published: May 6, 2008 6:33 PM
Francisco Torres
Michael,
But we don't have socialism anywhere, other than a tiny handful of very marginal economies
Anywhere there is a vertical command of the economy in some degree, the system is socialistic, like almost all of Europe, many Latin American countries, or the USA.
What we DO have is a worldwide food crisis. One that has arisen in the context of a capitalistic, globalized worldwide market.
The food crisis, as explained clearly in the article, stems from interventionism and not capitalism.
One with a minimal number of distortions like trade barriers or currency issues.
Not true - other distortions exist like subsidies, lack of property rights, political barriers, regulations, et cetera.
On this level playing field we see a very simple issue playing out. The world's food crop is being over-bid upon. With absolute shortages of food amid a great abundance of money, the prices are being bid up.
Yes, but that is what the author says above. However, the point is that there is not a shortage of food (not absolute, for sure), but an excess of printed money. What's happening is clearly a food "bubble" due to cheap money.
This is very simple, and impossible to deny. The culprits are the expanding use of grain and other food crops for biofuels, the transition of affluent consumers from a grain diet to a meat diet, and an absolute rise in the number of humans, while acres under plow worldwide and crop yields are remaining pretty much flat.
Michael, it seems unlikely that the culprits are an excess of humans or the fact that they consume meat. The supply problems stem from interventions in the market - just look at how there are no shortages of shoes or hairpins. This is because the market for those things do not suffer the same interventions as the food markets - with tariffs, subsidies, "fair trade" scams, regulations, property rights violations playing against the consumer.
Published: May 6, 2008 6:54 PM
Inquisitor
'The problem is that in half the world you have people making less than two dollars a day. So they can only afford the cheapest of foods, like rice. Then the cost of rice doubles and then triples, worldwide. Do you have a solution that can correct for this in a reasonable amount of time, given that it only takes a couple of months to starve to death?"
Increasing productivity by way of investment would be my suggested solution, not implementing some "solution" such as printing money which in fact is part (mostly) the cause of the very issue at hand. There are no "quick" solutions to years of economic irrationality which have ravaged the globe, least of all printing money.
Published: May 6, 2008 7:00 PM
Francisco Torres
Michael,
Okay, let's posit Haiti.
1) No forcible dislocations in the market. No pressures from insurrection, from taxation, from regulation or from civil disorder.
2) No transportation problem. No tariffs. No embargoes.
3) No jobs. No money.
4) No food.
Given the single available tool of making such a market more and more "free", solve the problem of creating more food.
There is a contradiction here, Michael - if there are no transportation problems, and yet you mention there are no jobs (whatever that means), then who would be running the trucks, or the boats, or the bikes at least? You posited an impossible scenario. Seems like you have no idea of what is a free market - can be from a simple barter/exchange system to the complicated network in a major country. Whenever people can exchange goods freely, you have a free market.
Then direct this newly appearing food toward hungry people's mouths
Remember the price system? With surplus food,
Remember, no cheating! Don't even think of involving the government, or employing any money in the service of a solution.
The last part is ridiculous - money can be anything that people choose to use as a medium of exchange, so the idea that there cannot be any money IS in itself a distortion of the market.
Published: May 6, 2008 7:08 PM
Owen
Francisco Torres:
You are right there is always something that can be exchanged for food when utterly necessary. One of these is sold reluctantly by young teens in the red light districts in South East Asia. You are sick and have no idea who or what you are talking about.
Published: May 6, 2008 7:27 PM
Inquisitor
Cute, a genuine troll.
Published: May 6, 2008 7:35 PM
fundamentalist
Michael: "I would remind you that the animals you consume no longer subsist on table waste and barnyard scraps."
I thought you were talking about the Chinese. Chinese farmers don't raise hogs the way we do in the US. Very few countries do. Besides we don't export hogs, but we do export corn and wheat.
Michael: "Okay, let's posit Haiti."
What you left out was corruption and crime. As someone has pointed out, free markets don't work unless the rule of law exists in fact, not just in name. Corruption is just as damaging as socialism, maybe more so.
Michael: "But we don't have socialism anywhere, other than a tiny handful of very marginal economies. What we DO have is a worldwide food crisis. One that has arisen in the context of a capitalistic, globalized worldwide market. One with a minimal number of distortions like trade barriers or currency issues."
That's simply not true. All European countries consider themselves socialist, as does China and most of Africa. All Latin American countries have elected socialist governments in the last decade except for Chile (and guess which south American country is the only one experiencing growth?) All Arab countries are firmly socialist. And there are degrees of socialism. The more socialism, the worse the economy does and the more people are in poverty.
We do not have a world food crisis; we have a world money crisis that has caused money to lose its value in exchange for food and that hurts poor people.
Check out the Heritage Foundation's freedom index if you think the world has unhampered, capitalistic markets. Nothing could be further from the truth. We don't even have that in the US!
Ireland's Great Famine: "How does this example play with the "free market solves it" principle? Or are these facts twisted?"
I don't think you can argue that England and Ireland had free markets at the time of the famine. Here's what Wikipedia wrote about it: "During this time, Great Britain forced the Irish to export corn (and other crops) which could have saved the lives of many Irish...They did lead to reform in the British agricultural and land-owning laws..." And this: "At the top of the "social pyramid" was the "ascendancy class," the English and Anglo-Irish families who owned most of the land, and who had more or less limitless power over their tenants."
Also: "Christine Kinealy, a University of Liverpool fellow and author of two texts on the famine, Irish Famine: This Great Calamity and A Death-Dealing Famine, writes that Irish exports of calves, livestock (except pigs), bacon and ham actually increased during the famine. The food was shipped under guard from the most famine-stricken parts of Ireland. However, the poor had no money to buy food and the government then did not ban exports."
Published: May 6, 2008 8:26 PM
TLWP Sam
Interestingly what's illibertarian about killing your enemy via neglect? Libertarians have harped about positive rights and how no one should be forced to redistribute even in a matter of life and death. If the English did not so much as cause the Famine but rather they didn't do much to alleviate it then they haven't done much technically wrong.
Published: May 6, 2008 9:32 PM
Owen
TLWP Sam:
I get your point and you are not wrong Sam, but the English were not neglecting the Irish so much as actively oppressing them.
Published: May 6, 2008 10:13 PM
Francisco Torres
You are right there is always something that can be exchanged for food when utterly necessary. One of these is sold reluctantly by young teens in the red light districts in South East Asia. You are sick and have no idea who or what you are talking about.
You made a conclusion based on your own comment and not on something I said (where do I say people can sell their bodies for food, even if such was a fact?) - that is called Intellectual Dishonesty.
Published: May 7, 2008 1:10 AM
Owen
Francisco Torres:
Just highlights your extreme naivety in saying that anything can be exchanged for money. You obviously live in some dream land where people are not forced into sexual slavery, selling their children, extremely dangerous jobs, selling their organs etc etc the list goes on.
My point was that some people do not have anything to exchange for basic necessities but when you retort that ther is ALWAYS something you are referring to exactly the kind of disgusting inhuman things that people are forced into.
I suppose whatever keeps the free-market ticking right?
Published: May 7, 2008 2:02 AM
Ireland
Hello fundamentalist,
ok, so the answer is that Ireland and England at the time didn't have markets free enough to be able to prevent the famine, given other things that happened.
With all due regard to Wiki, I prefer comments from people on this blog to what Wiki says, especially with things there going "and the government then did not ban exports". Should it have banned them? On what grounds?
That's the question: People died, so what went wrong, and what should (and what shouldn't) be done next time similar scenario hits us.
Thanks :)
Published: May 7, 2008 2:47 AM
simik
Oh, and I thought he was referring to labor (the hint was "only comatose or seriously handicapped people could not offer something in exchange"). You know, that good old labor thing, like working in the field, fishing, breeding cattle, sewing clothes, building homes and stuff like that. There are many decent ways to use unqualified labor that costs just a buck a day.
Published: May 7, 2008 3:22 AM
Owen
simik:
Poor old simik forgets that supply of anything is useless unless you can exhange it for something you need.
Great ideas you had. Pity they require access to LAND to do them. Oh, but I am sure you had already considered how people who are marginalised in their own country with no assets and just one among millions with no education or skills because they were born into a poor family...I am sure you had taken into account who was going to exchange with them.
Oh do tell...because it ain't happening much at the moment.
Published: May 7, 2008 4:02 AM
Fuhrer
"People died, so what went wrong, and what should (and what shouldn't) be done next time similar scenario hits us."
1. Do ban exports on any grounds that the wise and venerable Krugman sees fit
2. Do ban imports on any grounds that Krugman sees fit
3. Do price crops to protect the proletariat (again Krugman has the numbers here)
3. Do not let the market operate
4. Get in line single-file for your potato
Published: May 7, 2008 4:37 AM
fundamentalist
Ireland: “Should it have banned them? On what grounds? That's the question: People died, so what went wrong, and what should (and what shouldn't) be done next time similar scenario hits us.”
You might be interested in a bit of historical trivia. I’m a member of the Choctaw Nation (grandmother was Choctaw, grandfather Irish). Many Irish had married into the Choctaw nation before the Potato famine. One chief in the mid 1800’s had the last name of McKinney. So when the famine hit, the Choctaw took up a collection and send it to Ireland to help.
A similar scenario probably won’t hit us. It sounds like the English kept the feudal system alive in Ireland. Had the English allowed free markets, the Irish wouldn’t have been forced onto plots of land too small to support a family. Also, manufacturing would have moved to Ireland to take advantage of the lower wages and would have absorbed excess labor. Finally, free markets in land, and individual rights (which are necessary for free markets to function) would have allowed better farming techniques to improve agricultural productivity. The potato famine would never have happened had the English allowed capitalism (free markets plus the rule of law and individual rights) in Ireland. Once the famine took place, the Irish were at the mercy of the English, people who had used theft and war to steal Irish land and wealth. I wouldn’t expect compassion from them and free market reforms would have taken too long to help the dying.
Some people use free markets as a synonym for capitalism, but in reality free markets are just one aspect of capitalism. Free markets are nothing but the logical outcome of property rights. But for free markets to have beneficial effects, they must be coupled with the rule of law, equality before the law, individual rights and minimal corruption in the police, courts and state. That is the complete package that makes up capitalism. Russia after the collapse of the USSR is a good example of free markets without the rest of the components of capitalism. Those with political power stole whatever they wanted during “privatization.” The Russians called it capitalism, but they didn’t know what they were talking about.
Published: May 7, 2008 8:35 AM
Inquisitor
Francisco, as a recommendation, ignore trolls. Saves time.
Published: May 7, 2008 9:05 AM
michael
Owen asks "Are you a malthusian (overpopulation) theorist?"
Let's not get lost in the thickets of theory. I am not a theorist of any sort, if it can't accurately reflect the available facts. And we have lots of available fact in this present circumstance.
Currently there are three billion people on the planet with access to less than two dollars a day. Nearly all their funds are spent on sustenance.
Many of them can only buy rice, as it is the cheapest available food. Now let's triple the cost of rice. The consequence is that they can now buy only one-third the rice they could formerly buy. Yet they have the same number of hungry mouths. This, in my understanding, is the only reason the situation could be called a crisis. People once fed will now starve.
Why has the price tripled? I see no evidence of any artificial intervention in the markets. There are no trade wars, tariffs, barriers, etc. The problem is only that there is more demand for rice than there is supply. Therefore those with more money bid up the price and get the available commodity-- while those without do without.
The theoretical reaction would be for everyone to plant more rice. However in this instance the situation coincides with increasing shortfalls in every commodity due to a greater demand for everything. So the total area of land under plow has to expand.
Currently the remaining tropical forests of Africa, Brazil and Indonesia are all being felled at record rates in order to plant biofuel crops such as sugar cane, soy and oil palm. Rice is more problematic, while these money makers are easy to grow and far more profitable.
The market is already free. And the shortfalls we're seeing are the result of greatly increased demand, in the face of inelastic supply. It has been calculated that once everyone is as affluent as the American people, we will require the resources of four and one-half earths to satisfy all that demand.
Published: May 7, 2008 9:09 AM
michael
Francisco, you maintain that "The food crisis, as explained clearly in the article, stems from interventionism and not capitalism." In support of this argument, I would invite you to describe the interventionism currently at work in Haiti and in Somalia, where the rice shortages are the most grave. I haven't heard of any.
Then you say "other distortions exist like subsidies, lack of property rights, political barriers, regulations, et cetera." But both places are all but stateless, with a near total absence of laws. Politics are conducted at gunpoint, and the only barriers are coercive rather than statutory. There are few guaranteed rights, but that has no effect on prices. Subsidies, whenever they have been enacted, have had the effect of lowering prices, thus making food more available to the poor. But there are none such in either place at present. In these markets, cash is the only king.
Does our author support his statements with facts? He says things like "the underlying cause of any shortage is the lack of a free market, since genuine shortages cannot appear in a free market."
This is ridiculous. Actual shortages of commodities are impossible? The mere presence of available funds makes any substance infinitely available? I don't know why we are even arguing this point.
He also says "If we had free world markets, food would be exported from some countries, such as the United States and Europe, where food is plentiful, to countries where it is needed. This is because it would be profitable to ship goods to needy areas like Africa, where shortages were making prices rise. The fact that this is not currently happening can be a result only of government price controls (which prevent prices from rising in needy countries), trade restrictions, or some other government barrier that prevents people from getting what they need."
The fact is that today rice is fleeing places like Somalia and Haiti because there's no money in those places. There's not enough rice to go around, so it's going to places where people can afford to pay more. Doctrinal squabbles like that between the alleged socialism we endure and the glorious capitalism to which we aspire are entirely beside the point.
IMO, this is a problem brought about entirely by the way we choose to allocate goods. In our world, absolute need is of no relevance. What matters is only the quantity of numerical markers one happens to possess. And so long as those who lose under this system don't contest it, everything's fine.
But I may be missing something very basic. Please explain to me the principle by which too much money, chasing too little rice, would chase it into corners of the world like Haiti or Somalia.
Published: May 7, 2008 10:00 AM
fundamentalist
Michael: “Why has the price tripled? I see no evidence of any artificial intervention in the markets.”
If you focus exclusively on the supply/demand in the real economy, you’ll never find the answer. That’s like the drunk who searched for his keys only under the street lamp. You have to look at how huge increases in the money supply jack up prices even when nothing has changed in supply/demand. Flooding the world with credit, which is government intervention in the market, has caused the current crisis.
Michael: “The market is already free.”
Simply not true, not even in the US. The biggest obstacle to agricultural development outside the US is price controls on ag products. Most countries in the world has such price controls because they want to pacify city dwellers. But such controls reduce incentives to grow food.
Free markets can’t stop a crisis after it has developed and people are starving. They take too long to implement. Only charity can help and private charity has proven to be far more effective and efficient than any state-run charity, especially the UN. Capitalism would prevent a minor problem, such as droubt, from turning into a major crisis, such as famine, by making sure the people had the money to purchase food and that food could be imported freely.
On the other hand, this discussion is operating with two different definitions of free markets. One uses the term as a synonym for capitalism, which includes the rule of law, property rights, individual rights, equality before the law, and relatively incorrupt police, courts, and state officials. You seem to be arguing from the strict definition of free markets, which would be pure chaos with survival of the most brutal. Hait and Somalia may have free markets in the strict definition, but I doubt it. I’m certain they don’t enjoy free markets as a synonym for capitalism.
Published: May 7, 2008 10:41 AM
Yumi
No evidence of artificial intervention in the market? How about this one, quoted from the article: "World governments have been printing money at very high rates this decade." That is blatant intervention. Experience during the German hyperinflation in the 1920s tells us that people were starving and suffering from malnutrition at the time.
Published: May 7, 2008 10:47 AM
michael
Fundamentalist, you point out that "Chinese farmers don't raise hogs the way we do in the US. Very few countries do. Besides we don't export hogs, but we do export corn and wheat."
Two observations. First, the Chinese middle class-- the jobholders participating in the money economy-- are today roughly equal in number to the public of the United States. There are about a quarter billion of them, as I understand. They simply can't depend on traditional farmers to supply their meat by raising a few hogs in the barnyard. I haven't yet looked it up, but assume by now they are already adopting Western feedlot practises, and raising their animals on grain rather than stubble and melon rinds.
Second, grain in a global economy is fungible. The cost and availability of grain in Iowa affects that in places like Peru or the Ukraine. Or China. We live in an increasingly borderless world. And the US surplus, traditionally dedicated toward the task of feeding the world, has now disappeared into the maw of domestic fuel needs. Without even beginning, I might add, to satisfy those needs.
Let me suggest next that we avoid getting into ideological thickets like this: "All European countries consider themselves socialist, as does China and most of Africa." The world now conducts its business through international agreements like FTAs and the rules of the World Trade Organization. It uses standard currencies like the USD and the Euro. To describe our international system as being socialist is to say nothing intelligible about it. IMO.
Lenin demonstrated the need for currency back in 1920, when he induced hyperinflation in order to do away with the ruble, and usher in an age of socialism. But it was found that that didn't work nearly so well as the pre-existing system. So they brought the ruble back. Since then, the world has departed markedly from either subsistence or socialism as a basic mode, and gotten on board with jobs, markets and money. At present, the web of international trade is very highly capitalist in its nature. And prone to periodic famines caused by inequities in the distribution of money.
To which we may now add absolute shortfalls in the amounts of grain required to service all needs.
In closing, I appreciate your reference to the Wikipedia article on the Irish Famine. Let me suggest that the destruction of Ireland's subsistence economy and its replacement by a forced export economy is capitalist at its heart, and the antithesis of anything socialist. The peasants were bled to provide crops to pay their rent, and had nothing in their tiny family gardens to subsist upon other than a few potatos. Then the potatos suffered blight. Similar land-rent schemes kept emancipated southern blacks poor for generations in the US.
The particulars in our current plight have pretty much nothing in common with either Ireland in 1840 or Alabama in 1920, however. Today's story has to do with novel, competing uses for crops formerly used only for human food or animal feed. We need more grain, worldwide.
Published: May 7, 2008 10:59 AM
Paul Marks
If Paul Krugman believes that farm land being used for biofuel (rather than for growing food) is one reason why the price of food is high, why does he not support getting rid of government subsides for biofuel?
Afterall such an end to subsidies would not only mean that more land was used for growing food (thus increasing the supply) it would also mean that taxes could be reduced - so that people would have more money with which to pay for food.
The reason that Paul Krugman does not support getting rid of subsidies and reducing taxation is clear - such a course of action would conflict with his Obama style collectivist ideology.
Published: May 7, 2008 11:18 AM
magnus
>> michael: "Let me suggest next that we avoid getting into ideological thickets like this: "All European countries consider themselves socialist, as does China and most of Africa." The world now conducts its business through international agreements like FTAs and the rules of the World Trade Organization. It uses standard currencies like the USD and the Euro. To describe our international system as being socialist is to say nothing intelligible about it. IMO."
How old are you?
Have you ever read any history ever?
It's amazing to me that you are so oblivious to the massive market interventions that are imposed worldwide, many of which have been implemented in the last 75 years.
It's like you are a fish -- having always lived in water, the fish doesn't understand that he lives in water.
Having lived under a pile of market interventions your whole life, you don't pay any attention to them (e.g., central banking, crop production quotas, subsidies, loan programs available to a select few, import restrictions, export restrictions, tariffs, emigration and immigrations restrictions, etc.)
Published: May 7, 2008 11:19 AM
Diderich
I was talking about this subject with a friend and we came upon the following tidbit of information. I'm no economist, but I wonder what cutting the rice subsidies in this country by 50-65% in the last few years (uncorrected for inflation even) did to the price of rice. I haven't really heard anything about this, so maybe its not a big effect.
From: http://farm.ewg.org/farm/progdetail.php?fips=00000&progcode=rice
Year Rice Subsidies
1995 $832,463,286
1996 $646,388,442
1997 $454,981,763
1998 $735,147,910
1999 $1,120,320,870
2000 $1,525,323,870
2001 $1,390,854,985
2002 $1,150,906,967
2003 $1,475,317,665
2004 $647,349,693
2005 $534,374,479
2006 $530,430,782
Total $11,043,795,298
Published: May 7, 2008 11:20 AM
newson
michael says:
"Okay, let's posit Haiti.
1) No forcible dislocations in the market. No pressures from insurrection, from taxation, from regulation or from civil disorder."
this is so wrong. you have chosen to conveniently ignore how haiti got to its current, disastrous situation. look up papa doc duvalier (check out how much money he ripped off), aristide and the various coups against him. note also that property rights are shaky in the way of so many other latin american basket-cases - a few latifundistas owning virtually all the country's land.
solve the property aspect, and the rest will follow. have you ever been to the caribean or central america? the soil is so fertile, and the rainfall so good, that farming should be a cinch, but like cuba, poor property rights have delivered hunger instead of surplus. violence means that tourists go to other caribean locations.
Published: May 7, 2008 11:28 AM
michael
Francisco, you have not addressed the very simple scenario whereby commodities travel away from areas with few cash customers, toward areas where there are abundant cash customers.
You say "There is a contradiction here, Michael - if there are no transportation problems, and yet you mention there are no jobs (whatever that means), then who would be running the trucks, or the boats, or the bikes at least? You posited an impossible scenario. Seems like you have no idea of what is a free market - can be from a simple barter/exchange system to the complicated network in a major country. Whenever people can exchange goods freely, you have a free market."
You are a very fortunate person, not to know what it means to live in a country where there are no jobs. This alone should exempt you from feeling you can comment meaningfully on what is going on in Somalia or Haiti.
If there were sufficient money in either place, there would be planes and trucks aplenty going there, to exchange wares for that money. And there would be no problem. I think the onus is on you to describe a scenario where the absolute lack of money is no impediment to the establishment of a "free market".
The Horn of Africa is mostly desert, greatly overpopulated and in the grip of a serious, multi-year drought that shows every sign of continuing. What few reserves of food exist in neighboring Kenya are being kept inside Kenya, to satisfy local demand. Elsewhere in the Horn, there's no food to spare either. But if there were cash, rice would come from Thailand, or India, or even Louisiana to take it away.
Show me how a well run market, without money, can magically bring food to Somalia. Flesh out for me, please, the following quote: "money can be anything that people choose to use as a medium of exchange, so the idea that there cannot be any money IS in itself a distortion of the market".
Published: May 7, 2008 12:10 PM
Eric
It's amazing to me how blind people can be to what constitutes force.
michael says:
"Okay, let's posit Haiti.
1) No forcible dislocations in the market. No pressures from insurrection, from taxation, from regulation or from civil disorder."
I have never been to Haiti, so I can't really comment with any expertise on what caused their famine. However, even a few seconds of googling on the subject shows many articles which speak of force.
Now, sometimes the force is external, as in articles about what the world bank did, and in other cases the articles complain about the lack of force (e.g. there's not enough protectionist tariffs - not that there are none, but that the tariffs aren't high enough). Since I can only gather facts indirectly - and I suspect this is how nearly all of us get facts - we are as usual faced with a battle of "whose got the right facts".
But just looking at what happens in America it is easy to see what force does in a market. Remember the gasoline lines? Was there really a "gas famine" or was it that the gas companies were prohibited from selling at a price they wished (hint, that's not free trade). Do you remember how they ended? It was the end of the price controls that ended the lines.
The principles of markets are easy to understand, once you can get real facts. But often people don't care about facts; they have an agenda.
An naturally, the only answer to poverty that some people have is to use force! And they justify this by saying that there is no force going on at the moment. But anyone with eyes and a desire for the truth will find the force. It's always there.
Oh, and it's also force when some poor person has cash whose value is being forcefully stolen through inflation of the money supply.
Published: May 7, 2008 12:19 PM
fundamentalist
Michael: "First, the Chinese middle class-- the jobholders participating in the money economy-- are today roughly equal in number to the public of the United States."
I agree with you that hogs sold to the middle class in cities are probably grain fed, at least just before slaughter. But I thought you wanted to talk about the poor. Poor people raise hogs, too, and they don't feed them grain. They don't need it and that would be a waste.
Michael: "The world now conducts its business through international agreements like FTAs and the rules of the World Trade Organization. It uses standard currencies like the USD and the Euro. To describe our international system as being socialist is to say nothing intelligible about it."
So you're arguing that what a nation does inside its borders has no impact on international trade? The fact that Europeans, Chinese and others consider themselves socialist is a very important fact. It means that they consider state intervention in the economy a good thing and practice it to the limit. It means there are no free markets in the world, just markets with more or less state intervention.
Michael: "Let me suggest that the destruction of Ireland's subsistence economy and its replacement by a forced export economy is capitalist at its heart, and the antithesis of anything socialist."
That's the Marxist definition of capitalism and it's a straw man designed by Marxists in order to win any argument by default. It has nothing to do with the traditional definition of capitalism. If socialists didn't have their own private dictionary with their weird definitions, discussion would be a lot clearer. Forced exports violate private property rights which are at the heart of capitalism. If something violates the principles of capitalism then it can't be part of capitalism.
Published: May 7, 2008 12:22 PM
fundamentalist
Paul: "If Paul Krugman believes that farm land being used for biofuel (rather than for growing food) is one reason why the price of food is high, why does he not support getting rid of government subsides for biofuel?"
Good point! I suspect he doesn't because he's a socialist and supports only more state intervention, not less.
This weekend I listened to C-Span's broadcast of the congressional hearing on food prices. Two experts said that ethanol does not hurt food production because the type of corn grown for it isn't used for food. The US grows very little corn for food, most of it intended for animals in feed lots, other for corn syrup and ethanol. And their isn't a shortage of supply of food corn.
Published: May 7, 2008 12:29 PM
Ireland
Dear all,
thanks for the answers, it clarified the historical details and provided intelectual ammo that will be used by this practising austrian in his debates with the not-yet-converted friends. It allows to continue the quest, best described as: "show me a market failure, and I'll pinpoint government intervention that caused it".
If there's one thing I don't subscribe to, it's the view that "similar scenario probably won’t hit us". I'd say it is in fact hitting us, the human race, in several places today.
But then again I agree, that should've there been the full capitalist bundle (safety of life and property, free markets, rule of law, ...) allowed to operate in those places in the past, there'd be no emergencies today.
It also makes perfect sense that such bundle would do little for those suffering now, and for these people the short-term relief may come from charity and relief efforts done by whoever willing to commit to it. In the long-term however, it should bring the "capitalist bundle" along, otherwise the efforts may get wasted, and suffering repeated.
Thanks again! :-)
Published: May 7, 2008 12:43 PM
Jake
It is interesting how certain subjects attracts large numbers of comments, i.e. enironmentalism and food. Very emotive subjects, it appears. Just an observation. :-)
To get back to this article, I have some more questions:
-What impact does it have on world food supplies now that we jumped from 3.5 billion people in 1980 to 6 billion + people in 2008.
-Is mother nature going to allow this?
-Can she tolerate this?
-Is nature in equililbrium with her ability to supply the demand of consuming organisms?
I've got a feeling she's gonna give us a kick up the backside some or other time. She always does.
Published: May 7, 2008 1:32 PM
Francisco Torres
Michael,
Francisco, you have not addressed the very simple scenario whereby commodities travel away from areas with few cash customers, toward areas where there are abundant cash customers.
The problem with the scenario is that it makes impossible assumptions: if there are no jobs, no food and no commodities, then where did the people come from (assuming that you do not want to change the population levels in Haiti for your scenario)? It is not an easy question: in order for a population level to exist, there must be a previous production or availability of resources. If we started with a population level of, let us say, a nomadic/hunter-gatherer society, then definitively there would be very little in the form of exchange with the outside, but only because many basic necessities are already addressed.
You are a very fortunate person, not to know what it means to live in a country where there are no jobs. This alone should exempt you from feeling you can comment meaningfully on what is going on in Somalia or Haiti.
You missed the point of my criticism entirely, Michael - you cannot set a scenario with impossible assumptions, entirely regardless of my past experience. IF you indicate there are no transportation problems, THEN you cannot indicate later that people do not have jobs: who would be in charge of transporting anything, then? The latter condition makes it obvious that there must be transportation problems.
If there were sufficient money in either place, there would be planes and trucks aplenty going there, to exchange wares for that money.
You do not understand markets, Michael - that which is traded is goods, on any market. Money is just a convenient exchange tool, but it is not the ONLY tool. In a scenario where, let us say, people are poor, food is scarce, money is low, there is still marketable goods or services that can be used for exchange, like cheap labor - investors can always (if no hindrance from governments and always respecting private property and contracts) invest in hotels, resorts, and factories. Labor receives money, and local farmers can then exchange their surpluses with labor.
And there would be no problem. I think the onus is on you to describe a scenario where the absolute lack of money is no impediment to the establishment of a "free market".
No, the onus is on you to explain why a free market cannot establish itself without money - free market only means the free trade of goods and services between people, without any outside and coercive hindrances. Money itself is not the sine qua non of markets - it just helps, a great deal.
Also, you misunderstand the concept of money. Just because there is no government to print fiat currency does not mean that there will not be any exchange. Money is whatever people agree to use - and it can be anything that people find attractive.
The Horn of Africa is mostly desert, greatly overpopulated and in the grip of a serious, multi-year drought that shows every sign of continuing. What few reserves of food exist in neighboring Kenya are being kept inside Kenya, to satisfy local demand. Elsewhere in the Horn, there's no food to spare either. But if there were cash, rice would come from Thailand, or India, or even Louisiana to take it away.
Again, you make a false assumption - that people are required to hold "cash" in order to exchange goods. The reason there is famine in the Horn has little to do with a lack of cash - again, people can agree on whatever they find attractive to become cash. The problem of lack of food has to do with poorly protected property rights, which stems from years of civil wars and tribal fights.
Show me how a well run market, without money, can magically bring food to Somalia.
Somalians already use money: they accept and trade with different currencies, so why would I have to show you anything?
Flesh out for me, please, the following quote: "money can be anything that people choose to use as a medium of exchange, so the idea that there cannot be any money IS in itself a distortion of the market".
My point was that your condition in your scenario (that there CANNOT be money) is in itself a distortion of the market - it indicates there is an outside force that forbids people to use whatever they want as money. If what you mean is that there is no government to issue currency, then by market forces (people's preferences) there will be a money market, on whatever they choose to use as currency.
Published: May 7, 2008 2:43 PM
Francisco Torres
Just highlights your extreme naivety in saying that anything can be exchanged for money. You obviously live in some dream land where people are not forced into sexual slavery, selling their children, extremely dangerous jobs, selling their organs etc etc the list goes on.
Owen, instead of making appeals to emotions, let us stay in the rational path: indeed, anything can be exchanged for money, but you are already adding your own lurid examples to poison the well. I am willing to look at them one at a time:
1) Forcing people into sexual slavery is NOT an exchange, it is coercion. If a person is coerced into slavery, then we are not talking about a free market.
2) Selling children - you will have to define this. People give their children for adoption, receiving in exchange payment for, at least, prenatal care. You simply use the general concept as innuendo.
3)What is an extremely dangerous job? This is a subjective concept: for me, a very dangerous job would be something like log cutting, and yet there are many loggers. Why would taking these jobs be a bad thing in itself?
4) Why is "selling one's organs" a bad thing in itself? My organs are my property, not one else's, and I can pretty damn much do what I please with them, if not coerced by an external force.
My point was that some people do not have anything to exchange for basic necessities but when you retort that ther[e] is ALWAYS something you are referring to exactly the kind of disgusting inhuman things that people are forced into.
That is a total and dishonest misrepresentation of my point - my comments above should show you that those supposedly "disgusting inhuman" things are not such, and that your use of those concepts stem from your own subjective prejudices. The "slave trade" issue is nothing more than a red herring, since it is NOT an example of free trade.
Published: May 7, 2008 3:02 PM
Francisco Torres
Francisco, you maintain that "The food crisis, as explained clearly in the article, stems from interventionism and not capitalism." In support of this argument, I would invite you to describe the interventionism currently at work in Haiti and in Somalia, where the rice shortages are the most grave. I haven't heard of any. Then you say "other distortions exist like subsidies, lack of property rights, political barriers, regulations, et cetera." But both places are all but stateless, with a near total absence of laws.
You surely jest - Somalia is being invaded by an US backed "ally", Ethiopia. That is in itself a serious distortion. Otherwise, it is a stateless entity but it does have laws - religious, common law or tribal law. And Haiti is rife with internal fighting and thuggery, with no protection for private property - this a result of previous government policies and corruption, not because of free markets.
Politics are conducted at gunpoint, and the only barriers are coercive rather than statutory. There are few guaranteed rights, but that has no effect on prices. [?]
It doesn't? Why do you say that?
Subsidies, whenever they have been enacted, have had the effect of lowering prices, thus making food more available to the poor.
This is false, historically and factually. Subsidies have the effect of lowering the producer's incentive to produce, which raises prices by way of a lower supply - right now, people in the US are paying more for food than what they would enjoy if agriculture was not heavily subsidized by the FedGov.
Does our author support his statements with facts? He says things like "the underlying cause of any shortage is the lack of a free market, since genuine shortages cannot appear in a free market."
This is ridiculous. Actual shortages of commodities are impossible? The mere presence of available funds makes any substance infinitely available? I don't know why we are even arguing this point.
Michael, the point is that with an unhampered market, the PRICE system ALLOCATES the resources towards those that need them the most. If food production suffers because of an unforeseen event, like severe storms, the supply of food will DIMINISH, raising prices temporarily and making people ration their purchases to compensate. The rising prices also ENTICE producers to generate more output, which will eventually LOWER the price to the market clearing levels. It can also entice entrepreneurs to IMPORT food from other places If for some reason you have a government either imposing a barrier on imports or price controls, then you will HAVE supply problems AND shortages.
The fact is that today rice is fleeing places like Somalia and Haiti because there's no money in those places.
This is false. The rice is not being shipped because of restrictions to exports (hoarding) imposed by governments. These governments do not want the local prices to go up and so they stop exports.
There is money in Somalia - if there was none, there would be no cell phone companies investing there. And many Haitians receive money from relatives overseas.
There's not enough rice to go around, so it's going to places where people can afford to pay more.
That would include Somalia and Haiti. If I were a producer, that's where I would look for business. But with government subsidies and trade barriers, it makes more economic sense to sell my wares locally, rather than where it would be more profitable if an unhampered market.
But I may be missing something very basic. Please explain to me the principle by which too much money, chasing too little rice, would chase it into corners of the world like Haiti or Somalia.
Too much (fiat) money is creating a speculative bubble in the commodities market, making the product artificially expensive, the same way it did it for the housing market and before that, the stock market. That is one of the author's points.
Published: May 7, 2008 3:39 PM
michael
Paul Marks writes
"If Paul Krugman believes that farm land being used for biofuel (rather than for growing food) is one reason why the price of food is high, why does he not support getting rid of government subsides for biofuel? Afterall such an end to subsidies would not only mean that more land was used for growing food (thus increasing the supply) it would also mean that taxes could be reduced - so that people would have more money with which to pay for food. The reason that Paul Krugman does not support getting rid of subsidies and reducing taxation is clear - such a course of action would conflict with his Obama style collectivist ideology."
Oh, but he does! In his April 7 article, Krugman writes
"Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels.
"The subsidized conversion of crops into fuel was supposed to promote energy independence and help limit global warming. But this promise was, as Time magazine bluntly put it, a “scam.”
"This is especially true of corn ethanol: even on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But it turns out that even seemingly “good” biofuel policies, like Brazil’s use of ethanol from sugar cane, accelerate the pace of 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."
This position is certainly consistent with everything in Krugman's philosophy-- and with my own. Federal dollars thrown toward corn ethanol are wasted making the food problem worse, wear and tear on our land more extreme and fuel more expensive.
There goes that theory.
Published: May 7, 2008 3:53 PM
michael
Newson writes "you have chosen to conveniently ignore how haiti got to its current, disastrous situation. look up papa doc duvalier (check out how much money he ripped off), aristide and the various coups against him. note also that property rights are shaky in the way of so many other latin american basket-cases - a few latifundistas owning virtually all the country's land. solve the property aspect, and the rest will follow. have you ever been to the caribean or central america? the soil is so fertile, and the rainfall so good, that farming should be a cinch, but like cuba, poor property rights have delivered hunger instead of surplus. violence means that tourists go to other caribean locations."
First I should correct you about the soil of Haiti. Nonexistent conservation practises have caused its original load of good topsoil to head straight toward the bottom of the Caribbean. Today the people live on used up mud, prone to slides in the torrential downpours they endure. You can't grow a decent crop there.
Second, let's bow our heads in acknowledgment of a century's worth of interventions and internal catastrophes-- crises that have given Haiti such a sad history of abysmal governance. However, in 2007 most Haitians could afford rice-- while in 2008 they can't. What is it that has changed?
I would suggest it is the price of rice that has changed-- while the amount of cash in Haitians' pockets has not.
Published: May 7, 2008 4:05 PM
michael
Francisco, you say "The problem with the scenario is that it makes impossible assumptions: if there are no jobs, no food and no commodities, then where did the people come from (assuming that you do not want to change the population levels in Haiti for your scenario)? It is not an easy question: in order for a population level to exist, there must be a previous production or availability of resources. If we started with a population level of, let us say, a nomadic/hunter-gatherer society, then definitively there would be very little in the form of exchange with the outside, but only because many basic necessities are already addressed."
But all this is beside the point. The raw fact is that the world price of rice has tripled. Incomes in Haiti have stayed flat. Those are the two salient facts. Transportation costs have not changed from last month to this. Civil disorder has not changed. The regulatory environment has not changed. Only the price of rice has changed.
More than once you have alluded to payments in kind, where for example someone with no money repairs someone else's bicycle. I do not believe that is a sensible way to approach sales of Thai rice, or Brazilian rice, to Haiti. International sales are denominated in either dollars or in Euros. If you don't have the coin, you just can't buy the product.
Published: May 7, 2008 4:19 PM
fundamentalist
Jake: "What impact does it have on world food supplies now that we jumped from 3.5 billion people in 1980 to 6 billion + people in 2008."
The good news first: it's not all up to nature, fortunately. Farming methods continue to improve the productivity of American farmers. Newer methods till the soil much less and reduce erosion.
The bad news is that very few farmers in the world are up to American standards. Most farming in the world is done with a short-handled hoe. Babylonian farmers had higher productivity when then began using oxen. So the productivity of farming outside the US has a long way to go. India and the Ukraine could drown the world in food if they would learn how to farm.
Published: May 7, 2008 5:04 PM
fundamentalist
Here's a sad anecdote about farming from one of the UN development reports a few years ago. UN ag workers noticed that women did all of the farming in Uganda using a short-handled hoe. Those UN guys are very observant. So the UN guys decided to help increase farming productivity by giving oxen to the farming families. But the farmers didn't want the oxen. They said their neighbors would steal them in the night, butcher and eat them and they didn't want to have to worry about that. The insecurity of property strikes again and keeps people poor.
Published: May 7, 2008 5:08 PM
Inquisitor
Michael, familiarize yourself with Austrian economics before making extensive commentary on the blog. It'll help you understand what's going on here better.
Published: May 7, 2008 5:49 PM
Francisco Torres
But all this is beside the point.The raw fact is that the world price of rice has tripled. Incomes in Haiti have stayed flat. Those are the two salient facts.
Yet these were not part of the Haiti scenario you posited:
"3) No jobs. No money."
Either people are sitting idle waiting for their demise, or there ARE jobs.
More than once you have alluded to payments in kind, where for example someone with no money repairs someone else's bicycle.
I have alluded to the fact that money is not required to have a free market. What you want to know is how to bring food without people paying for it, which is different.
I do not believe that [barter] is a sensible way to approach sales of Thai rice, or Brazilian rice, to Haiti. International sales are denominated in either dollars or in Euros. If you don't have the coin, you just can't buy the product.
That's absurd - whenever there is an opportunity, there will be an entrepreneur. Rice can be purchased on credit, and sold through retailers. If there is a clear demand for something, in an unhampered market there will be someone willing to take the chance of making a profit.
What happens is that you look at things too simplistic: You think there are only producers and buyers, totally forgetting the role of the entrepreneur. Let us say people in Haiti do not have money - yet. You are talking about a pool of cheap labor available there. Let us say they cannot get food from local suppliers - you have then a potential demand for food. Entrepreneurs can perfectly invest in manufacturing in Haiti and also in food distribution, using either capital or debt. Food can be purchased on credit, distributed by retailers. An entrepreneur can bring the cheaper foodstuffs (like grains) to be sold for the little money there is. Even using the local currency, entrepreneurs can pay with that currency the local labor or buy the local production, to be exported towards the USA or Latin America.
Published: May 7, 2008 6:19 PM
Eric
Barter never remains as "pure" barter for long. As Rothbard, Mises, etc. have written, people will always find some commodity, cigarettes, tobacco, iron, wampum, gold, etc. which becomes a money as soon as people show a preference for that items marketability.
If there are no jobs in Haiti, it means there are no entrepreneurs in the country finding out what people want and setting up businesses to supply that product.
If this is not the case, then perhaps the people there are not educated and don't know how to produce anything. But most likely, as in all cases I've heard of, there's some agent of force at work.
Even if these people are suffering, should others be robbed to send food to this country? And would it even do any good? What of the harm it causes those who are robbed?
Anyone who wants to send charity should do so. When Americans weren't paying 60% of their income in taxes, regulations, and other government "services" they were much better able to provide charity to others. But no matter how bad it is for some group of people on the other side of the world, there is still nothing good about robbing us to give to them. The thieves in power get all the money in the end anyway, so if people like Michael want to help out, they should do so, but not force others to help.
Frankly, I am much more concerned about all the people suffering in our prisons for "crimes against the state" who have never hurt anyone nor stolen anything. And if we are destroying lives here with our government, you can bet that in Haiti, their government is behind the starving.
Published: May 7, 2008 7:49 PM
Inquisitor
Good points Eric. Some are wont to ignore the fact that these countries suffer from a lack of any institutions whatsoever to allow them to advance economically, such that all the aid in the world would only be a bandaid, for what is in fact a gushing wound.
Published: May 7, 2008 8:11 PM
newson
michael says:
"First I should correct you about the soil of Haiti. Nonexistent conservation practises have caused its original load of good topsoil to head straight toward the bottom of the Caribbean."
poor agricultural practices resulting from insecure property rights, which i already addressed. most of the population is denied secure title to land, which remains in the hands of a few elites. no freehold owner willfully destroys his own land. the plots are too small and overworked.
michael again:
"Second, let's bow our heads in acknowledgment of a century's worth of interventions and internal catastrophes-- crises that have given Haiti such a sad history of abysmal governance."
here again you've got it the wrong way around. countries with adequate property rights are able to build enough wealth to survive both natural disasters and changing price of staples. witness the speedy recovery of thailand post-tsunami (compare to the slow recovery in aceh).
it's the very interventions that have created the poverty which renders the haitians so very vulnerable to hunger.
Published: May 7, 2008 11:06 PM
newson
further on haiti, the united nations has been unable to combat the out-of-control crime rate, with gangs terrorizing the local population. theft, kidnap, and extortion are rampant - would you care to invest in such a place? of course not, so there is a dearth of capital investment. result: falling standard of living in the face of steady population growth. hello malthus and the horses of the apocalypse.
Published: May 7, 2008 11:39 PM
Owen
It is the case that there are food riots in some thrid world countries and I for one am happy about it. The world prices of food are out of their control but what is in theri control is the structural imbalances within those economies. The inequalities in land ownership and the corruption of the governments will only last so long once people are finding it had to put food in their mouths.
I agree with Eric that no government should provide aid to another government but that it should be done through private charities.
But if one stopped and thought for a moment one would realise that the largest portions of government aid (apart from humanitarian relief) have strings attached to them. In this case it is not really 'aid' at all but investment in achaiving some 'ends'.
Published: May 8, 2008 4:16 AM
Ireland
michael writes:
However, in 2007 most Haitians could afford rice-- while in 2008 they can't.
Let me offer a similar example: in the summer one can afford sleeping under the stars, while in winter such attempt would mean he freezes to death. There are obvious differences, as seasons are governed by the laws of nature, while the food turmoil is rooted in governments messing things up, but for those who are affected the result is the same: when the winter or food crisis hits, they're caught unprepared and suffer. For why they're uprepared, read below.
What is it that has changed? I would suggest it is the price of rice that has changed-- while the amount of cash in Haitians' pockets has not.
Why, yes, it is the rice price that changed. Cheap times are over, in the real world rice will be more expensive now. The higher price is needed to sustain the producers, i.e. those who deliver the rice are today only able to do it at these new prices. If anyone thinks it is possible to grow it cheaper, well, he should prove it by going ahead and using his own money and effort to do it, to bring that cheaper rice to market.
The culprit on Haiti is broken societal system. While it allowed these people their bowl of rice in 2007, it is past the threshold now, and is no longer able to do that. Small change in input can mean drastic change on the output, yeah, that's the world we live in.
Re cash in their pockets, where does cash come from? Cash, or any other good used as means of exchange, comes from providing goods and services to other people. That's division of labor, which enables our society to deliver the plenty we have.
Where the society is broken as much as it prevents "the capitalistic bundle" (capital savings, investment, property rights, rule of law, ...) from working its wonders in the effective allocation of the scarce resources available, there it is no wonder to discover that hard times are true to their name in such places.
Published: May 8, 2008 7:54 AM
michael
Francisco, I think you're being a bit evasive on the issue of what constitutes money. Most people are in agreement as to their preferred medium of exchange. Yet I've asked "I think the onus is on you to describe a scenario where the absolute lack of money is no impediment to the establishment of a "free market"."
To which you've resonded "No, the onus is on you to explain why a free market cannot establish itself without money - free market only means the free trade of goods and services between people, without any outside and coercive hindrances. Money itself is not the sine qua non of markets - it just helps, a great deal.
"Also, you misunderstand the concept of money. Just because there is no government to print fiat currency does not mean that there will not be any exchange. Money is whatever people agree to use - and it can be anything that people find attractive."
In terms of the Haitian market for rice, they have been accustomed to buying Florida rice. The reason is that US rice subsidies have for years made that rice cheap enough to undercut the local product, and so destroyed the rice industry in Haiti. And at present there is plenty of rice-- for a price-- sitting on the dock in Florida.
Yet the Haitians can't afford it. In fact they can't afford to buy the Florida rice sitting right there in the market in Port au Prince.
Are you telling us that penniless hungry people can feed themselves merely by shining the shoes of the rice sellers? Surely you must admit this is not the solution. Without actual dollars-- the world's most common tender-- who's going to ship more rice from Florida?
Published: May 8, 2008 9:41 AM
Eric
Micheal: "In terms of the Haitian market for rice, they have been accustomed to buying Florida rice. The reason is that US rice subsidies have for years made that rice cheap enough to undercut the local product, and so destroyed the rice industry in Haiti."
I'll take your word on this since I have no data myself.
But don't you see the force involved here? How can US government subsidies occur in a free market? If you want to complain that free markets don't deliver the goods, then complain about something that is a result of that freedom, not something that you yourself are claiming isn't free. You're just making a case for free markets.
And how come we aren't hearing about the poor exploited workers in Haiti, who have to work 14 hours a day just to earn enough money to eat.
Why aren't the greedy capitalists taking advantage of the Haitian people by offering them low paying jobs. Surely starving people are prime for this sort of exploitation. What could possibly be the answer? Could it be that there's some sort of forceful interference? With all these human resources, how come nobody is getting rich exploiting cheap labor?
Published: May 8, 2008 12:12 PM
Francisco Torres
Francisco, I think you're being a bit evasive on the issue of what constitutes money.
I do not think so, Michael - what's happening here is that you are really asking how can the market bring food to people without paying for it. It would be better if you just got out and say it.
Yet the Haitians can't afford [the Florida rice]. In fact they can't afford to buy the Florida rice sitting right there in the market in Port au Prince.
I would have to take your word for it, assuming you polled the sellers at Port au Prince. If I were a seller, I would find a way to clear the market before my rice went bad, by offering the product at a lower price, but hey, that is just the capitalist pig in me.... Maybe the sellers over there are less interested in business and more in warehousing rice for kicks.
Published: May 8, 2008 1:39 PM
michael
Hi Eric-- I think I agree with all your points.
"But don't you see the force involved here? How can US government subsidies occur in a free market? If you want to complain that free markets don't deliver the goods, then complain about something that is a result of that freedom, not something that you yourself are claiming isn't free. You're just making a case for free markets."
I agree totally. In fact, so does that arch-bugaboo Paul Krugman. US agricultural subsidies have tilted the playing field for every country entering into a "free trade" agreement with the US. Mexican agriculture was destroyed by these subsidies-- a quandary that directly resulted in the eight to twelve million displaced Mexicans moving to the US since the enactment of NAFTA. Previously, Mexico employed these people in growing corn, wheat, poultry and rice-- all crops that the local small farmers could no longer compete against us in.
Given a couple of years, Haiti will respond by once again growing local rice. In the meanwhile, they call this the "Clorox hunger"-- meaning your stomach is so empty it feels like you've been drinking bleach.
As the US government has co-opted the term "free trade" to mean deals like this, many of us now refer the term "fair trade" to describe a truly level playing field.
"And how come we aren't hearing about the poor exploited workers in Haiti, who have to work 14 hours a day just to earn enough money to eat."
Ask the media why the world's poor rarely make the news.
"Why aren't the greedy capitalists taking advantage of the Haitian people by offering them low paying jobs. Surely starving people are prime for this sort of exploitation. What could possibly be the answer? Could it be that there's some sort of forceful interference? With all these human resources, how come nobody is getting rich exploiting cheap labor?"
As a matter of fact, I think that was very likely in the back of our minds back in 1915, when we first intervened in Haiti's politics. Since then Haitians have made all our baseballs, and many other handmade items. Their politics have been managed in such a way as to make this poor country a perpetual basket case. The prognosis is for this satisfactory state of affairs to continue.
Published: May 8, 2008 1:53 PM
Owen
Fransciso Torres:
They are obviously still selling the rice, but only to those that can afford it. Michael was obviously referring to those that can't. Suppliers will start importing only the amount required to sell to those that can afford the rice and the rest will starve.
You chose to misinterpret what he said.
Michael still has a point about the money. His point was that the market cannot feed ALL the poor, especially in Haiti because there are various reasons why some people are unable to earn the amount required to even feed them. The market has no remedy for this - it is usually solved only by donations of some sort whether voluntary or state enforced.
I think you have a chicken and egg problem - how is someone going to go out and earn money without some food in his belly and clothes on his back?
Published: May 8, 2008 2:01 PM
michael
Francisco-- I hope I can clear up what appears to be a persistent communication problem. You say "My point was that your condition in your scenario (that there CANNOT be money) is in itself a distortion of the market - it indicates there is an outside force that forbids people to use whatever they want as money. If what you mean is that there is no government to issue currency, then by market forces (people's preferences) there will be a money market, on whatever they choose to use as currency."
I was not describing some imagined scenario, but rather talking about current events. Nor did I say there cannot be money. Of course there is money. It's just that about three billion people on earth are being severely impacted by the rise in food prices as they have virtually none. These are all the people earning less than two dollars a day.
BTW let's define "money". In the global marketplace it's not people trading carwashes for paint jobs. And it's not people trading weak, debased, nonconvertible currencies for goods. This market is denominated almost exclusively in US dollars-- and to an increasing extent in Euros. If you have some of those markers (or their equivalent), you can play. If you don't, you can't.
It is perfectly legal to own USD in Somalia-- I made no point that it wasn't. However, it's a shame more people don't have any. Because the only thing rice growers accept as currency on the international market is dollars or Euros-- and virtually all the local markets of yore have by now been destroyed by globalization.
Published: May 8, 2008 2:11 PM
Francisco Torres
They are obviously still selling the rice, but only to those that can afford it. Michael was obviously referring to those that can't.
That is not what he is saying. He is asking how can a "free market" supply food in a country that does not show restrictions (Haiti). The fact is that Michael is misrepresenting the situation in Haiti, and what he is really asking is how can a market supply food to people without paying for it - that is a totally different question, yet he is not being upfront about it.
Suppliers will start importing only the amount required to sell to those that can afford the rice and the rest will starve.
That is absurd, Owen - you think that suppliers agree on market share? If I wanted to make a killing, I would bring even MORE rice in order to undercut my competition; automatically, that makes the rice even more affordable.
What you DON'T understand is that suppliers cannot know how much people can afford their product - that is impossible. What they CAN know is that they can sell X tons of product at price Y, and X+10 or X+20 tons of product at price Y-5 or Y-10 or Y-20. Entrepreneurs are revenue seekers, as Murray Rothbard explained, which means if they can get more revenue with a lower profit margin, they will bring in MORE rice, to offer it at a lower price and get MORE people to buy it. That is how actual business works.
I believe that you have been assuming that suppliers can know how much product to sell by knowing beforehand how many people will buy something, but that is not how the market works. It is not like Haitians issue Purchase Orders to rice sellers.
Published: May 8, 2008 2:32 PM
michael
Inquisitor suggests "Michael, familiarize yourself with Austrian economics before making extensive commentary on the blog. It'll help you understand what's going on here better."
I am in fact maximizing my exposure to that discipline, as we speak. I might in turn suggest that you pay a bit of attention to what is going on out here in the world. Such an approach would help many theoretical economists understand what's going on in the dirt-and-cobble marketplaces of the globe a bit better.
My comments go to the notion that the suggested fixes for high commodity prices being offered here are, IMO, generally unworkable for a variety of reasons. It may be that in the world of theory these approaches are quite elegant. But so long as excessive demand chases inadequate supply, I think we will be plagued by high prices and increasingly short reserves.
But maybe I'm wrong. Why not check the FAO figures on world grain production in recent years? Then factor in the newer grain uses, like biofuels. Plot this line against that of the rise in the human population? That would be the methodical approach to take. What I'm seeing here, however, appears to be an almost exclusive reliance on theory.
Published: May 8, 2008 2:41 PM
Francisco Torres
You chose to misinterpret what he said.
I put him to task because of his Haitian example.
Michael still has a point about the money. His point was that the market cannot feed ALL the poor, especially in Haiti because there are various reasons why some people are unable to earn the amount required to even feed them.
Owen, the issue is that you are thinking in veyr narrow terms: The same reasons that make people
poor would also hamper the market, so you cannot accuse the market (the network of mutually beneficial trades) of not providing something to consumers. The author made the point that whatever hampers the market will generate these dislocations in supply - in the case of Haiti, the dislocations are an interventionist government that lives off people's income, trade restrictions and a disrespect for people's property rights. Another big problem is the massive foreign aid that the country has received, which breeds sloth and corruption.
The market has no remedy for this - it is usually solved only by donations of some sort whether voluntary or state enforced.
The market does have a remedy for this, Owen - that has been explained to you ad nauseam: you simply let the people trade in freedom. What you want is for the market to give something for free, like the "benevolent" state does.
I think you have a chicken and egg problem - how is someone going to go out and earn money without some food in his belly and clothes on his back?
Why earn money ONLY? If I were in that situation, I would offer my services (clean a house, paint a fence, collect trash) for food and a tip. It can be done. But what YOU want is for others to give things for free, as if that remedied the situation. If you could get things for free, why bother then to seek an income?
Published: May 8, 2008 2:42 PM
Inquisitor
"I am in fact maximizing my exposure to that discipline, as we speak. I might in turn suggest that you pay a bit of attention to what is going on out here in the world. Such an approach would help many theoretical economists understand what's going on in the dirt-and-cobble marketplaces of the globe a bit better."
Which they do. Fransisco's commentary so far has been right on track. My suggestion was so as to avoid talking past each other...
Published: May 8, 2008 2:51 PM
Inquisitor
Oh, and as for the "real world", the fact that you cannot even recognize very real interferences with the market that hinder its operation is problematic in itself.
Published: May 8, 2008 2:52 PM
Owen
Inquisitor:
Interferences were duly noted but deemed necessary for the better good.
The problem is yours.
Francisco Torres:
I accused the market as not providing something to people who are NOT consumers, so are ignored by the market. These people will always exist because of health or temporary misfortune.
People with nothing that is valued cannot trade. Can you not understand that? Such people do not benefit from a market economy - they die save for extra-market measures such as donations.
You still live on the assumption that there are those who cannot offer something that is valued enough to provide for that person's basic necessities. People in (temporary or permanent) poor mental health are a prime example. What shall they do? Offer their body up for experiments?
The free-market cannot feed everyone. Donations are required which are EXPLICITLY not part of the market. How are we to know that the level of donations will be enough to feed the very last person? There has never been any evidence to conclude that it will, but plenty exists in the world today that rising wealth is not making much dent in the numbers dying from lack of basic necessities.
Game. Set. Match.
Published: May 8, 2008 3:07 PM
Inquisitor
Where were they "duly noted" by Michael? He denied their relevance altogether.
Published: May 8, 2008 3:10 PM
Inquisitor
BTW, what "better good"? It doesn't exist, remember?
Published: May 8, 2008 3:11 PM
michael
Our conversation:
Francisco, I think you're being a bit evasive on the issue of what constitutes money.
FT: "I do not think so, Michael - what's happening here is that you are really asking how can the market bring food to people without paying for it. It would be better if you just got out and say it."
Not at all. You won't find a single plea for charity in my words. The problem is far too overwhelming, with food beginning to grow beyond the reach of nearly half the planet, for that approach to be of service.
Nor do I think fiddling with the money will magically bring more food to everyone's tables. Would that it could.
I'm going back to supply and demand. We should be actively looking for ways to increase grain production, worldwide. We should find ways to limit less efficient uses like grain-fed beef or grain biofuels. And we should perhaps promote a bit more family planning than has been the fashion these past eight years. All those approaches would bear fruit.
m:Yet the Haitians can't afford [the Florida rice]. In fact they can't afford to buy the Florida rice sitting right there in the market in Port au Prince.
FT: I would have to take your word for it, assuming you polled the sellers at Port au Prince. If I were a seller, I would find a way to clear the market before my rice went bad, by offering the product at a lower price, but hey, that is just the capitalist pig in me.... Maybe the sellers over there are less interested in business and more in warehousing rice for kicks.
I heartily applaud your suggestion that we take a look at the actual markets in Haiti, to see what's going on. And in fact there's a lot of unsold food there... and not just rice. The sellers feel, understandably, that it's not a good business model to sell food below their own cost. So if it's about to spoil, I think they go home and eat it for dinner. First hand accounts are on the web.
Will the distributors buy more of the expensive rice from Florida while their retail vendors still have unsold stocks on hand? I don't think so. So we can predict that today's high prices will likely lead to tomorrow's actual shortages, as shippers no longer bother to ship.
But the fundamental market distortions-- the conditions that led to the current crisis-- can be found in these and in many more articles on the web:
http://www.hartford-hwp.com/archives/43a/217.html
http://www.american.edu/TED/haitirice.htm
http://www.inteldaily.com/?c=172&a=6197
Published: May 8, 2008 3:12 PM
Owen
Inquisitor:
...duly noted by those enforcing their version of rights. If they weren't duly noted they wouldn't be enforced at all numbskull.
...better in the mind of the enforcer. Back to your abc's now.
Published: May 8, 2008 3:18 PM
Eric
Micheal: My problem with Krugman (and I suspect the author of the article as well) is that he doesn't focus on the concept of force as the root cause of economic problems, and so does not look to remove the force; rather, he simply wishes to re-direct the force in a direction more to his liking. Like a broken clock, even Krugman can be right sometimes. But he doesn't promote the principles of uninitiated force (i.e. force that's not self defense).
Force is the single worst economic policy one can devise. But when you merely substitute one kind of force for another you lose the win-win of a free market transaction (all true free market transactions are a win for both parties to a transaction, or else the transaction does not occur). As soon as force is used, it becomes a win-lose or a lose-lose situation. You never get a win-win with force (or else the force wouldn't be needed).
In fact, many would define government using two words: Initiated Force!
Published: May 8, 2008 3:21 PM
Inquisitor
."..duly noted by those enforcing their version of rights. If they weren't duly noted they wouldn't be enforced at all numbskull."
The relevance of which to my comment is what, exactly? Before calling one a numbskull insure you know what the hell you're talking about.
Published: May 8, 2008 3:23 PM
michael
Now we're in a three-way. :)
Owen: They are obviously still selling the rice, but only to those that can afford it. Michael was obviously referring to those that can't.
FT: That is not what he is saying. He is asking how can a "free market" supply food in a country that does not show restrictions (Haiti). The fact is that Michael is misrepresenting the situation in Haiti, and what he is really asking is how can a market supply food to people without paying for it - that is a totally different question, yet he is not being upfront about it.
me: Oh, but that's exactly what I'm saying. The rice is only there for those who have cash in their pockets-- because it comes from the global market, not the guy across the road (who might take a chicken in trade). I say nothing about any "restrictions" because if there are in fact any, they're not germane to the problem. It's all simple supply and demand, and a consequence of the way the global market has been manipulated.
Owen: Suppliers will start importing only the amount required to sell to those that can afford the rice and the rest will starve.
FT: That is absurd, Owen - you think that suppliers agree on market share? If I wanted to make a killing, I would bring even MORE rice in order to undercut my competition; automatically, that makes the rice even more affordable.
me: If a Haitian importer wants to make more money, while his vendors are telling him they still have unsold stocks on hand, he'd be pretty dumb to buy more rice. Maybe he should try another product line.
The price is what the price is because the producers of the rice can sell every bit of what they've produced at that price. The minute they have rice and no buyer at the standing price, the price goes down. This is elemental marketing.
And we're not there yet. Every kilo of commercial rice on earth is now being offered at the full current price. As soon as more becomes available, or demand slackens, the price will drop. Inexorably.
Published: May 8, 2008 3:26 PM
Francisco Torres
I accused the market as not providing something to people who are NOT consumers, so are ignored by the market.
Owen, who would be someone who does NOT consume? Only dead things would not consume something. Are you trying to label people with little income as Non-consumers? That would be incorrect.
People with nothing that is valued cannot trade. Can you not understand that?
Owen, do not make the mistake of thinking in absolutes. How can you know that there is a person with nothing of value? Value is subjective. What YOU might not value may be valuable to someone.
Such people do not benefit from a market economy - they die save for extra-market measures such as donations.
Owen, donations are NOT extra market - people give things to receive in exchange a good feeling.
You still live on the assumption that there are those who cannot offer something that is valued enough to provide for that person's basic necessities
I believe you meant to say something that was supposed to be contrary to the above statement.
People in (temporary or permanent) poor mental health are a prime example. What shall they do? Offer their body up for experiments?
I have no idea of what they should do - I am not them.
The free-market cannot feed everyone.Donations are required which are EXPLICITLY not part of the market.
Again, you make a very wrong assumption - donations (private) are PART of the market. You just think they're not. There is an abundance of information about the economics of donations in this website.
Published: May 8, 2008 3:27 PM
Owen
Inquisitor:
Sorry there wasa pronoun ambiguity. It should have read:
"..[property rights] were duly noted by those enforcing their version of rights [first]. If [property rights] weren't duly noted they wouldn't be enforced at all."
Numbskull.
Published: May 8, 2008 3:33 PM
Francisco Torres
Michael, from the first link, which is 8 years old:
But there is a gap between free-market theory and Haitian reality, as the rice conflict demonstrates. Development economists point out that the competition between Haitian and American rice growers was hardly fair, since U.S. rice production is subsidized through a wide variety of mechanisms. Furthermore, most of the American exports were handled by a single U.S. corporation--American Rice Inc.--which has enjoyed an almost monopolistic position in Haiti.
The fact that there is a monopoly of rice indicates two things - one, the government allows no other company to bring rice to the market, and second, that you did not read the article: the American rice was CHEAPER than the local rice, which means that more people should have been able to afford it. Saying that people had no money then, begs the question as to how could they buy the more expensive local rice in the beginning.
Published: May 8, 2008 3:33 PM
Inquisitor
Owen, the only numbskull here is you. You're reduced to re-defining terms just to make some point - whatever point you think it is you're making.
Published: May 8, 2008 3:41 PM
Owen
Francisco Torres:
Explain how someone who cannot produce something valued by another in exchange can assume except through benevolence or force - neither of which are market phenomena?
It is a pity that at the moment we have not yet seen that 'good feeling' abole to actually feed the people that need feeding. Market failure, no? Or intended consequence? Or collateral damage?
"I have no idea of what they should do - I am not them."
EXACTLY. You have not even though through your proposition and it is clear you only wish to represent those who are 'able' to participate in your free-market.
When will you get your brain around the fact that redistribution is aimed at saving those who CAN'T.
You were right that that I made an error. Here is the corrected statement:
"You still live on the assumption that people who cannot offer something that is valued enough to provide for their basic necessities don't exist."
Newsflash - there are heaps of them and they will remain free-market or no, mainly because of unfortunate circumstances, not their desire or abilties.
Donations may or may not be able to feed and clothe these people - we just don't know yet. However there is currently some pretty damning evidence in Africa and southeast Asia that says it is failing to do so.
Published: May 8, 2008 3:41 PM
Owen
Inquisitor:
Don't get upset because you can't understand English. Maybe you need to brush up a little on your nouns and verbs?
Published: May 8, 2008 3:48 PM
Inquisitor
No, it's more that your trollish attempts at re-definition are entirely worthless. Don't get upset because of that.
Published: May 8, 2008 3:52 PM
Ireland
The free-market cannot feed everyone.
That's correct Owen, and in fact it is much worse than that: free-market cannot feed anyone - not a single person. It also doesn't have hands, invisible or otherwise, nor other properties that belong only to living and acting humans.
The free-market is a term used to describe a societal setup of division of labor, where the decision of how to divide the scarce resources among the needed (how to match supply and demand, if you wish), is achieved via free decisions of the people, who interact in a myriad of voluntary exchanges among themselves. In real world there never is a perfect free market, but that's not the kicker.
The point some of us hope to highlight is this: austrian theory predicts, and real-world observations confirm, that in places where the free market is allowed to operate, it enables economic structure to align itself so that it maximises benefit for all individuals and for the society as whole. This maximisation the source of all the plenty of goods around us, including mine and yours car and stereo and internet connection. Please note, that all these luxuries are the topic of the day only after food safety and other primary means of living are reasonably well secured.
Now back to the poor people on Haiti, who were unfortunate enough to live in a place with too little of the free-market. By chance, the weather, rice prices and whatnot in the past were such that they allowed the people to survive. Now that things have changed, it's no longer the case, and because there's not enough free-market, the economy is unable to realign, and both people and society suffer.
It is correct that free-market can do close to nothing for the people suffering there now, in the time of crisis. Even if we "switched it on" overnight, which is impossible, the realignment may mean that some number of people would need to leave, or drastically change their lives etc.
On the other hand, if we want to speak of any long-term solutions, and to prevent such calamity from happening again, free markets, or better "the capitalist bundle" is the best answer we know.
Published: May 8, 2008 4:00 PM
Ireland
To repeat the point: it's the people who must act to feed themselves and those they care for.
The question about those who can't, like mentaly ill, is a good one, as there's a really huge group of people who can't sustain themselves and must be taken care of in every country, including western world. We call them children.
Almost everyone alive received the means of living for the most of their childhood from parents or other grownups, and I doubt that it was sold, or coerced from them somehow.
Answer is that those who "have nothing to offer on the market", if they are to survive, need to have someone who has, and who will use the profit to care also for them. That's life as it always was, is, and will be.
The pity is that today a lot of people who would have a perfect many good stuff to offer on the market, are denied this opportunity because of the lack of free-market and the rest of capitalistic bundle, and because of this they starve and die.
These are the really tragic loses and that blood is on the hands of government interventions.
Published: May 8, 2008 4:25 PM
fundamentalist
Michael: "The price is what the price is because the producers of the rice can sell every bit of what they've produced at that price."
Not in the current situation. Everyone learns supply and demand in econ 101. If demand increases while supply doesn't, prices rise. However, supply/demand isn't always the cause of price increases. Economists who fixate on supply/demand are like carpenters with no tools but a hammer: every problem looks like a nail.
Econ 201 teaches that an increase in the supply of money will cause prices to rise even though there has been no change in supply/demand. How do you know which applies, econ 101 or econ 201? Econ 101, supply/demand, applies when the prices of a few things rise due to obvious shortages, such as drought causing shortages of wheat. Econ 201 applies when the prices of everything across the board rise, just as we have seen with oil, metals, and most food.
Published: May 8, 2008 4:33 PM
Owen
No I just get upset at sexists that hate women.
Ireland:
Firstly, you seem to have gotten something horribly wrong and it negates your entire post. The Free market DOESN'T maximise benefit for all individuals and for the society as whole - because those who cannot participate in said society are discarded and left to die. Hoping that donations will feed them has not worked so far in Africa.
You seem to have gotten your wires crossed. There is no blood on the hands on the hands of the NZ government, or the Irish, or English, or German ones for that matter. The blood would be on the hands of a free-market that let these people die. The redistribution system ensures that in these countries those people don't die needlessly at the hands of corporate profit.
Published: May 8, 2008 4:39 PM
Owen
fundamentalist:
How thoroughly wrong can you be?
Michael: "The price is what the price is because the producers of the rice can sell every bit of what they've produced at that price."
"Not in the current situation."
Ha ha ha ha ha you are SO wrong! This is a central tenet of Austrian Economics!
Mises and Rothbard would be thoroughly disappointed at such a rudimentary lack of Austrian Economics!!
Published: May 8, 2008 4:45 PM
Ireland
Very well Owen, name us one country with at least so-so functioning free-market system, where the disabled ones are left to die.
That's the whole point: free-market system provides so much, that the society can afford to keep the unproductive around.
While on the other hand, in Africa and Latin America and Asia, where there's too little free market, even the productive people may get trapped in a dead-end situation.
As for the governments, indeed the whole EU and USA through their agricultural subsidies are responsible for a lot of third-world suffering. I thought even Krugmann acknowledged that much.
And back to the actual food price raises debate, here it's intervention in the form of creating more money, more USDs and EURs and other fiat money, that brought as first stock and housing bubles, and now the same money pour into prices of food and other commodities. Who else than governments are responsible for the monetary system?
Published: May 8, 2008 4:50 PM
michael
Francisco-- Your thesis is beginning to sound like an idee fixe. You say "Why earn money ONLY? If I were in that situation, I would offer my services (clean a house, paint a fence, collect trash) for food and a tip. It can be done. But what YOU want is for others to give things for free, as if that remedied the situation. If you could get things for free, why bother then to seek an income?"
Barter is how the poorest Haitians are getting through life already. No one is arguing that they shouldn't be doing just that. The history of the problem (as you will find in the pages I referred you to) is that Haiti was initially on a subsistence economy, trading essentials with one another through barter and a minimal reliance on coin.
But despotic and ignorant leaders indebted the country to the world economy, leading to a situation where, hat in hand, they appealed to the IMF for an extension in terms for onerous loans they were having trouble repaying. And the IMF handed down strict terms, which included their lowering all trade barriers to outside goods.
At this point heavily subsidised Miami rice flowed in, demolishing the local rice industry which was unable to compete. In fact the entire local economy crumbled, and people left the land to look for work in the cities. The only trouble was, there was very little employment to be had anywhere (if there were, labor rates would not be so low)... so the net effect was a sharp increase in poverty. Read this, from Michael Dobbs:
"From a grass-roots perspective in Haiti, the poorest country in the Western Hemisphere, it seems undeniable that millions of people have been left behind in the rush to globalization. That much is evident from the distended stomachs of children in villages like Pont-Sonde, the throngs of women seeking jobs at 30 cents an hour in sweatshops owned by U.S. clothing manufacturers and the daily street demonstrations through the slums of Port-au-Prince by laid-off government employees. According to the IMF's figures, roughly 50 percent of Haitian children younger than 5 suffer from malnutrition. Billions of dollars in international assistance have done little to improve conditions in the countryside, where two out of three Haitians live. Per capita income has dropped from around $600 in 1980 to $369 today."
http://www.hartford-hwp.com/archives/43a/217.html
This was written in 2000. And at thirty cents an hour, people could still afford rice at US prices. Now fast forward, with prices suddenly significantly higher and wages unchanged. US food can no longer be bought by most Haitians. And they can't trade their chickens for it because it's no longer local rice. It's Miami rice, with a Miami price tag.
Yes, the proper response will be to start growing their own food again. At current prices local growers can undercut Miami. But that will do no one any good this year. Maybe next year.
So when you say "The same reasons that make people poor would also hamper the market, so you cannot accuse the market (the network of mutually beneficial trades) of not providing something to consumers" I don't see where this comment applies.
Nor does this seem to be appropriate: "The author made the point that whatever hampers the market will generate these dislocations in supply - in the case of Haiti, the dislocations are an interventionist government that lives off people's income, trade restrictions and a disrespect for people's property rights." No one commenting on the actual scene in Haiti makes reference to trade restrictions-- in fact the proximate cause is a forcing down of the trade barriers that once protected Haiti. And property rights are just not a factor. Haiti has been a classic victim of neoliberal trade practises.
"Another big problem is the massive foreign aid that the country has received, which breeds sloth and corruption."
You should be aware that across the world, not just in Haiti, virtually all US-extended foreign aid has gone directly into the pockets of US contractors, and to the corrupt elites of the host countries. Hardly a centime has ever reached the hands of the Haitian people. So such aid as has been extended to Haiti has had no effect one way or another-- other than to put the country further into debt (the true reason we extend "aid").
However you can correct me if you find facts-- not theories-- that say I'm wrong.
Published: May 8, 2008 5:02 PM
Inquisitor
"No I just get upset at sexists that hate women."
As I said, from contradictions anything follows.
Published: May 8, 2008 5:08 PM
Owen
Ireland:
You are right about the amount of suffering caused by governments. Providing for minimal redistribution is not one of them.
There are no pure free-market examples where everyone was fed. Precisely my point, plus current trends in world donations make is speculative at best that all would be fed under free-markets.
Published: May 8, 2008 5:11 PM
Owen
Inquisitor:
So you hate women? I mean you said it. Do you need it read back to you?
Published: May 8, 2008 5:13 PM
Inquisitor
Yes, go right ahead - and I will go right ahead in pointing out that little contradiction you failed to deal with, but simply sidestepped, like the facile little troll you are.
Published: May 8, 2008 5:17 PM
Owen
Inquisitor:
Do you have any convictions for woman bashing? Have you punched any women today?
Published: May 8, 2008 5:31 PM
Ireland
Owen: there goes on some kind of misreading, as you're agreeing with things that differ from what was said.
That there are no pure free-market examples, follows from definition, just as in this real world exist no triangles or other abstract mathematical bodies. Current trends however, if observerd honestly enough, favor free-market based setups of society as compared to the state-interventionist models, which bring more suffering, as we see in the discussed case of Haiti.
Anyway, I'm glad we met on governments as source of many of the sufferings, and answered the question of "what about those who cannot offer anything to the market" - that there indeed must be some other person, who is able to act in a way that ensures also their survival.
Published: May 8, 2008 5:38 PM
michael
Francisco, I get the feeling I'm leading you to water but you're just not drinking.
You take me to task for offering a very insightful article on the history of the rice situation in Haiti-- because it was written in 2000. Why didn't you just read it?
FT: "The fact that there is a monopoly of rice indicates two things - one, the government allows no other company to bring rice to the market, and second, that you did not read the article: the American rice was CHEAPER than the local rice, which means that more people should have been able to afford it. Saying that people had no money then, begs the question as to how could they buy the more expensive local rice in the beginning."
Can you really not understand that there was no imposed monopoly? After all we've said, isn't it obvious that the cheap rice drove out the more expensive rice?
Try to look at this as a dynamic system. At first, the system is in equilibrium, with buyers and sellers in a local subsistence economy all at par with one another. In this halcyon age, I can trade my chickens for your rice, and the doctor will take my eggs for his services. This is before the age of globalization.
Then, in the next phase, the IMF imposes rules that have the effect of disrupting the subsistence economy. The market gets flooded with subsidised rice so the rice growers go under. That means they have to join the jobs economy, to earn money to live on. At this time, roughly thirty years ago, many sorts of people get forced from the land-- not by physical force but by economic necessity. Rural sorts flood the cities in search of work. They must rely on the continuing cheapness of rice. Because while earning thirty cents an hour, they can't afford to pay more.
Let's move up to 2008. Now the cost of rice has tripled. What would you suggest that they do?
Published: May 8, 2008 5:49 PM
Owen
Ireland:
No you are wrong.
Free markets are great at most things.......except feeding EVERYONE. That is where redistribution comes in.
Secondly, it was donations I was referring to that have not performed well of late at feeding EVERYONE.
Published: May 8, 2008 5:55 PM
Inquisitor
"Do you have any convictions for woman bashing? Have you punched any women today?"
What are you jabbering on about now? Honestly, I'm surprised Jeffrey hasn't banned you yet. You've trolled just about every topic you've touched upon.
Published: May 8, 2008 6:12 PM
michael
Michael: "The price is what the price is because the producers of the rice can sell every bit of what they've produced at that price."
Fundamentalist: "Not in the current situation. Everyone learns supply and demand in econ 101. If demand increases while supply doesn't, prices rise. However, supply/demand isn't always the cause of price increases. Economists who fixate on supply/demand are like carpenters with no tools but a hammer: every problem looks like a nail. Econ 201 teaches that an increase in the supply of money will cause prices to rise even though there has been no change in supply/demand. How do you know which applies, econ 101 or econ 201?"
It's not exactly some sudden increase in the amount of dollars. The amount of dollars in circulation has been increasing over our entire lifetime-- and actually much longer-- while food prices have only been going up these past twelve months. To be more precise, the proximate cause of the current price increases has been an increase in spendable incomes around the world-- as the global market includes more families among the relatively affluent.
There is also a more indirect link, where modern factory farming in the US relies heavily on petroleum-based inputs, like fertilizer, pesticide and highly mechanized operations. And that food no longer travels a handful of miles from farm to market, but halfway around the globe, so that our grapes come from Chile and our shrimp from Thailand, fresh every day.
So that as the cost of oil has gone up, so has the cost of much food. But primarily, it is the opinion of most of the people who actually track food prices (and there are a great many) that more people are earning good incomes now. And as a direct result they are using more food. They're eating more food overall than they used to when they were poor. And Instead of consuming grain directly they're eating meat, which consumes a tenfold amount of grain to produce the same caloric value.
And now comes biofuels, competing for yet another share of the world food market. Plus, of course, we've added 3/4 of a billion souls to the planet just since 1999. That all means a precipitous, and very quantifiable, increase in demand.
Grain supplies, on the other hand, have been relatively flat. I'm not just making this up. You should read the trade journals, and it will become very clear.
Theory is all well and good. But we should first look at the world, so we have something to which we can apply it.
Published: May 8, 2008 6:13 PM
Ireland
Owen:
yes, for sure am wrong at something. For a mere mortal human that's always a safe presumtion. And I'm grateful every time one of the mistakes in my worldview is found and corrected.
Quick check for the redistribution claim: without free-market driven and capitalism-enabled high production, what is it that will be redistributed, where it comes from, and most importantly, how it will be redistribued? Who'll get what, and how much?
Free markets are an instrument. As knife is good at cutting, free markets are good at distributing scarce things among those who request them. In case of food, free markets ensure more well-being for more people than any other known method.
The "feed everyone" claim has certain dishonesty in it, as if there were a right for everyone to be fed. Imagine if we happened to get stranded in some lonly place. Who should feed us there, except ourselves?
As I tried to explain already, the expectation that "free markets should feed everyone" is a false image. Free market cannot do anything, it's the acting people who can achieve things, nobody and nothing else can make our future better. Free market can best supply the means for the people, as it allows most efficient distribution of scarce things.
If the goal is to "feed everyone", the neccessary condition to be met is that for "everyone" there's "someone", who takes responsibility for feeding him (it can be himself). No evading in abstract terms, for each living person to be fed, one needs to have one real person who will accept responsibilty for meeting this goal. Yes it is very ambitious goal and a very huge task, but then it wasn't me who asked for it.
Published: May 8, 2008 6:31 PM
Ireland
michael:
yes the increase in money was gradual. The key Austrian point is that such money do affect different parts of economy to different extent. They enter at some point, and the effect then gradually affects other and other parts of the economy.
The new money first went to stock and houses. After bubles bursted, the bulk of the money stored for some time in these sectors is now flooding the rest of economy, i.e. commodities, including food.
Does this make some sense?
Published: May 8, 2008 6:40 PM
Owen
Inquisitor:
So that is a yes?
Published: May 8, 2008 6:41 PM
Owen
Ireland :
Once more the real world escapes your analysis. I don't see any of the Major western economies with nothing to redistribute. Kinda ruins your perfect little free market mind-prism does it? Redistribution existing at this very moment in some of the most prosperous countries on earth. No matter, small detail for you. Just keep on truckin with your eyes shut.
Everyone WITHIN a society should bne fed - that is the right. If you go outside of the society then you give up this right.
Exactly - if the free-market cannot feed everyone then it is a bad system.
One person per one person? No way, progressive taxation means that one person is able to feed hundreds. It is a great system.
Published: May 8, 2008 6:53 PM
Inquisitor
No, it isn't; it is, however, an affirmation that you're a petty troll that can't even prove what it wishes to claim.
Published: May 8, 2008 6:55 PM
Inquisitor
"Everyone WITHIN a society should bne fed - that is the right. If you go outside of the society then you give up this right."
According to...?
Published: May 8, 2008 7:01 PM
Francisco Torres
Owen,
Francisco Torres:
Explain how someone who cannot produce something valued by another in exchange can assume [sic] except through benevolence or force - neither of which are market phenomena?
I did not understand the paragraph, but I will try to interpret it as best as I can.
1) Ever more you go to the extreme to prove a point: now mentioning the grossly disabled as an example of people that cannot be helped through the free market. We can go on with this game until we get to the absurd point of saying that the dead cannot be helped by the free market, and thus need government intervention.
2) I do not know where do you get the idea that Benevolence is not part of a market - it is human action, driven by a desire or an unfulfilled need. You just assume it is not in order to prove to all that the market cannot be benevolent.
The market is just the network of people acting, Owen. It is people who make the transactions and people who exchange, deliver or buy the goods. And when people are benevolent, it is through their actions that goods can be delivered. You assume that the free market has to do only with purchases with money.
Donations may or may not be able to feed and clothe these people - we just don't know yet. However there is currently some pretty damning evidence in Africa and southeast Asia that says it is failing to do so.
So, what are we talking about now, Donation Failure, besides Market Failure?
Published: May 8, 2008 7:07 PM
Francisco Torres
You take me to task for offering a very insightful article on the history of the rice situation in Haiti-- because it was written in 2000. Why didn't you just read it?
I did, all of it. That is why I pointed to that paragraph, because the very author did not seem to see the obvious.
Can you really not understand that there was no imposed monopoly? After all we've said, isn't it obvious that the cheap rice drove out the more expensive rice?
Michael, the author is stating that a certain company has a monopoly on rice. A monopoly cannot happen by itself in a free market, because there will be always a competitor willing to grab market share, as long as the other company enjoys an undue protection from government. You did not seem to question why would there be only one rice importer in Haiti - why not two, or three? If the cheaper price displaced the more expensive price, then there was opportunity for even cheaper price to displace the previous imported rice, and so on.
Let's move up to 2008. Now the cost of rice has tripled. What would you suggest that they do?
Plant rice. And when it gets down again, plant beans.
Published: May 8, 2008 7:19 PM
Francisco Torres
Francisco-- Your thesis is beginning to sound like an idee fixe.
Michael, you have been arguing the following: that people in Haiti cannot get food, at all. What I am doing is exposing your argument as fallacious, for being absolutist. That's all. Whenever you ask "how can they get food", I give you examples, in order to show you that your thinking is narrow.
At this point heavily subsidi[z]ed Miami rice flowed in, demolishing the local rice industry which was unable to compete.
Which makes me bleed in my heart, but the fact is, people were able to buy less expensive rice. Unless you want to say that people in Haiti had no right to purchase this "heavily subsidized rice", then I do not understand your objection. So what if the rice economy crumbled? That leaves scores of resources open to other, more profitable things. What happened in Haiti is nothing different than what happened in other parts of the world, including the USA, when borders are open to cheaper goods.
Yes, the proper response will be to start growing their own food again. At current prices local growers can undercut Miami. But that will do no one any good this year. Maybe next year.
There are faster growing crops.
No one commenting on the actual scene in Haiti makes reference to trade restrictions-- in fact the proximate cause is a forcing down of the trade barriers that once protected Haiti
This does not make much sense, Michael. If the forcing down of trade barriers really created havoc with an economy, then the poorest place in the world should be Hong Kong. The issue with Haiti is not that the barriers were brought down, it was that they were brought down for some things and not others. Why do you think there is little industry in Haiti - considering the cheap labor pool there?
And property rights are just not a factor.
Really? Because last I saw, investors were not willing to put money in Haiti precisely because of poorly protected property rights.
You should be aware that across the world, not just in Haiti, virtually all US-extended foreign aid has gone directly into the pockets of US contractors, and to the corrupt elites of the host countries. Hardly a centime has ever reached the hands of the Haitian people.
Nobody as said anything differently. The problem with foreign aid is not that it does not arrive to the hands of the poor, it is that it SHIELDS the elites from the consequences of their economic interventions and decisions. A government that cannot raise revenue from its own people will do what it can to entice entrepreneurs and investors to invest in a country, and will suffer a loss of revenue if its economic decisions are detrimental to the economy. A government that is subsidized by "benevolent" governments does not need to entice the market nor does it suffer the consequences of its own stupid decisions. You can check yourself that the poorest countries in the world also are recipients of massive foreign aid.
Published: May 8, 2008 7:40 PM
Owen
Inquisitor:
Once again says nothing....where has her game gone?
"Everyone WITHIN a society should bne fed - that is the right. If you go outside of the society then you give up this right."
According to the opinions of the majority of the world...unfortunately for you.
Francisco:
We will stick with the temporarily physically or mentally disabled shall we? Or those who cannot find work enough to meet their basic needs.
And you still haven't answered how the free-market would feed them.
The free-market is not benevolent it is a benign system of interactions. If there is no value to be gained by 'interacting' with a poor soul then they starve - simple.
Donations are the exact way the free-market relies on to feed those who cannot obtain necessities on the free market. So of course I am asserting donation failure - or is no-one dying in Africa? How many times have rises in western peoples wealth dwarfed the cost of feeding them....yet they still want. So what basis is there to believe free-market donations could ever fully feed people?
Published: May 8, 2008 7:49 PM
Francisco Torres
And you still haven't answered how the free-market would feed [the disabled and those unable to work].
Relatives, friends, churches, voluntary organizations. Unless you want to believe these are not part of a free market.
If there is no value to be gained by 'interacting' with a poor soul then [the poor soul] starve[s] - simple.
But, if there IS value, then the poor soul doesn't starve - do you agree?
Donations are the exact way the free-market relies on to feed those who cannot obtain necessities on the free market
No, Owen - the free market is just a name for the network of mutually beneficial interactions between persons, and not a thing that supplies things in exchange of money. You are confusing the "free market" with a store.
So of course I am asserting donation failure - or is no-one dying in Africa?
I am certain many die for multitude of reasons that have to do little with the supposed 'market failure'.
How many times have rises in western peoples wealth dwarfed the cost of feeding them....yet they still want.
Unfulfilled wants is what drives an economy, Owen. Satisfaction is subjective, and most do not really care for your ascetic aspirations.
So what basis is there to believe free-market donations could ever fully feed people?
Because it is through free markets that food is produced in the first place, Owen - it is through the price system that producers know what to produce, and how much. Donations cannot come out of nothing - food must be grown first through market interactions and entrepreneurship, before there can be someone willing to donate it to the needy. Centrally-governed systems have failed again and again to feed people, as the current situation in North Korea illustrates.
Published: May 8, 2008 9:57 PM
fundamentalist
Michael: "So that as the cost of oil has gone up, so has the cost of much food. But primarily, it is the opinion of most of the people who actually track food prices (and there are a great many) that more people are earning good incomes now."
You're correct that that is the majority opinion among economists. Austrians disagree, but we're definitely a minority. But think for yourself for a minute and see if the majority opinion makes sense. If the money supply is fixed, how is it that the people in India and China have extra money to spend on food? If the money supply isn't growing, they can eat better only by giving up the purchases of other things.
Now it's true that they're selling a lot to the US, but most of the dollars we give them for their products end up back in the US as investments. So where would they get the extra money to buy more food than they used to buy? It can only come from states printing more (or expanding credit).
Austrian econ teaches that price changes brought on by shifts in consumer tastes that effect demand will not happen across the board, because when the money supply is fixed, consumers can consume more of one thing, such as food, only by giving up an equal amount of something else, such as gasoline. The only way possible for a general increase in prices to happen is for the money supply to grow rapidly. And that's exactly what we have seen from central banks around the world since 2001. Monetary pumping by central banks cause prices to rise across the board even if supply/demand is balanced, though not all at the same time. The new money first caused oil prices to rise, then metals, and now food.
If siding with the majority is all that is important to you, then nothing I say will convince you that the majority is wrong on the cause of the food crisis. But if you're willing to question the majority opinion and consider the minority, Austrian econ position, you just might find the truth.
Published: May 8, 2008 10:04 PM
Owen
Francisco Torres:
Some poor people dont have relatives or friends.
Churches and voluntary organizations have failed to feed africa despite phenominal increasesin wealth in the West. Therefore there is no reason to believe they will ever feed all the poor.
Minimal redistribution has every single thing the free market has except a very low tax which is redistributed to the poor. Western economic progress proves that this would definately allow a high growth economy.
So you are denying that there are people who die in Africa because they are poor - spot the conspiracy theorist!
"But, if there IS value, then the poor soul doesn't starve - do you agree?"
But if ther is no "value" in echange with a poor person you [franscisco Torres] have just commited murder by advocating a system which knowingly causes the death of another.
"Unfulfilled wants is what drives an economy, Owen. Satisfaction is subjective, and most do not really care for your ascetic [charitable] aspirations."
So you obviously accept then that Charity DOES NOT WORK 100% to feed the poor. YOU JUST SAID IT!!!!
Published: May 9, 2008 1:32 AM
newson
michael says:
"And property rights are just not a factor.
this is absurd. i can only think you don't count personal safety as a property right. free markets can only exist without coercion, ie without violence or intimidation. tourists flock to those countries in the caribean where life and property is not at risk. the bahamas, martinique, the antilles etc. - no-one takes a break in haiti.
fix the security danger to both person and belongings, and the seeds for recovery are sown. you seem to be latching onto the symptoms of the malaise, without considering the cause. it's not the price of rice which is the real problem of haiti, it's the underlying poverty which makes even marginal food price variations a potentially lethal development.
Published: May 9, 2008 1:57 AM
newson
owen says:
"Minimal redistribution has every single thing the free market has except a very low tax which is redistributed to the poor. Western economic progress proves that this would definately allow a high growth economy.
or alternatively, redistribution always fails. in the western world, economic growth, spawned from secure property rights, has overcome even the failures imposed on it by redistribution.
hong kong is the world's 11th largest trading entity, there is no comprehensive welfare system, and both personal and company taxes are low. do you see the poor run down by the many rolls royces? of course not, they either work or are looked after by social networks or family. how do you explain this enigma, using your redistributive model?
Published: May 9, 2008 2:11 AM
Owen
Sorry Newson, you forgot to look at the other half of that country.
"The number of people living in extreme poverty [in Hong Kong] has doubled since the 1997 handover of the former British colony to Chinese rule"
So you are WRONG. Better luck next time mate.
Minimal redistribution produces a minor drag on an otherwise free-market economy but the drag is about 10% of that imposed today so if western growth rates are anything to go by things will be great!
Published: May 9, 2008 2:28 AM
Ireland
Owen:
I don't see any of the Major western economies with nothing to redistribute. [personal attacks removed] Redistribution existing at this very moment in some of the most prosperous countries on earth.
The question was to find a country without a so-so free-market. All the Major western economies do have an albeit heavily intervened, yet a relatively free market economy. That's the only reason why they can afford to coercively take part of the produce and redistribute it. No free market = too little left for meaningful redistribution.
Also the thing about someone responsible for feeding anyone was clearly misread. There was no 1:1 proposition, and instead the 1:100 figure is fully ok with me, even 1:1000 or more, provided there are people willing to commit to it.
That was the point Owen, that if we're about to feed everyone, then for everyone to be fed, we have to have a designated person that will be responsible for supplying food to each person, as the food can come only by human action, done by either the hungry person himself, or some other human being.
Heck, even utilizing the all abundant air requires human action sort of, that is keeping on breathing. Those who disagree may well try to stop their breath for half an hour and judge the results.
(Is this example extreme? Yes it is. It is so on purpose, as some people here seem to love extremes.)
Dear all,
it was my pleasure to discuss here a bit, thank you. Have to go now and get some other human acting done, to be able to feed those hungry mouths that me personally is responsible for.
Published: May 9, 2008 3:02 AM
RdC
@Fundamentalist
Funny that you mention "World Vision" because some time ago (IIRC it was in the early 90's there was a big scandal revealing that most of World Vision's money went to the European Aristocracy (turned out that the Hapsburgs were the people in the most pressing need for World Vision money). The scandal was so big (at least here in Europe) that I thought that the World Vision brand name would be dead forever and the do-gooders would have to find some other brand name. I was really surprised to see advertisements in 2007 for World Vision, but it seems that the public has a far, far too short attention-span to remember a scandal over 10 years ago. I still quite don't get it, wouldn't it be easier to build up a new brand instead of "World Vision"? I mean at least *some* people will remember, right? But maybe there is some logic involved that I don't quite understand.
Having said that, I would still give my money rather to World Vision than to some "honest" charity, because I'd rather pour money into the Aristocracy-rathole than make the situation worse by inflating the population even more in these overpopulated countries. (Any serious and effective help would be in the form of contraceptives, not food)
So, yeah, if it gives you a warm and fuzzy feeling, just give your money to World Vision, after all, warm and fuzzy feelings is their product.
Published: May 9, 2008 3:04 AM
newson
owen says:
""The number of people living in extreme poverty [in Hong Kong] has doubled since the 1997 handover of the former British colony to Chinese rule"
define your criteria, and give the numbers - (10 to 20 is 100%). try a bit harder, son.
Published: May 9, 2008 3:10 AM
Owen
Newson:
Define YOUR criteria, and give YOUR numbers first for all of your claims.
Ireland:
Minimal redistribution is closer to the free market than the western economies curently are. So you are wrong.
"if we're about to feed everyone, then for everyone to be fed, we have to have a designated person that will be responsible for supplying food to each person, as the food can come only by human action, done by either the hungry person himself, or some other human being."
What have you been smoking? No, the governments of the west do a pretty good job at distributing the money the do at the moment - it would be done in the same way.
Published: May 9, 2008 3:23 AM
Ireland
newson:
let's also notice how the topic shifted away from dying. In Hong Kong, where people survive, it's now also powerty to be fought against.
Wonder what we get to if we start discussing with Owen the US of A themselves: universal, coercively redistributed Social Security perhaps, or even Healthcare maybe? Oh, wait ... :-)
Mises was right, once there's interventionist by faith, he never has enough of that medicine. Unless he's fed it down his own throat.
Published: May 9, 2008 3:25 AM
Owen
Ireland:
"Introduction to Hong Kong Social Security
The financially vulnerable would suffer extreme hardship without government's social security support. There are elderly who have been unable to make provision for their retirement years. Others may need short-term help such as a single parent with young children to look after or the temporarily unemployed."
Seems like you are wrong once again, because Hong Kong DOES redistribute which is what saves peoples lives.
See hoe you are WRONG? and very very WRONG? How does that feel?
Published: May 9, 2008 3:34 AM
Ireland
Owen: [personal attacks duly noted and removed]
Minimal redistribution is closer to the free market than the western economies curently are.
Pardon me, are you trying to say we don't have free-market in the west? Yes, right, but it's still the small remaining pieces of it (not so small if you look closely, but ok), that are still able to deliver despite the in-place redistribution. And, those 30-50-70% of the brut wage that the west redistributes is nowhere near what I can accept as "minimal".
the governments of the west do a pretty good job at distributing the money the do at the moment - it would be done in the same way.
I've yet to see a "government" doing anything, just as "free-market" can't feed anyone, so "government" cannot do that. In the end it's always only people doing things, remember? Yes, some of them do stuff "in the name of government", for example all those social workers that are designated to take care for the needed in the western countries.
But here I must have strong objections to describe their actions as "pretty good job", in fact what they're good at is keeping the poor masses in their poverty. Those few examples of successful help to the needed is, surprise, based around non-governmental, free-market driven relief-to-the-poor organizations. And very few governments are sensitive enough to notice this fact.
Published: May 9, 2008 3:40 AM
Ireland
Owen: [irrelevant emotional stuff noted and dismissed]
Hong Kong DOES redistribute which is what saves peoples lives
There'd be some hard time proving this claim. In fact there is research showing, that such government intervention is at best less effective than private efforts if the former didn't exist. At worst it can even harm those elderly, mothers and unemployed, whose it was meant to help.
And please add to the list those lazy enough to work, and look for work, who would get a free ride along such helping. That's net loss for the whole economy.
Published: May 9, 2008 3:51 AM
Owen
Irealand:
You are gonna luv this one:
PhD - HONG, Zhou
"The origins of Social Protection policy in Hong Kong 1842 - 1941"
"...the colonial government reluctantly becaome involved in the provision of social services during the latter half of the nineteenth century due to the prevalence of disease and poverty-related crime"
Bam. How does that feel? Not the 'free-market' state you imagined eh?
Minimal redistribution would require taxes as low as 10% which is lower than any other western nation WHILST also running completely free-market economi policies.
So you lose again Ireland - it would promote more growth than existing western economies.
The second half of your post sounds like you are talking to yourself. It is ok...relax...it is not that bad. You are only going down in flames that is all. Regarding who exactly carries out redistribution, you are hung up on semantics - it would be done pretty much the same as it is done now.
Giving someone a bed to sleep on when they would otherwise freeze to death or food to eat when they would otherwise starve is not rocket science and does not require any private charities to do. Redistribution would be done in pure cash anyway so has no problems.
Published: May 9, 2008 4:01 AM
Owen
Ireland:
I have yet to meet a starving person near death that would be hurt by giving them food; a freezing person that would be hurt by giving them warmth.
You are warped and obviously just another person who wants to rub these people out.
Published: May 9, 2008 4:07 AM
newson
to owen:
the hong kong authorities don't even compile gdp figures, let alone "poverty" statistics.
my guess is that you've pinched these numbers from some ong, which, surprisingly, is pushing the same redistribution barrow as you.
"“Make the lie big, make it simple, keep saying it, and eventually they will believe it”
who said this? joseph goebbels, and it was one of the few true things he ever said.
Published: May 9, 2008 4:13 AM
Owen
Newson:
Your guess would be wrong. It was a PhD dissertation.
Can't you handle being wrong? Are you gonna cry?
Published: May 9, 2008 4:33 AM
Ireland
Dear Owen,
I'm moved by the passion for how my feelings are, why, they're fine, thank you so much for asking.
It's also sad to see person obviously intelligent enough to be able to use the Internet, to fail so miserably to paritcipate in an intelligent and civil debate. Instead he allows us a look into the inner dreamworld, in which all the reason we offer is going down in flames without being even considered. Well, whatever one pleases, but then why bother reading and posting on this blog?
It would be nice to believe it's just LvMI that, after having solved the AI issue, had setup a few scripts running in the background and provide all these comments, for the Austrians to hone their debate skills. I'm afraid the reality is much more cruel, the comments come from real people, and given the chance, as they are, they would force the proposed solutions on all of us, making the poor poorer.
Well, anyway: with the mention of Goebbels the debate should be nearing to an end. That's one more fact of the world that not all participants will be able to comprehend.
Published: May 9, 2008 6:21 AM
fundamentalist
Owen: "The origins of Social Protection policy in Hong Kong 1842 - 1941"
It won't make any difference to Owen, but Hong Kong didn't have a free market until the British governor who took over after WWII implemented it. Before, Hong Kong was as socialist as Britain. I can't remember his name, but that British governor refused to let the state collect data on the economy of Hong Kong for fear that socialists would use it to fight for less freedom and more socialism. Anyone know his name?
Published: May 9, 2008 6:50 AM
Rod Campbell-Ross
"First, the underlying cause of any shortage is the lack of a free market, since genuine shortages cannot appear in a free market."
What a load of garbage! Why is it that the idea of limits is intolerable?
The underlying cause of shortage is due to a million things, among them lack of free markets. However more important here is the loss of arable land, droughts, climate change, idiotic US ethanol subsidies, increased costs of fertlizers (as a result of Peak Oil induced high petroleum prices). It is also a fact that shortages and high prices mean poor people cannot afford the food. They simply do not have the money.
There are genuine shortages; and the free market or lack thereof has nothing to do with it.
Ecologically the human species is in overshoot. The population exceeds its long term carrying capacity by a considerable margin. Overshoot is a well established ecological principle and humans as a species are not exempt from it.
Published: May 9, 2008 8:20 AM
fundmentalist
Rod Campbell-Ross: "There are genuine shortages"
I don't think you'll find any evidence for that in the actual data, except for wheat in which a few producers have experienced drought. The constant scurge of farmers is low prices. The evidence shows that the supply/demand for food is pretty much in balance today even as prices rise. The problem is the excess money from state credit expansion sloshing around the world and raising prices. But as Austrians have always pointed out, state money creation hurts the poor. In fact, it redistributes wealth from the poor to the wealthy.
Published: May 9, 2008 9:18 AM
newson
to fundamentalist:
sir john cowperthwaite, financial secretary to the colony from 1961 for a decade. as i said to owen on another blog, his recommendation to poor countries was to abolish the office of national statistics, depriving meddling bureaucrats of information, and thereby limiting their intervention. hk still doesn't compile gdp figures.
to ireland:
yeah, it probably was over-egging.
Published: May 9, 2008 11:28 AM
newson
to owen:
which phd? and by whom? i'd be interested to read it. be a dare and name names!
Published: May 9, 2008 11:31 AM
newson
rod campbell-ross says:
"Overshoot is a well established ecological principle and humans as a species are not exempt from it."
when was the last time you saw a beaver drive a fork-lift? the comparison is meaningless, and malthusian to boot.
Published: May 9, 2008 11:36 AM
newson
to owen:
it can't be hong zhou, because he covers 1842-1941, and your claim was - "The number of people living in extreme poverty [in Hong Kong] has doubled since the 1997 handover of the former British colony to Chinese rule"
you've made a quantitative claim, quoting the source shouldn't cause you any embarrassment.
Published: May 9, 2008 11:57 AM
fundamentalist
newson: "sir john cowperthwaite"
Thanks! I remember now. He was a very interesting person.
Published: May 9, 2008 12:06 PM
Ireland
One final observation, left in benefit of anyone brave [or crazy :-) ] enough to read it up till here.
At first, it's unbelievable how some person who declares to have the same goal, to help the poor and end their suffering, can get so much hostile. You know, personally I'd take it he really believes he's fighting a noble crusade. Then the hint comes:
You are warped and obviously just another person who wants to rub these people out.
So in the debate we have two sides, one which acknowledges the common goal of the debate, and while ready to point out an error, is also happy to subscribe to opponent's views if they turn out to have merit.
And then the other, which already knows his definite answer, and part of that answer is that it is the opponent, and his views, who are the very source of the evil to be eradicated.
Usually it's also acompanied by slight change of the original goal, which gets shifted away from helping the poor (that is a bit uncertain target, how does one do that with only a mouse and keyboard?). Instead, we're now fighting the very well identified enemy, the evil free-marketers, and all this in a fight of ideas, to which computer is suited much better.
That pretty much seems to be the story.
Published: May 9, 2008 2:21 PM
Inquisitor
Indeed - particularly amusing since this Manicheanism pertains to one who thinks morality is a matter of opinion.
Published: May 9, 2008 2:31 PM
michael
Francisco-- You seem to be drawing nothing from the background information I provided you with. Yes, I get that for you in EVERY instance a penetration of local markets by the largest players of the global market is good-- and that it works best in a complete absence of rules (or, as folks around here like to call the rules, "force"). And I get that for you, this absence of rules equates to "freedom"... a word carrying an apparently great resonance.
But the reality is that Haiti was once doing just fine with its own subsistence economy. Most people were what you and I might call poor, but the web of commerce was intact, and everyone had a place in the great scheme of things except the village layabout. What we would call unemployment, in this context, would make no sense to a Haitian. Everyone who was able to, worked.
Today that's all changed. Unemployment is endemic and nearly universal. Poverty and want are extreme beyond anything imaginable before the global economy gained its foothold. As the followers of Mr Friedman might put it, people came to experience the freedom to fail.
The foot in the door was the entry of subsidised (sorry you don't care for the spelling) American rice. When it was allowed in it wrecked the local economy, catering to an almost exclusive diet of locally grown rice. Rice growers were thrown off the land, with no way to continue earning a living, and came to the cities, crowding the slums as they looked in vain for work.
So that up in the ivory tower, free trade shines like a beacon upon the waters. But down in the streets, it makes most men poor and a few quite rich. Haiti would be best served at this time by erecting walls and throwing the foreigners out. That way they could get their own house in order, and revive the domestic economy without the interference of corporate influence. (Which, when you think of it, is exactly how the USA got started.)
But naturally, this will never happen. Every time they try, the US Marines land and secure the streets until an order more favorable to the Americans is restored.
This is all quite accessible on the web. I would suggest you start with the US State Department's page on the invasion and occupation of Haiti. Since 1915, their governments have always been the ones we have permitted them.
Moving on, you say "If the forcing down of trade barriers really created havoc with an economy, then the poorest place in the world should be Hong Kong."
Hong Kong is an entirely different place. It was created to be a mercantile center-- a hub of world trade. Rather than being a lawless place of total economic freedom, it has always upheld a very precise set of rules that allow the money to continue flowing in its direction.
You do offer up one very insightful sentence: "You can check for yourself that the poorest countries in the world also are recipients of massive aid."
True words. Actually it's the other way around. The countries that have become the recipients of massive loans have all ended up poor (Israel being the sole exception). The reason is that virtually all the sums lent never leave the United States. They go to pay politically connected US contractors-- big outfits like Raytheon, Bechtel, Monsanto, Dyneco, KBR-Halliburton, GE and the like, for giant make-work projects the host countries rarely benefit from. If local people are hired at all it's for the shovel labor, for which they are paid peanuts. The giant projects almost invariably either prove useless, or require perpetual infusions of more money to endure.
Why do the host countries allow this? Because they are very nearly all dictatorships where the public has no say in governance. The richest families in the capitol live in luxury on our allowance, sock millions away in Swiss bank accounts and have no contact with the impoverished peasants they despise. The whole system is kept in place by American military aid-- which is used to keep the population subjugated.
Then when the despots die or are deposed by revolution, the host country ends up with the accumulated bill. Most are so emaciated economically they find the bill exceedingly hard to pay off. And so they submit to a stern IMF discipline-- structural adjustment programs-- that guarantees they will always remain poor.
In fact I would urge that you look closely, to see which way the money flows in this century. I think you will find the funds now overwhelmingly coming from those poorest nations, like blood from a turnip, and toward their loan officers in Washington, New York and London. How odd, then, that they should remain so poor!
Foreign aid is a debilitating drug best refused by any nation aspiring to economic health. But for most, the advice comes far too late.
Ask yourself whether the United States swallows the bitter medicine when we spend more than we earn. No... we are the exceptional nation. The others must pay and pay... while we can always draw on our infinite line of credit.
Published: May 9, 2008 3:48 PM
Eric
We have reached the usual argument about which is better, capitalism or socialism. The following are my two observations about these 2 systems of wealth distribution.
--------------------------
Capitalist mindset: I will trade with anyone who wants to trade with me without interference. If some people starve, well, that's a shame, and any who wish to provide charity are free to do so. Is this perfect? Of course not. Is it optimal? That depends on how you add up benefits vs. costs.
As Rothbard has written, only individuals can say if and how much they are better off given one set of economic circumstances over another. There is no universal satisfaction unit we can use to add up total benefit.
However, only in a free trade transaction can we be certain that both sides to the transaction have acted because they believe they will benefit more from the trade.
-------------------------
Socialist mindset: All humans are equal and if one suffers, we must make all suffer equally. It is better to have everyone suffer than to have everyone but one be happy.
In a socialist system, all trade transactions are decided by force. This means that one or both parties to the trade are not happy with the trade, i.e. they didn't prefer the trade, rather, it was forced on them.
---------------------------
So, while we can't total the amount of satisfaction in people in either capitalist or socialist systems, we know that if some people are trading voluntarily in one system, but not in the other, we can show through logic that people who trade because they want to (i.e. it makes them happy) are going to be happier than people who are not permitted to make trades they would be happy to make.
And how happy people are is the only true measure of how well an economic system delivers satisfaction.
There are many real world examples of this. One simply needs to look at which system has to lock its people in, vs. the ones that permit people to come and go as they please.
Published: May 9, 2008 4:07 PM
michael
fundamentalist-- It looks like we're getting good traction in this conversation. You ask "If the money supply is fixed, how is it that the people in India and China have extra money to spend on food? If the money supply isn't growing, they can eat better only by giving up the purchases of other things."
Duh. The money supply has NEVER been fixed. Suppose the funds available in the time of King Croesus amounted to ten thousand talents? Do you think we could still make do with that 10,000 today?
Through the miracle of commerce the money supply expands as needed-- and contracts during recessions. If I want to start up a widget factory I have to borrow some cash to start building my plant and paying my subs and employees. Then I have to sell a bunch of the widgets to pay the loans back, with interest. And it seems to be a profitable prusuit, for most.
How can that be? How can everyone make a profit-- by definition an expansion of one's personal money supply-- at the expense of everyone else?
It's a shell game. But one thing it has done has been to increase employment worldwide. And the benefit of any system that stimulates employment is that it creates a wider array of cash consumers.
All these new consumers-- previously subsistence peasants with no money-- are bidding up the price of food. And even though half the world is still outside the consumer economy, there is a greater and greater requirement to provide food for them to buy. Such a condition bids the price up.
You see the same thing in the stock market. When everybody's making lots of money they like to sock their excess spendable away in the markets. All that expanded money supply bids up stock price, and you get a bubble of overrated stocks whose rise in price is not reflective of their performance.
When people discover that simple fact, the bubble pops. Back in 2001-02 the market lost between seven and eight trillion dollars in value. It was a correction.
The market in food won't be corrected though (or for that matter, in oil and gas). Why not? Because we can make up more stocks just by imagining them-- where we can only grow but so much food.
But I digress. In America everything is going up, but with a little belt tightening we can still afford to live. And in India, wages are going up-- not to mention the number of employed people. So they can all buy more of everything than they used to (a fact that further stimulates our global consumer economy and requires the invention of yet more money to reflect the greater amount of value). But in much of the world, that's not the case. The food will go only to those with cash, and those without will not constitute a market.
Published: May 9, 2008 4:23 PM
Ireland
michael:
Foreign aid is a debilitating drug best refused by any nation aspiring to economic health.
Exactly. Also, that same thing was the meaning of the last paragraph of original Francisco's post. It seems we could perhaps agree on this. Which is good, really. Ok?
Published: May 9, 2008 4:30 PM
Eric
Michael:
You've not applied supply and demand to money in your analysis. Money is no different than any other commodity in this sense. Demand for money makes the price of money go up too. When people dump money for "real" stuff, the price of money drops (meaning prices of everything else rises).
The supply of money does go up and down in the short term (but up in the long term), and primarily though creation by central banks, and then by member banks. Most is created by counterfeiters, legal or otherwise.
If money creation were not harmful, then why is there extreme punishment for counterfeiting, one of the few crimes actually mentioned in the constitution. There's an entire federal agency (the SS) to hunt down counterfeiters. Legal counterfeiting is no different economically than you or I printing them out on our computers (ignoring quality of print). So, do you mind if I print up a few billion?
You are ignoring the fact that new money created by the banks is NOT distributed by angels or helicopters, and therefore it does go to some people first. And others never get any at all.
And like most government programs, legalized counterfeiting will benefit the rich at the expense of the poor. The difference is the poor seemed to be fooled by the shell game while the rich understand it and get richer. Especially the banks. And just in case the bankers get fooled, their ace up their sleeve is the FED who will simply bail them out, like they are doing today.
And the real problems with all this counterfeit money pouring out of the banks is the mistakes it causes. These usually surface in the form of bubbles that later burst. When the bubbles burst, lots of people are hurt and lots of wealth is found to have been wasted.
Published: May 9, 2008 5:05 PM
fundamentalist
Michael: "Through the miracle of commerce the money supply expands as needed-- and contracts during recessions."
The money supply doesn't go up and down on its own. Banks cause the supply of money to change. That's a principle all schools of economics agree on, even Keynsesian. The money supply grows because central banks decide it should grow. They increase the money supply by lowering interest rates and encouraging borrowing. When they cause it to grow faster than output, prices rise across the board, as we have seen lately. For the past seven years, central banks around the world have flooded the world's economy with money. If the central banks of India and China weren't creating huge amounts of new money, that is, if the money supply was stable, you wouldn't see prices rise across the board. Some prices would rise with increased demand, but the Chinese and Indian consumers would have to cut back on purchases of other things and the prices of those things would fall.
Published: May 9, 2008 5:16 PM
michael
Me again, Francisco. Let's examine this reasonable sounding argument:
"...the author is stating that a certain company has a monopoly on rice. A monopoly cannot happen by itself in a free market, because there will be always a competitor willing to grab market share, as long as the other company enjoys an undue protection from government. You did not seem to question why would there be only one rice importer in Haiti - why not two, or three? If the cheaper price displaced the more expensive price, then there was opportunity for even cheaper price to displace the previous imported rice, and so on."
You assume that there is a surplus of rice out there, waiting to find a buyer. In such an instance, other distributors would no doubt try to muscle in on the people who now sell all the American rice to Haiti. But they would certainly have expenses in opening a new market. And the Haitian market has already been effectively cornered. Who would bother, unless their warehouses were full of cheap rice to sell?
I see no need to posit the hand of an intervening government. And in any case, I'm not the sort to assume something like that is so and then leap to the belief that it must be so. I'd like to see some documentation.
The facts we can see from here support the idea that all rice emanating from America is expensive now, and that a new company breaking into the Haiti market could probably not undecut the existing supplier. Also I believe I did see a comment in the thread above, to the effect that rice subsidies are being lifted now. THAT would be an obvious connection to make, that the growers themselves require a higher price to make any profit. Right?
Next, I'm having a problem with the way you present this:
"Michael, you have been arguing the following: that people in Haiti cannot get food, at all. What I am doing is exposing your argument as fallacious, for being absolutist."
Well, if you can prove the existence of a single banana there, the argument that "there is no food" would be a bit inaccurate. But that hasn't been my argument. There does exist food in the Haitian markets. And there are even people with money to buy it. But there has recently been a sharp increase in people so poor they can no longer afford to eat anything at the new prices. I'm sure you've seen the television segments about people eating mudpies, just to have something in their stomachs.
I would be pleased if you could argue from things I've actually said, rather than from fictions you can readily ridicule and disprove.
Published: May 9, 2008 5:24 PM
michael
Newsom-- The idea that Haiti could become another Hong Kong-- if they could only shape up a bit-- seems to resonate with you. Why don't we compare the two places?
Hong Kong is a rock off the shore of a vast continent. It was created to be an entrepot, shipping the goods of China around the Pacific Rim and throughout the British Empire. With markets like that, the place was literally built on money.
It's actually cognate with Manhattan-- another rock at the rim of a mighty continent, built by money, with money and for money.
Haiti, on the other hand, is vital to nothing. It's a lump of red clay with no natural wealth and far too many people. What huge continental markets do you suggest that Haiti-- given the infusion of a few billions in investment capital-- might conquer?
Haiti could have the best governance on earth. It still would attract no investments. Nearby Trinidad & Tobago does in fact have enlightened governance, and a tractable, hard working population. The only investment capital T&T ever attracts is quite limited in nature.
Published: May 9, 2008 5:37 PM
michael
fundamentalist, you say-- in response to the notion that there might be such a thing as genuine shortages-- "I don't think you'll find any evidence for that in the actual data, except for wheat in which a few producers have experienced drought. The constant scurge of farmers is low prices. The evidence shows that the supply/demand for food is pretty much in balance today even as prices rise."
Which is totally uninformed.
You know, if you restrict your education to these marginal economics sites it's going to be very hard to ever become well informed. Here's an article from one year ago, when this whole thing was just a coming storm on the horizon:
WORLD GRAIN STOCKS FALL TO 57 DAYS OF CONSUMPTION
This year’s world grain harvest is projected to fall short of consumption by 61 million tons, marking the sixth time in the last seven years that production has failed to satisfy demand. As a result of these shortfalls, world carryover stocks at the end of this crop year are projected to drop to 57 days of consumption, the shortest buffer since the 56-day-low in 1972 that triggered a doubling of grain prices.
World carryover stocks of grain, the amount in the bin when the next harvest begins, are the most basic measure of food security. Whenever stocks drop below 60 days of consumption, prices begin to rise. It thus came as no surprise when the U.S. Department of Agriculture (USDA) projected in its June 9 world crop report that this year’s wheat prices will be up by 14 percent and corn prices up by 22 percent over last year’s.
etc.
http://www.earth-policy.org/Indicators/Grain/2006.htm
You can google up a lot of info like this, just by entering terms like "total world grain production". That might be a more productive endeavor than exclusively reading sites that try to tell you such a condition is theoretically impossible.
Published: May 9, 2008 6:00 PM
michael
Eric-- This is a very interesting area you've picked out:
"You've not applied supply and demand to money in your analysis. Money is no different than any other commodity in this sense. Demand for money makes the price of money go up too. When people dump money for "real" stuff, the price of money drops (meaning prices of everything else rises)."
Certainly correct. I just don't think that's what's happening at the moment with food and energy prices. Nobody's fleeing the dollar that I can see. Even though our big creditors, like China, probably should start thinking more seriously about it.
The problem is the finite nature of our reserves. Food and energy are our fuel, and should both be renewable resources. Abundant market analysis tells us they aren't, and that we can measure the supply pinch we're in at any given moment by the spot price for these commodities.
But money's an interesting substance in its own right. We do invent more of it as the need arises. And it's in our nature to become heady at the prospect. The last time we had an episode of "irrational exuberance", and parked all our excess new money in the speculative markets, they blew up in our faces. That was 2001-02, and seven or eight trillion dollars in value just disappeared in a puff of smoke.
Parenthetically-- as I note an essay on Keynesian thinking has just appeared today-- I wonder what would have happened if all this new money had not been funneled to the pockets of the upper incomes, who did not need to buy anything with it and so just placed bets in gambling casinos with it-- like the telecoms and vaporware startups. Like Enron, with its jazzy smoke and mirrors.
The recession that resulted was characterised by low job creation and job loss incurred by low consumption. Imagine if all seven or eight trillion had been onerously taxed by an evil, socialistic government!
And all that stolen money had just been given away-- with no strings-- to the poorest bunch of deadbeats to be found among the American public. Quelle scandale! as the French say.
What would have happened was that every penny of it would have been spent on goods! Refrigerators, beer, cars, you name it. US corporations would have earned more money than they had ever before done in history. It would have been a new age of prosperity, and the taxes on all this income (even at low corporate rates) would have paid the Debt down to a fare thee well. It would have been a win-win-win.
Instead, all that money did was to bid up stock price-- to the point where prices were unrealistic and all the air went out of it. We were left with zip.
And a sky-busting federal deficit. And a legion of ex-consumers trying to sell the cars and bikes parked on their front lawns. Detroit almost didn't survive, and had to go down to zero percent financing to give their cars away.
So which way is better? Next time, maybe we should consider trying Keynes again, and priming the pump. It worked like a charm the last time we did it, back in the 1940s.
The third option, of course, is the worst one. If you don't expand the money supply fast enough you get deflation. And I think everyone is in agreement here-- that can be some mighty bad stuff.
Published: May 9, 2008 6:45 PM
Rod Campbell-Ross
"A beaver driving a forklift"? - Is that meant to imply that humans somehow have the collective smarts to avoid the impact of overshoot?
History is replete with the idiocy of man. We are walking right into the effects of overshoot arguing much but achieving nothing.
Published: May 9, 2008 10:18 PM
fundamentalist
Michael: "It thus came as no surprise when the U.S. Department of Agriculture (USDA) projected in its June 9 world crop report that this year’s wheat prices will be up by 14 percent and corn prices up by 22 percent over last year’s."
I just heard the chief economist for the Dept of Ag testify on C-Span before Congress on the panel investigating food prices that there were no shortages of any food except wheat. As for price increases, the majority of economists ignore the effects of the growth in the money supply and then must exaggerate the effects of small changes in supply. It's no surprise that stocks fall in the summer before harvests.
As I wrote before, you can choose to follow the herd if that makes you more comfortable, but you will be as confused as they are about what's going on around you. We heard the same nonsense about foot shortages in the 1970's, and I mean it literally, we heard exactly the same things you and others are saying. Then for some reason that totally baffles mainstream economists, we had a glut of food throughout the 1980's and 1990's, even while China and India's populations were growing in size and wealth. Food prices only started to rise sharply in the last few years, but China and India didn't suddenly become prosperous in the last few years. They've been growing richer steadily for decades. So how come the price of food suddenly shot up? The mainstream economists you love to cite have no explanation. They're as clueless today as they were in the 1970's.
Published: May 9, 2008 11:51 PM
Owen
Fundamentalist I found that article on the internet, and I gave the author and title. You can too. Try google I head it is good for finding stuff.
Lets keep going shall we (from SOCIAL WELFARE IN HONG KONG -A Review of Welfare Services in the Past Twenty Years, MARY S. BOLDRICK)
"on 1 April 1948 a Social
Welfare Office was established as a specialized
sub-department of the Secretariat for Chinese
Affairs. The principal activities of the office
included public assistance, child welfare, probation
service, schemes for further training of
local workers, liaison with all voluntary welfare
organizations, and development of welfare
policies for the Colony."
"In the early fifties, the Social Welfare
Office was operating six welfare centres whose
major role was to give relief . They gave pre
ference to people who were born in Hong
Kong or had lived here for many years. The
types of assistance they were giving were free
cooked meals, clothing and placement of
children in free schools. For the refugees they
operated 3 residential camps located at North
Point, Morrison Hill and Rennies Mill ."
So. How does it feel to be so horribly proved wrong that Hong Kong did indeed have government assistance for the poorest of the poor? These people were obviously not being helped by private charity.
Published: May 10, 2008 12:27 AM
Rod Campbell-Ross
Fundamentalist: I agree - economic theories work out fine so long as there is a surplus, or more can be procured, made or grown.
As soon as limits become apparent economic theories become meaningless. Just look at oil and the mess economists have made over that. Now food. They have no answers. The UK Daily Telegraph reports today that governments around the world are clamping down on free markets in food. As the paper asserts - this poses further significant dangers for global food supply; and I agree with them.
I think it may be too late. The world, led by the US, may have entered a period of hyperinflationary depression. If that is the case, economists will be even more irrelevant than they are now. What we needed was mechanism that priced both renewable and non-renewable resources according to their scarcity. The fact that we can fish the seas empty in a few decades means that fish have been incorrectly valued. The fact that we are at Peak Oil now; and are already experiencing a declining energy contribution from oil illustrates the point completely, even if that fact is cold comfort.
There will be those, especially on this site who will persist in their belief that oil is just another commodity "like tin". If that is the case, why does it cause so much debate and initiate wars? Answer: because it is NOT just another commodity. It is vital to the West's economies. Vital is an over-used word, what it actually means is "Necessary [for] the continuation of life."
Published: May 10, 2008 2:42 AM
Ireland
Rod Campbell-Ross:
we may partially agree on what you describe as failure of the economics and economists. What is said is specifically true for the economics mainstream, and as being presented by the media.
Being however on Austrian Economics blog, statements like "theories fail once there's no surplus" and "there are no answers" will be opposed and debated.
Economic theories, by definition, aim to explain the way human society works, all the way since dawn of humanity to the present and future. Theory valid only in time of surplus would be pretty useless.
Any economics theory worth the name must give answers alligned with reality especially in the times of crisis. That's why we austrians find the mainstream theories broken, and offer a reasonable alternative which does provide the answers.
Finally, I miss what alternative solution to the current situation do you propose, as that's what this debate is about - finding solution for the problems.
Published: May 10, 2008 3:12 AM
newson
rod campbell-ross says:
""A beaver driving a forklift"? - Is that meant to imply that humans somehow have the collective smarts to avoid the impact of overshoot?"
collective smarts? surely an oxymoron. capitalism has allowed man to shape his environment and not suffer it passively like the beasts. given secure property rights, individual talents will be harnessed (through self-interest) to deliver the innovations that have seen both an enormous rise in population, and to a lesser extent, longevity in the last two centuries.
malthus has been relentlessly invoked by greens, and their antecedents. without ever being right.
Published: May 10, 2008 3:26 AM
newson
rod campbell-ross says:
"There will be those, especially on this site who will persist in their belief that oil is just another commodity "like tin". If that is the case, why does it cause so much debate and initiate wars?"
used to be gold and silver, women and land. now oil, potable water, uranium, who knows? plus ca change...
Published: May 10, 2008 3:34 AM
newson
to michael:
you're not going to get me to say that haiti can wave the wand and turn into hk. but nor should you ignore the fact that hk had a very low standard of living for most of its existence. it's real asset was the impressive harbour, but it's exponential growth only started from the 1960's on. remember that mao's china was not the huge trader of today. don't forget also that hk had a huge influx of chinese refugees, most of whom were unskilled. you say:
"Trinidad & Tobago does in fact have enlightened governance, and a tractable, hard working population."
first, what is enlightened governance?
second, having a hard-working population is absolutely no guarantee of high living standards. the third world works much harder than the first world, because it has to. no capital means even simple jobs become arduous. check out how quickly a first world carpenter can do a renovation with power tools and prefab parts, compared to the same task in the third world.
finally, i don't know, nor can you know what form the haitian economy might take, if the obstacles to investment were lifted. bermuda has specialized in being a domicile for insurance companies. turks and caicos, tax-haven. it will be individual haitian entrepreneurs to decide what niche in the trading world is going to work. and not some enlightened planner.
Published: May 10, 2008 3:56 AM
newson
rod campbell-ross says:
"As soon as limits become apparent economic theories become meaningless. Just look at oil and the mess economists have made over that.
opec = nationalized oil companies = cartel. nothing economists have to say here, except monopolies are not a free-market artifact, nor are they subject to economic laws, only to political agendas.
worldwide, the state has the lion's share of the oil. if exxon provided as little information about its reserves as saudi aramco, the directors would all be in jail.
Published: May 10, 2008 4:12 AM
Inquisitor
Considering that economic theories already incorporate "limits"...
Published: May 10, 2008 4:29 AM
Rod Campbell-Ross
Theorizing when the damage is already done is pointless - the fish are still gone. Go and ask a Grand Banks fisherman - if you can find one.
The Commons and property rights? You cannot establish property rights over the oceans, or the air.
"collective smarts" - yes. We are social creatures, living in groups, like it or not. The reference in this instance has nothing to do with economic systems and everything to do with our inability to act collectively when we need to. Like now.
Malthus? Club of Rome? Limits? At current growth rates there will be one human per square metre of dry land in 300 years and in 7,000 years the mass of humanity will equal the earth. Both prospects seem unlikely. Bearing in mind our dependency on oil, I suspect that we should have listened a little more carefully to Malthus' famous 1798 essay; and The Club of Rome.
Published: May 10, 2008 5:09 AM
Rod Campbell-Ross
OPEC? It should be glaringly apparent that OPEC are no longer managing the price of oil. Saudi Arabia has lost its swing producer status beause they a producing as much oil as they can. No one else in OPEC has any spare capacity either.
Ergo, they are no longer a cartel in anything but name.
In the unlikely case Saudi Arabia is witholding supply intentionally and acting as a de-facto monopolist because no one else can make up the difference that is their business. It is their oil after all.
Here is a quote from President Bush in January: "If they [Saudi Arabia] don't have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.
Published: May 10, 2008 5:24 AM
Owen
I think that declining birth rates in western countries are doing a good enough job as it is and as the living standards (measured by GDP!) of developing countries rise in the next 50 years we will see their birth rates fall aswell.
Published: May 10, 2008 5:27 AM
michael
fundamentalist-- It seems obvious that no amount of evidence is going to alter your position. You are committed to the belief that of all factors present in the world's food supply system, the only one worth considering is the purported increase in the world money supply. And the only reason for such a belief is that it dovetails with all your other economic theories. I would just suggest that you view the following page... particularly the chart on "world grain stocks, in days of consumption".
http://www.earth-policy.org/Indicators/Grain/2006_data.htm#fig3
This would readily explain the price situation you describe in the 1970s (if you have actually looked at the chart). And the much-touted Green Revolution describes the way we were able to produce our way out of it.
There is no such additional revolution in production anticipated. In fact our current model for grain production is heavily mechanized, dependent on chemical fertilizers and pesticides, and requires global distribution systems. All such factors are heavily oil-dependent, and will not be able to do more than barely keep pace with demand over the next several years. After that, there is no cause for optimism on the horizon. The cost of grain produced and put to market is tied to the cost of oil... a barrel that is itself being rapidly drained.
If you believe we will soon return to $2 gasoline, you are entitled to your belief that cereals will once again become miraculously abundant, and affordable for the emptiest wallet. But I come away from the actual evidence convinced that our population increase marches on (by nearly a billion people every decade now), while the amount of cultivable land available to us can only increase by scraping bare the last of earth's primary forests, and planting them in a few more amber waves. They do say of real estate that "they aren't making any more of it".
Published: May 10, 2008 6:54 AM
newson
to rod campbell-ross:
the club of rome? would that be the same club of rome that i recall in the seventies warning about an impending ice age?
malthusians are still waiting for their day in the sun, hundreds of years after his death.
you're right on opec's cartel status being irrelevant now, (and it always was subject to cheating), but whether bush has any special insight into the saudi's broader agenda i doubt.
some opec nations may well have decided to go slow on exploration and production, for their own strategic objectives. what's that got to do with economists, or laissez-faire? purely domestic politics.
the nationalized oil companies have subsidized domestic oil. if prices do not reflect the real supply and demand, wastage occurs. in other words, the crude consumed in opec countries would have been less, had the price matched the international price. less would have been consumed on the home market, and more exported. again, politics in action.
most importantly, the inefficiency of state companies vis-a-vis private oil companies, both in exploration, resource development and finally production, probably goes a long way to explaining why the supplies haven't been boosted sufficiently.
as for "group-think" (sounds very orwellian) - our society is built on the foundation of personal responsibility. if i join in a looting spree with a crowd, and am unlucky enough to get caught by the police, the magistrate will not entertain kindly my "group-think" plea.
are "we the people" responsible for world hunger? wars? only a michael moore would say yes.
individuals act, sometimes alone, sometimes in concert.
Published: May 10, 2008 7:06 AM
newson
michael says:
"They do say of real estate that "they aren't making any more of it".
guess who loathes apartment living?
Published: May 10, 2008 7:11 AM
michael
newson-- Thank you for admitting that Haiti has no natural gifts, as Hong Kong has had in great abundance. But you suggest that there might be some remaining unexploited niche in our economic system the Haitians might be free to exploit.
Let's examine that. There are already a plethora of very pleasant offshore banking sites. I would certainly prefer one of the resort islands, Bermuda or your Turks & Caicos. I don't think I'd choose a muddy expanse crammed to capacity with starving people.
And if I were to choose such a place, finding that the natural product I most required for my industry was an abundance of unfed, unwashed humanity, I would have forty other places from which to choose. From Madagascar to Moldova, we've got a lot of those kinds of places. They're the flip side of our own prosperity.
No, industry needs no more consumers. What we require now is energy. If Haiti were capable of growing an excess of food for the rest of the world, or had mammoth reserves of some attractive fossil fuel, or great stores of other mineral wealth, they would be exploited in the same manner as backwaters like Kazakhstan, or Irian Jaya.
Mud and humanity? Not so attractive. That is why the money does not travel there.
Published: May 10, 2008 7:16 AM
newson
to michael:
hk's biggest endowment was its enterprising people, left alone enough to toil and become ever less-poor over successive generations. haiti's biggest asset is the haitians.
haiti will develop according to the myriad of entrepreneurial decisions taken by its own citizens. that is entirely speculative. who would ever have imagined bermuda to be a world insurance domicile fifty years ago?
mud? i thought we'd discussed how the mud got there in the first place. fix the property aspect, and soil husbandry will follow naturally.
your world outlook doesn't seem to be able to explain how poor countries become rich (rio has a good port, why aren't they rich like hk). try explaining why resource rich countries like argentina end up poor. see whether the flip-side is any easier.
Published: May 10, 2008 7:32 AM
michael
Anyone among us still doubting the population projections made by the Club of Rome, or by Paul Ehrlich back in the 1970s, should take a look at this clock:
http://www.ibiblio.org/lunarbin/worldpop
There are currently 6.8 billion of us. Ten years ago there were 5.86 billion of us. People who don't want to face this reality assure us that while we are still multiplying wildly, the rate of growth is slowing. They don't acknowledge why it is slowing, though.
The point is that the current population is already unsustainable, even if there are no further technological advances. But of course technology is advancing exponentially. Which means that more of the existing people will be consuming a far greater share of a finite amount of resources. And the population continues to advance-- to an estimated nine billion souls before it begins to collapse.
Collapse is not going to be at all pretty. Wars over the remaining resources will be the most hard fought in history. Usable water will be the first basic commodity to run short, followed closely by food and then energy. Yes, there will always be food and energy at some price. But increasingly, only the richest and best protected among us will have access to it. The have-nots will have to fight for their own survival.
Do yourself a favor. Go back and take a look at the Club of Rome projections for the year 2000. Do the same for Ehrlich's The Population Bomb. Admit that from our vantage point these early alarmists were right on the money. As was Thomas Malthus.
Published: May 10, 2008 7:35 AM
newson
michael says:
"Yes, there will always be food and energy at some price. But increasingly, only the richest and best protected among us will have access to it. The have-nots will have to fight for their own survival.
'twas always the way. at least until the industrial revolution, when division of labour and the build-up of capital structures interrupted the malthusian cycle of population bloom/cull (200 years and still counting)
if we run into constraints in the future, they will be brought about by government-imposed limits to capital accumulation and division of labour. the latter were, and remain, our one hope of salvation from the tyranny of natural limits.
Published: May 10, 2008 8:07 AM
michael
newsom: Hong Kong's "biggest endowment" was the attentions of the British Empire, who desired a trading entrepot and coaling station at the edge of what they hoped might be their Chinese province.
You are of the belief that nothing is required that a nation prosper except hungry people, ambitious for work. I would suggest that if you yourself were to be holding a few hundreds of millions, desirous of their gainful employment, you'd find that the world holds an embarrassment of riches, re an anxiously awaiting potential labor force. Nothing whatsoever would single out even a washed and educated Haiti for your attention.
As for having good (that is, unregulated) government, you'd be surprised. Anyone with a hundred million to invest can go to any underdeveloped nation on earth and get its leaders to do your bidding. Their only question will be how high you should make them jump.
Why did Argentina-- the perpetual "country of the future"-- fail? A succession of very bad governments. Now that they are under the guidance of the Kirschners, they seem to be growing quite well.
Published: May 10, 2008 8:12 AM
TLWP Sam
Unfortunately for your notion Michael the human race isn't monolithic nor synchronised in a way that everyone is going to unilaterally killed or be killed one day. The population that live in a blind Malthusian standard of living are the undeveloped countries. But then who's to say they haven't reached that point already. I hear millions do die from tribal wars and starvation synonymous with too many people and too few resources.
Published: May 10, 2008 8:28 AM
newson
michael says:
"Hong Kong's "biggest endowment" was the attentions of the British Empire, who desired a trading entrepot and coaling station at the edge of what they hoped might be their Chinese province.
the "colony" didn't become rich, chinese individuals became rich. some more than others, but all richer than before. and they owe nothing to the british, except for the justice system which protected property of poor and rich, and the light taxation and regulatory burden imposed from the 1960's on.
"As for having good (that is, unregulated) government, you'd be surprised. Anyone with a hundred million to invest can go to any underdeveloped nation on earth and get its leaders to do your bidding.
this demonstrates you have understood none of the concept of universal property rights. sanctity thereof is of primary importance to the poor, not the rich. it's they, not the rich, who suffer from expropriation, devaluations, vexatious tax regimes and stifling regulation. the rich can get around these hurdles.
argentina became a national socialist experiment under the perons. effectively the government ran the bulk of the economy. funny how whenever that happens things go pear-shaped, and people wring their hands and cast around for a "better" government.
in any case, i think you've unwittingly confirmed my point - it's not the dearth or abundance of resources that spells success or failure, but the intrusiveness or otherwise of government.
Published: May 10, 2008 8:39 AM
michael
Sam, I appreciate your comment... "Unfortunately for your notion Michael the human race isn't monolithic nor synchronised in a way that everyone is going to unilaterally killed or be killed one day."
But I never said that, or anything like it. In fact I constantly champion the complex answer over the needlessly simplistic one. All 6.8 billion of us are each going our separate ways, willy nilly. Some are dying, some are being born and the balance between the two is always in flux. As we hit the wall it won't be sudden... it will be (and already is) very sloppy.
Nor should we expect all to meet an ignominious fate, brought on by improvidence. Although throughout history the poor have always died young, in far greater numbers the fortunate. They get to fight the wars, for instance, that the powerful incur from a safe distance. Not that most die from war. Deadly force accounts for no more than several hundred thousand deaths each year... and curiously, most are from small arms fire or machetes. Weapons of mass destruction, oddly, are responsible for virtually zero deaths. The AK-47 is the true WMD, in terms of body count.
But its toll is utterly trivial in comparison with the toll taken by needless diseases. Most of us, statistically, die in infancy from dirty water. Millions more die from easily treated tropical infections whose effective containment is not considered to be very lucrative by the medical community. Virtually no research money goes toward infections like bilharzia or leishmaniasis, while untold sums are readily spent in providing erections for rich first-world men.
It may be that the writings of Thomas Malthus are the most recent studies on population you've read. You could profitably bring yourself up to date by delving into the biology section. Population dynamics is a very thoroughly explored field, and follows the same rules regardless of species. Whenever a species develops a new set of resources its numbers expand. Then when they reach their limit, the population collapses.
It's fashionable now to assert that we will always develop new technologies that expand our ability to sustain human life in ever-increasing numbers. But the only evidence ever produced by such optimists is that we have done so thus far.
And we are reaching the limits of the planet's carrying capacity. We have no more new continents to discover. I wish you well in the task of terraforming Mars or Venus. But I doubt either will ever be home for more billions of humans. No water, for instance.
Published: May 10, 2008 5:23 PM
michael
newson-- You dismiss Hong Kong with an airy and entirely incorrect premise.
"the "colony" didn't become rich, chinese individuals became rich. some more than others, but all richer than before. and they owe nothing to the british, except for the justice system which protected property of poor and rich, and the light taxation and regulatory burden imposed from the 1960's on."
I won't bore you with detail. You can readily find it yourself, in the library history section. There was no prosperity on the island of Hong Kong prior to 1842. If you were to inquire into how they actually did achieve prosperity you would perform the singular function of educating yourself.
If you want to find a present-day analog to what the British achieved in HK, look at what the Americans are attempting to do in Kosovo. The place has nearly as many ignorant, ill-fed people as does Haiti, and they are considerably more combative. But there are other elements that make the place worthy of our guardianship.
Published: May 10, 2008 5:36 PM
fundamentalist
Michael: "This would readily explain the price situation you describe in the 1970s (if you have actually looked at the chart). And the much-touted Green Revolution describes the way we were able to produce our way out of it."
People came up with the "Green Revolution" many years after the fact. It doesn't change the fact that during the 1970's, people were screamng that we're running out of food and oil and everything else, just as you're doing right now. Obviously, no amount of facts or logic will change your mind about the current food situation, but I wonder how you would explain the rise in the stock market in the late 1990's. A shortage of stocks? Or the sharp rise in home prices in the first 6 years of this decade. A shortage of houses. Are we running out of gold, silver, iron, copper, magnesium aluminum as well as food and oil? We've heard it all before. And when people like you are proven wrong in the future, you'll always have another excuse, because you never learn anything from history.
Published: May 10, 2008 8:26 PM
fundamentalist
Michael: "You are committed to the belief that of all factors present in the world's food supply system, the only one worth considering is the purported increase in the world money supply."
How would you know? You clearly don't understand any economics. Know one on this site can discuss reall economics with you or Owen because you don't even remember the most basic Keynesian econ you had in high school. Have you even read one article about Austrian econ so that you can claim to have legitimate reasons for ignoring it? Do even know what the neo-Keynesian or neo-Classical positions are on the matter? Clearly not. You just regurgitate what ever pops into your head at the moment. You've clearly been influenced by neo-Marxian thought; every public school graduate is. But even though you attmept to defend it, no one can even have an intelligent discussion with you about it because you're so incredibly ignorant of even the position you're trying to defend.
Published: May 10, 2008 8:33 PM
fundamentalist
Rod Campbell-Ross: "As soon as limits become apparent economic theories become meaningless. Just look at oil and the mess economists have made over that."
That's a very good point. Many economists recognize the mess than mainstream macro theory is in. Arnold Kling over at the Econ Library blog (and professor of econ) recently had a post on the "muddle that is macro." And if you go to the Journal of Austrian Econ web site, there's an article called "ARE MACROECONOMIC THEORISTS RATIONAL?" It's here: http://mises.org/journals/qjae/pdf/qjae10_2_1.pdf.
But limits don't make theory meaningless, as you write; it winnows them, separating the wheat from the chaff. That happened to some degree in the 1980's after the failure of Keynesian econ in the 1970's. I earned an MA in econ in the 1990's, but became very disillusioned with macro for many of the same reasons you have. When I discovered Austrian econ, I realized that it solved all of the problems that plague mainstream econ. You might give it a try.
You're right that economists have made a mess of the oil situation, but they're mainstream economists, not Austrian. The two schools of economic thought are very different. The huge rise in oil prices is mostly due to the expansion of the money supply by the Feds, who follow Keynesian or neo-classical econ theory when they follow any theory at all. Had the Fed been following Austrian theory, the price of oil would be about $30/barrel today and poor people wouldn't be suffering for ridiculously high prices for food.
Austria in the 1930's is an example of what sound econ policy can do for a nation. The world-wide Great Depression hardly touched Austrian because it followed the advice of Ludwig von Mises. On the other hand, the depression in the US went deeper and lasted longer than any other country in the world, thanks to very poor economic policy.
Rod: "The world, led by the US, may have entered a period of hyperinflationary depression. If that is the case, economists will be even more irrelevant than they are now."
I couldn't agree with you more. Mainstream econ became the laughingstock of the media in the 1980's because of its utterly embarassing failure in the 1970's. Did mainstream econ learn anything from that experience? Not at all. In fact, Fed Chairman Bernanke is today repeating all of the mistakes of the Fed in the 1960's and 1970's. The US is indeed heading into an inflationary recession, as you wrote and as many Austrian economist have been predicting. We can only hope that instead of giving up on economics, people will give Austrian econ a chance.
Rod: "What we needed was mechanism that priced both renewable and non-renewable resources according to their scarcity."
That would be improved property rights. Something like 80% of the world's oil is owned by states headed by brutal, ruthless, thieving, murderess dictators who stash most of the cash from oil in their own bank accounts. Fishing needs something like the auctioning of oil drilling rights in the Gulf of Mexico.
Rod: "If that is the case, why does it cause so much debate and initiate wars?"
Good point! But again, the problem is mainstream econ, not Austrian econ. Mainstream econ, and popular economics is very mercantilistic and insists on "energy independence." It's this mercantilistic idea that insists that oil is vital to our national security. The truth is that oil is like any other commodity; it's just that most people don't believe it is. The West is in no danger of having oil supplies cut off by the Middle East because Middle Eastern nations desperately need to sell their oil in order to feed their people; they need to sell their oil more than we need to buy it. So even if they decided not to sell oil to the US, they would have to sell it to someone; they have no other choice. And whoever got the new supply of oil from the Middle East would free up supplies elsewhere that we could purchase. This stupid idea of energy independence causes us to spend $ trillions on the military to "keep the flow of oil coming from the Middle East." Austrian econ would have us pull all troops out of the Middle East and trade with oil producers just as the Europeans, Japanese and Chinese do, countries with no oil at all and who don't feel insecure about it.
If you're unhappy about mainstream econ, give Austrian econ a chance. I think you'll find a lot of the answers you've been searching for.
Published: May 10, 2008 9:04 PM
newson
michael says:
It's fashionable now to assert that we will always develop new technologies that expand our ability to sustain human life in ever-increasing numbers. But the only evidence ever produced by such optimists is that we have done so thus far."
one-child--policy, hurray! wise man, mao.
.
Published: May 11, 2008 12:02 AM
newson
to rod and fundamentalist:
fundamentalist makes a good point. increasing money supply, and it's unpredictable effect on prices of goods and services, makes it impossible to separate real demand/supply changes from illusory price changes.
money effects can indeed mask or overwhelm supply/demand temporarily, meaning the eventual readjustment is more brutal and sudden than it would have been, had price integrity had not been compromised.
Published: May 11, 2008 12:21 AM
Rod Campbell-Ross
I have read some Austrian econ - I like its elegance and simplicity. Unfortunately I really do believe that oil is NOT just another commodity. It is finite and there are no substitutes that can scale in time.
The basic problem with Austrian economics is that it basic assumption is that individual choice is rational and cannot be questioned, it is if you like an axiom. I am not sure this is correct. But more than this the Austrian School has no regard for Ecology. I personally believe economy is a sub-system of the biosphere. The Austrian school either believes this irrelevant, or if human choice is thought paramont the next logical step is to claim the biospehere is a sub-system of the economy.
I also believe all of human progress, certainly since the Renaissance, has been possible due to the increasing availability of energy. This is a concept that probably hasn't even been thought about in the Austrian school; and while energy was abundant; it probably wasn't relevant.
Now we are facing, for the first time in the development of man, declining energy supplies. This could have serious consequences. Credit expansion is only possible in growing economies. It means essentially that lenders get their money back. In contracting economies money creation is not possible to the same extent.
Less energy means contracting economies. I think economics needs to incorporate energy economics and ecology. Hence my interest in ecological economics.
Published: May 11, 2008 2:16 AM
newson
rod campbell-ross says:
"Unfortunately I really do believe that oil is NOT just another commodity. It is finite and there are no substitutes that can scale in time.
whilst i don't think anyone here would contest your central hypothesis - that the industrial miracle is in essence the carbon miracle - oil is subject to economic laws no less than any other commodity.
the fact that the seventies saw the last of the big oil discoveries certainly does make a convincing case for much higher oil prices, and logically those increases will flow into every other good and service.
as far as conservation goes, i see austrian economics as virtuous. the consumer-centric keynesian model in vogue for the last 80+ years has seen scarce resources squandered. massive boosts in money supply created the present worldwide building boom, the legacy of which will be empty houses and office blocks. money that could have gone on soil conservation, farming research, parasite and disease studies, water repristination, or wherever.
imagine you're making a cake, but your measuring cup keeps changing its capacity. the cake's going to be lousy because the proportions are all wrong. you may have left-over ingredients, you may even have to ditch it. were austrian economics not some marginalized and stigmatized strand of economics, but the prevailing orthodoxy, natural resources would be wasted less.
whilst people focus primarily on the human tragedy that was both national socialism and communism, there is also the massive environmental disaster that these systems delivered. mao's "great sparrow campaign" comes to mind as particularly hare-brained, but hardly an isolated case.
Published: May 11, 2008 4:11 AM
Michael A. Clem
more than this the Austrian School has no regard for Ecology. I personally believe economy is a sub-system of the biosphere. The Austrian school either believes this irrelevant, or if human choice is thought paramont the next logical step is to claim the biospehere is a sub-system of the economy.
This again. The biosphere itself is not a subsystem of the economy, but its value to people certainly is! Economics should be value-free, since it helps quantify those values. Resources are allocated based upon what people value the most. Thus, the choices that people make are based upon people's values, and economics merely helps people look at those choices and the relationship between choices and resources (supply and demand). It's impossible for economics to be irrelevant.
It's not up to ecnomics to decide how important ecology is, but if people value the ecology, then economics says that more resources will be allocated towards protecting and controlling the ecology. Thus, if you're really into ecological economics, you really need to figure out what you hope to accomplish or understand by it, or if you're really just trying to push your own propaganda/point of view, which would NOT be economics.
Published: May 11, 2008 7:08 AM
fundamentalist
Rod: "Unfortunately I really do believe that oil is NOT just another commodity. It is finite and there are no substitutes that can scale in time."
Newson and Michael Clem have posted excellent responses. I'll just throw in my two bits.
If oil is finite, then it is scarce, which makes it like every other commodity. It's not as scarce as gold. How do you protect and allocate scarce goods in the most effective and efficient way? Property rights.
Rod: "But more than this the Austrian School has no regard for Ecology."
Austrian econ teaches that it's not the job of economists to tell people what to value, but to describe for them the consequences of their actions. If people value ecology, that's just fine with Austrian econ. It doesn't oppose that choice. Austrian econ only opposes the state making that choice for everyone. And the best way to protect the environment is with private property, as the Nature Conservancy repeatedly demonstrates. By owning land itself, the Conservancy doesn't have competing interests fighting over the same land as does state owned land like national parks. The chief fallacy of radical environmentalism is that only states can protect the environment. States prove that wrong every single day. Only private individuals can protect the environment and then only if they have sufficient property rights. The only way states can help protect the environment is by strengthening property.
Rod: "I also believe all of human progress, certainly since the Renaissance, has been possible due to the increasing availability of energy. This is a concept that probably hasn't even been thought about in the Austrian school; and while energy was abundant; it probably wasn't relevant."
The issue of "cheap" energy being the driving force behind economic development has come up several times on this blog. It must be a new wrinkle in neo-socialist thought that's making the rounds. I find it kind of odd because oil usage didn't become wide-spread until after 1900. Coal didn't contribute until after the steam engine was developed and its usage became widespread in the mid-1800's. What energy would account for the tremendous development before that? The truth is that in the field of economic development, capitalism gets the credit for world economic development. Most economists are totally ignorant of that specialized field. Austrian econ, institutional econ and developmental econ all demonstrate the private property rights, the rule of law, equality before the law, and relatively incorrupt police, judges and state bureaucracy (that is, capitalism) are all that's needed to grow economically.
You're right that when the world runs out of oil, and if no substitute has been found, the world's standard of living will decline dramatically. But what can we do about that? Not much. We can have the world's governments take over the 20% of oil that isn't currently state owned, but they won't do any better job of allocating it than the other 80% currently do. After all, to stay in power governments must please a substantial part of the population.
But we'll still be better off than in the days before petroleum because we'll have electricity, thanks to nuclear power. Electric cars and trains will take up some of the slack, but airplanes and ships can't operate on batteries. Right now, the best option for an oilless economy is creating hydrogen from water using nuclear generated electricity.
Published: May 11, 2008 8:09 AM
fundamentalist
I forgot that ships can be nuclear powered, too. The only problem left to solve is aircraft. They might be able to burn hydrogen, or we might develop nuclear powered aircraft. Either way, the future without oil is not bleak.
Published: May 11, 2008 8:18 AM
Ireland
Hello Rod Campbell-Ross,
thanks for bringing back the intelligent discussion :). In that regard, please help me check the validity of the following two statements:
The basic problem with Austrian economics is that it basic assumption is that individual choice is rational and cannot be questioned, it is if you like an axiom. I am not sure this is correct. But more than this the Austrian School has no regard for Ecology.
The Austrian econ indeed says that it's individuals who make choices, and yes, these choices cannot be questioned - not on the grounds of the economic theory anyway. The choices are made to satisfy each individual's desires, including possibly an occassional desire to act irrationaly (so much for the "rational" part).
So Austrian econ regards for any and all human desires, aims and goals. What this science explores, are the relations between such goals, and the means we the people employ to achieve them. In short, Austrian econ tells us what works and what doesn't, regardless of what is it we are at.
If we understand this basic approach, then it's a bit contradictory to speak of Austrian econ as having "no regard for Ecology", as it is only the people who can have such (or any other) regard. Ok, if the question is rephrased to whether the Austrian economists as people do have regard for Ecology, then it is a legitimate one. And speaking for myself, I do care about Ecology. But now that probably led us a bit away from the original complaint, so please rephrase the question to get a better austrian answer. Thanks :-).
Published: May 11, 2008 8:28 AM
Inquisitor
In addition to the above, there is a growing Austrian literature on market responses to environmental problems, which utterly disproves the thesis that Austrian economics somehow ignores such issues. Its scope are all scarce resources.
Published: May 11, 2008 8:31 AM
Ireland
re energy:
Our best long-term chance may be the nuclear fusion for generating it, and then hydrogen-based economy for storing the energy and carrying it around. Pebble-bed nuclear fission reactors are cool too, and these are reality already and engineered to survive even if their cooling fails.
The initial capital investment to get this going is huge, so with raising prices of carbon we'd be exactly on the right track to make this new energy profitable enough to happen, unfortunately they're
not really raising if measured in sound currency [www.thedailygreen.com].
Still, spending the $ trillions on getting fusion tech, and then showing the Middle East (with all their oil) the middle you know what, might have been a much more sensitive "Iraq strategy". It's one more point explaining why some of us consider government actions too wasteful to be left unchallenged.
Published: May 11, 2008 8:56 AM
Michael A. Clem
You're right that when the world runs out of oil, and if no substitute has been found, the world's standard of living will decline dramatically. But what can we do about that? Not much. We can have the world's governments take over the 20% of oil that isn't currently state owned, but they won't do any better job of allocating it than the other 80% currently do.
If we're really running out of Rod's unique, miracle-substance, the best thing to do is get government out of the way so that the remaining reserves can be put to their best use, and let the markets provide the incentives for dealing with the problem. Rod keeps wanting to warn us of the dire consequences of running out of oil and harm to the ecology, but I seem to keep missing what his preferred solution is.
Published: May 11, 2008 9:04 AM
michael
fundamentalist-- The objections you offer, frankly, are all idiotic arguments:
"People came up with the "Green Revolution" many years after the fact."
After which fact? I can't see that this means anything. Food prices spiked in 1973 as a direct consequence of our decision to export wheat to the Soviet Union-- which instantly soaked up all our reserve stocks. What got the rice-dependent nations out was partly Borlaug's revolutionary work with rice, which increased productivity per acre. And what brought US grain prices back into line was our decision to stop exporting our wheat.
Borlaug's revolution was massively dependent on energy-intensive farming methods. Can we expect such methods to continue being useful in an age of fuel shortages and consequent price spikes? I don't think so. Fertilizer and pesticide-heavy methods are going to become progressively untenable as time goes on. And we won't be bringing our shrimp in fresh daily from the Gulf of Thailand, either. You'd have to be hiding your head in the sand not to see what's coming.
"It doesn't change the fact that during the 1970's, people were screamng that we're running out of food and oil and everything else, just as you're doing right now."
Go back and look. No one was "screaming" anything like that. The oil embargo was caused by OPEC action, not by any actual shortage. Today, on the other hand, the OPEC nations have zero reserve capacity. They're pumping flat out, and not quite keeping up with a demand that's sharply rising.
Different situation.
Same with food. Back in 1978 they were predicting that in another thirty years we'd be running short of food. Today it's thirty years later, and we're beginning to run out of food.
I'd say that was a pretty good prediction.
"Obviously, no amount of facts or logic will change your mind about the current food situation, but I wonder how you would explain the rise in the stock market in the late 1990's. A shortage of stocks? Or the sharp rise in home prices in the first 6 years of this decade. A shortage of houses. Are we running out of gold, silver, iron, copper, magnesium aluminum as well as food and oil? We've heard it all before. And when people like you are proven wrong in the future, you'll always have another excuse, because you never learn anything from history."
What I've been giving you is straight history. What you've been giving me is economic theory. I've been attempting to post a page that shows there is NO correlation between increases in the money supply and the cost of grain since 1970-- so far without being able to pass the filter. When I'm able to word it gently enough that it sees the light of day here, it will become abundantly apparent that the two are not linked.
You, on the other hand, have only been posting assertions without backup evidence.
The following side issues are all red herrings, in an attempt to distract us from the issues under discussion: the rise in the stock markets, real estate values and metal prices.
Claiming that all these market fluctuations follow the exact same genesis as the current food price spike is a very weak argument, to put it mildly. Stock prices were bid up mostly due to an excess of investment funds looking for a home. Instead of matching P/E ratios they reflected a bidding war as too much money chased the existing opportunities for investment. The same holds true for gold and copper-- classic instances where demand outstrips supply.
Housing is very different. There's no commonality between these distinct problems.
I have certainly not been arguing that every shift in price structure throughout history has had the same etiology. To attempt to form such a principle would be ridiculous.
Published: May 11, 2008 10:24 AM
michael
MAC-- You make a very curious assortment of statements about our ecology, of which these are a sample: "It's not up to ecnomics to decide how important ecology is, but if people value the ecology, then economics says that more resources will be allocated towards protecting and controlling the ecology. Thus, if you're really into ecological economics, you really need to figure out what you hope to accomplish or understand by it, or if you're really just trying to push your own propaganda/point of view, which would NOT be economics."
Does the word "ecology" represent for you just a collection of odd sentiments concerning saving the whales and so forth? That is certainly not the spirit that Rod is trying to evoke.
We are talking about determining the carrying capacity of the planet, in relation to the practical limits of food, energy and mineral wealth it can produce. Finite resources do in fact need to be allocated if the human species is to properly employ them to provide a good life.
This gets into arguments like devising the "maximal good for the maximum number" that some among us will instinctively attack as being Marxist. But the most desirable allocation of resources among an already unsustainable number of people is a subject certainly worth thinking about. It's an issue that goes well beyond the narrowly economic view of life. Think about how our distribution systems will operate once gasoline hits a hundred bucks a gallon. That state of affairs will be in no one's interest.
In other words, no matter how much your property rights get protected, if you're sitting up there in your compound with all the riches you can legally amass, if there are millions of starving people at the gates you've got serious problems. If you can point out reasons relating to our natural ecology that show this will never happen, fine. But economic issues alone won't address it.
Published: May 11, 2008 11:09 AM
michael
Ireland is favorable to expanding our nuclear power structure, and powering the vehicle fleet with hydrogen. Which is certainly an approach worth careful thought, as we have so few viable solutions up our sleeve to the problem of powering the world's vehicle fleet of tomorrow.
But I think he makes an error here: "...with raising prices of carbon we'd be exactly on the right track to make this new energy profitable enough to happen, unfortunately they're not really raising if measured in sound currency."
I'd like to know what constitutes a sound currency. Oil prices have been rising in tandem with USD prices in the Euro, the yen and the Canadian dollar, as can be seen in this snapshot:
http://www.econbrowser.com/archives/2007/11/oil_and_the_dol.html
And the longer-term disparity between the USD and the far more solid Euro can be seen here... although we can still see the absolute price of oil very distinctly rising:
http://www.eurotrib.com/story/2008/3/12/143238/164
I really can't imagine any unit of monetary value that could replace the rapidly shrinking dollar, Euro and yen, in the minds of those who would sell us their oil. It would have to be something they'd want to take in trade. I think we're stuck with a collection of currencies that are all devaluing to some degree relative to usable carbon fuels. Further, I think there's no feasible way to peg a currency to the price of oil, or gas, or coal. The world financial community would collapse at the task.
Published: May 11, 2008 11:52 AM
Inquisitor
"fundamentalist-- The objections you offer, frankly, are all idiotic arguments"
You're not one to speak.
Published: May 11, 2008 11:55 AM
Ireland
Hello michael,
now we're talking about deficiencies of USD, EUR and other fiat money. Most austrian economists will strongly agree with the objections against such currencies.
Yet there comes question about what is the sound money, so perhaps the link from previous post manged to escape. Let me re-post it here in the plain:
http://www.thedailygreen.com/environmental-news/latest/oil-gold-commodities-47041507
To see the sound money please watch the steady purple line in the bottom, representing gold. That's the best answer we have at the moment. If someone offers a better alternative, we hope to hear about it.
Published: May 11, 2008 2:41 PM
fundamentalist
Michael: "Go back and look. No one was "screaming" anything like that."
Don't have to. I lived through and remember it very well. I don't know where you get your nonsense, but it's obviously just socialist propaganda.
Published: May 11, 2008 3:30 PM
fundamentalist
Michael: "We are talking about determining the carrying capacity of the planet, in relation to the practical limits of food, energy and mineral wealth it can produce. Finite resources do in fact need to be allocated if the human species is to properly employ them to provide a good life."
This is a perfect example of the arrogance of radical environmentalism/socialism. There is absolutely no way anyone can calculate the "carrying capacity" of the planet. That arrogance is what makes enviro-socialists so hard to bear. In addition, Mises proved in the 1920's that efficient allocation of resources requires market prices with private property and that's why socialism has never worked and can never work. Radical enviro-socialists who think they can calculate the "carrying capacity" of the earth are attempting the same thing that communists in the USSR tried, but are more stupid and arrogant than communists in the 1920's. The USSR admitted its failure and returned to a quasi-market economy in the 1930's, but enviro-socialists insist on repeating their errors regardless of how many times those same attempts have failed in the past.
Published: May 11, 2008 3:41 PM
newson
to anybody who thinks central planning is environmentally friendly, think chernobyl, mao's great sparrow campaign etc.
Published: May 11, 2008 6:33 PM
Rod Campbell-Ross
Agreed that socialism is a dud - no argument from me there.
Some of the thread above includes references to fusion and a "hydrogen economy". Fusion is not viable today and will not be for several decades, maybe it never will be. A superficial understanding of the laws of thermodynamics and the chemistry of hydrogen rules the hydrogen economy out too. There are no substitutes for our liquid fuels (especially aviation fuels) or for our petroleum based fertilizers that can scale sufficiently quickly, if at all.
Carrying capacity and finite resources are an issue. I agree: we cannot determine the carrying capacity of the earth.
However let me pose a question here: Lets assume that oil has permitted the human race to exceed the carrying capacity of the earth without oil and that a die off down to around 2bn people because of declining oil production will occur by 2100. How would Austrian school economics have allocated oil if that had been known upfront? We have been warned of this for at least a decade, so the question is pertinent.
Also this thread has in no way addressed the commons, especially the vital commons of the air and oceans. Private property rights are by definition and law irrelevant insofar as the air we breathe and the oceans are concerned. What relevance has the Austrian school here? The topic is climate change.
Published: May 11, 2008 6:44 PM
newson
michael says:
"Food prices spiked in 1973 as a direct consequence of our decision to export wheat to the Soviet Union-- which instantly soaked up all our reserve stocks."
the spike in commodities coincided with furious growth in money supply. coffee, cocoa, sugar , gold, platinum. etc all going up because of wheat exports? doesn't seem likely. but then again, how can you separate real demand from monetary effects?
Published: May 11, 2008 6:45 PM
newson
to rod campbell-ross:
i don't think an austrian view is at all a panglossian one. to economize it's necessary to value scarcity accurately, hence the austrians' emphasis on sound money.
unsound money gives rise to sectorial booms, causing misallocation of resources. one that comes to mind is the overbuilding that occurred in the commodities sector in the seventies (a period of runaway money growth). the collapse in the eighties and nineties saw many people leave these industries forever. now we have a severe shortage of petroleum engineers, geologists, agricultural technologists etc
these boom/bust waves severely compromise our sensible use of resources.
as for the future, i do share your view on the severe obstacles in our path, and the lack of obvious solutions. the austrian way would not avoid this, only enable us to negotiate the least painful outcome.
Published: May 11, 2008 7:40 PM
TLWP Sam
Sometimes with the anger some have against I.P. the 20th century probably wouldn't have had the population growth it did. Who now how much of the technology we have came from military R&D? Someone here suggested before that cars and roads were government inventions and wouldn't have come from the free market. Maybe the population burst came from the wars of the 20th century and war socialism that came with it as women were expect to churn out more babies than their enemies. But I don't see why scientists can't calculate the carry-capacity of the Earth given the current agricultural technology. If the current amount of land and technology can only handle 7.2 billlion whilst maintaining the same standards of living then we'll know when world population exceeds it something's got to give. But, of course, there's won't be a great population crunch that will shake the foundations of human civilisation - the Irish may have taken a huge populaton hit during the Great Famine but it didn't dent the lifestyles of the surrounding people.
Published: May 11, 2008 8:13 PM
Rod Campbell-Ross
"the austrian way would not avoid this, only enable us to negotiate the least painful outcome" - no argument from me there on oil. Provided the market is truly free, but it is not; never will be and is obscured in a fog made up of lack of data, little understanding; and deliberate misinformation. There is also a question in my mind concerning natural resources and the commons. Some natural resources are certainly part of the commons - the fisheries (in international waters) for instance. Mineral resources could also be classed as the commons, though they are not currently.
If we cannot use a fiat money - and I agree all currencies are manipulated to our great disadvantage, what medium of exchange do you suggest? Should currencies be pegged to oil for instance? Gold is as inappropriate as oil because gold production peaked quite a few years ago and thus its value vis-a-vis everything else is also variable.
Published: May 11, 2008 8:31 PM
newson
rod campbell-ross says:
"Gold is as inappropriate as oil because gold production peaked quite a few years ago and thus its value vis-a-vis everything else is also variable.
actually it wouldn't matter if no more gold were mined. most of the gold ever mined is still in existence. production is small compared to stocks.
this is the very reason why gold is the best currency, its quantity can only be changed gradually, so in reality it would be everything else's price changing vis-a-vis a static quantity of gold.
gold's absolute rareness doesn't matter, for its monetary function what counts is the ability to serve as a stable denominator for figuring out relative value of all other goods/services.
most likely, transactions would be effected as electronic transfer of gold-grams (or micrograms or however tiny the minimum useful denomination were).. gold would still be used physically for more important physical transactions, and importantly, as a check against banks inflating (risking the classic run).
international waters do suffer the risk of the commons, by definition, and so will undoubtedly suffer depredation. territorial waters are a different matter. satellite positioning could allow delineated areas of domestic ocean to be owned/leased. fish-farming is already big business on the coasts.
Published: May 12, 2008 12:46 AM
Rod Campbell-Ross
"gold is the best currency" - accepted and agreed.
I was under the impression that as the total quantity in existence has always risen that now it has become static that it might be horded/suffer value spikes etc.
Having thought it through, I concur - it would be best to revert to the use of gold, but how? The question is especially pertinent considering the reserve banks continue to manipulate the value of gold as a currency because they correctly regard it as a threat to "their" currency and therefor their power?
Published: May 12, 2008 1:14 AM
Michael A. Clem
We are talking about determining the carrying capacity of the planet, in relation to the practical limits of food, energy and mineral wealth it can produce. Finite resources do in fact need to be allocated if the human species is to properly employ them to provide a good life.
Okay, so you're referring to ecology in general. So what system allocates finite resources better than a free market and market pricing? Such a market allows everyone to take part in the allocation by determining where the greatest value is placed for such resources, and bidding on them appropriately.
As for actually determining the carrying capacity of the planet, I've yet to see any solid, meaningful determinations that show any undeniable limits. Over the course of recorded history, we know that there are more people than ever before, but we also know that food production has dramatically risen to feed that population, too. Or to put it in the proper order, the population of the planet has increased as our food production has increased to support it. Is this not a self-regulating mechanism? How will the population increase beyond our ability to support it?
In both cases, government restrictions and intervention interfere with the process, which necessarily makes it less efficient. So while I'm certainly not against the pursuit of knowledge and understanding, I don't believe anybody has come up with any magical 'third way' that has the potential to solve our problems. Speaking of which, what does Rod suggest as the solution?
Published: May 12, 2008 2:04 AM
newson
to rod ross-campbell:
yes, reserve banks are not going to vote themselves out of power and influence.
historically gold has always been abhorrent to polilticians for its very integrity. this will not change.
i imagine gold will regain prominence from a sort of monetary rebellion, led by the little people, and fought tooth and nail by the elites. the aftermath of all currency meltdowns, however, is terrible. the french revolution, nazi germany, contemporary zimbabwe etc.
it's hard to imagine any single country breaking ranks, because that would invite drastic punitive measures from other nations eager to continue with fiat, and scared that they may lose control over public opinion.
i don't agonize over how the transition will actually unfold because i don't think it will be a tidy, planned affair.
i mean i know which side will win the war, but i've got no idea which battles will be fought, and how many victims will fall.
Published: May 12, 2008 2:12 AM
fundamentalist
Rod Campbell-Ross: "Lets assume that oil has permitted the human race to exceed the carrying capacity of the earth without oil and that a die off down to around 2bn people because of declining oil production will occur by 2100. How would Austrian school economics have allocated oil if that had been known upfront?"
Austrian econ would still recommend private property and free markets, because no other system has proven itself capable of handling such crises. State control of resources has failed miserably every single time. Private property and free markets have rarely been tried, but when they have been given a chance, they performed admirably.
Let's also assume that the money supply grows only as fast as production so that it causes no disruptions in the economy. With free markets and private ownership of oil, the prices of oil and gasoline would rise as the supply declined. That would cause consumers to spend less on other products in order to pay for gasoline. That's how the free market allocates resources; the more scarce the item, the more expensive it becomes and can only be employed in the areas where it is most valuable. As the price of gasoline rises, alternatives fuels, such as hydrogen, become more attractive and people will switch to alternatives. So farming will switch to something like hydrogen burning tractors, or possibly electric tractors.
Keep in mind that most farming today is done with human labor; some is done with animal labor, but in the world today mechanized farming is still limited to developed countries. Losing oil might cause the output of ag products in developed countries to drop, but not in the rest of the world. And hydrogen burning engines have been a reality for decades. There is also the fuel cell that combines hydrogen and oxygen directly to create electricity and it has been around at least 30 years.
So if oil has allowed us to create enough food to extend the carrying capacity of the earth by 30% (2 billion), then oil substitutes such as hydrogen should allow us to continue to extend that capacity. But on the issue of carrying capacity, also keep in mind that farming productivity is high only in Europe, the US and Japan. It’s improving rapidly in Brazil. If you could export the level of productivity of the developed world’s farming to the rest of the world, especially to the Ukraine, Russia, China, India and Africa, and calculate food production on land currently farmed using those levels of productivity, you would be shocked by how much food could be produced. In most of the world, farmers produce just a small surplus over the needs of their families. Last I looked, American farmers produce enough to feed about 20 other families. Think what would happen if you could increase ag productivity in the rest of the world by a factor of 20!
It’s an old story, but worth repeating. In the mid-19th century, the US burned whale oil for indoor lighting. As the supply declined, the price shot up to as much as 100 times the price when it was abundant. The high price spurred a furious search for alternative fuels. First they made kerosene from oil (my grandmother always called kerosene “coal oil.”). Then a Canadian engineer figured out how to make a useful fuel from petroleum. Within a few decades, petroleum products had pushed whale oil completely out of the market and petroleum fuel was as cheap as whale oil had been when it was abundant. A relatively free market accomplished that major change in energy supplies very smoothly. Thank God the state had the common sense to stay out of it; otherwise, we might still be subsidizing whale oil purchases.
Published: May 12, 2008 8:28 AM
fundamentalist
Let’s consider a worst-case scenario: oil runs out completely by 2100 and no substitute has been found. As a result, farming reverts to the use of animal power. Farm productivity would drop in the developed world dramatically, but not in the rest of the world. Farm productivity in the developed world would not be as low as it was in the early 1900’s before mechanized farming became widespread because of the many improvements in seed, fertilizer, irrigation and cultivation techniques, but it would drop substantially. However, the real problem would be feeding the farm animals. Around 1900, about half of the total farming acreage in the US was used to grow food for animals, mainly horses to do the farm work and provide transportation. So reverting to horse power for farming in developed countries could reduce acreage available for food by close to 50%. So the lack of an energy substitute for oil will be more disastrous than many people think.
Obviously, people will starve due to the lack of food. Let’s use your number of 2 billion. How do we choose who starves? Since productivity in the undeveloped world wouldn’t decline (since they don’t use mechanized farming), the food shortage would primarily affect the developed world, so the rich countries would supply most of the dead people. The UN could take control of food supplies and proportionately allocate the number of people who must starve in each country. Or we could start a war and kill off enough poor people to allow more rich to survive.
Does any method of allocating death seem preferable to the others? That’s what allocating the few remaining drops of oil we be: allocating death by starvation. Under the assumptions of your scenario with no substitute for oil, any system of allocating the few remaining drops of oil won’t matter to anyone because everyone will know that when the last drop of oil is used, 2 billion people will die. They can die quickly, or you can drag it out over decades by rationing oil today to make it last longer and extend the agony. However, the end result is the same: 2 billion people must die. I don’t see how any allocation system will change that fact.
Published: May 12, 2008 8:58 AM
michael
Ireland-- Thanks for re-posting the Daily Green article. I hadn't read it.
I'm familiar with this line of thinking-- that we need a brake on our desires to print more money, and that pegging it to the amount of gold in circulation would provide a useful discipline. But I see a very serious flaw in that argument.
The human population is increasing, human productivity is increasing and the amount of goods being offered for sale is also increasing. If we put a stop to the creation of more money (which is just the medium we use to regulate exchange), we have to try to conduct an increasing amount of business with a shrinking amount of capital (shrinking in a relative sense). What we achieve is recession, then depression, then collapse.
There is a sweet spot, where the creation of money keeps pace with the expansion of the economy (seen in terms of number of participants, amount of goods, etc.). Too much money being created and you have inflation. Too little and you have recession. I, for one, am of the opinion that the heads of all the national banks of the world are responsible enough to understand that simple message and to try to optimize their creation of money. The reason is that if they get it wrong-- either too much or too little-- calamity results.
I would recall to you my comment of a couple of days ago, that if King Croesus had just taken the position that the money supply should never be increased, back in 800 BC, we would now still have to work with his trivial amount of silver talents. And they would be totally unable to do the work we require of money in today's society.
I would suggest also that if the price line for oil and gold are both running parallel at present it is because new gold is currently coming on line at about the same rate as is new oil. Otherwise the lines would diverge.
Think also about the prospect of our discovering some huge store of new gold, perhaps on the asteroids. That would result in an abrupt increase in our money supply, for no good reason except that the gold was there. This would have the same effect on our economy as an ill-conceived infusion of paper currency.
In sum, I agree with nearly every economist working today, that the supply of money should be carefully managed so that it grows in tandem with the demand for money-- as measured by the world's industrial and agricultural output.
Published: May 12, 2008 1:00 PM
michael
If I could, I'd like to address various objections from various people, all of whom seem to be saying much the same thing.
1. Inquisitor offers that I am not one to speak, in reference to my comment that fundamentalist was offering idiotic arguments.
I gave very concrete rebuttals to his arguments. If you differ with them the more effective approach would be to offer concrete objections yourself. Just to state, without documentation or argument, that I'm wrong doesn't do very much to advance the dialog.
2. Fundamentalist gives us this:
Michael: "Go back and look. No one was "screaming" anything like that."
fun: "Don't have to. I lived through and remember it very well. I don't know where you get your nonsense, but it's obviously just socialist propaganda."
Your original comment was "It doesn't change the fact that during the 1970's, people were screamng that we're running out of food and oil and everything else, just as you're doing right now." And in fact they were not. What they were saying was that at the rate we were going, some day we would run out of food and oil and everything else. And in fact that day is now, and we are seeing the beginnings of an era of relative scarcity.
"Relative scarcity" is the condition where demand routinely exceeds supply. And in any grain or fuel market you can find now, that is what you see. The indicator most easily tracked is the rise in prices.
3. Next you say "This is a perfect example of the arrogance of radical environmentalism/socialism. There is absolutely no way anyone can calculate the "carrying capacity" of the planet."
This is an unfortunate position to take. Obviously you have no engineering background. If you had, you'd say that this was a complex but solvable problem.
For food, first calculate the curve for increasing demand. This would take into consideration both the absolute number of humans and the increase in demand resulting from greater affluence. I trust you will agree the world's population is growing more affluent, and is thus able to buy more goods?
Then calculate the amount of useful water that is available on a sustainable basis for all purposes. Subtract out the water that is required for domestic and industrial purposes. The remainder is what's left for agriculture.
Put that water to work. We can assume a limitless amount of land available, as the water is our limit not the amount of land under plow.
Calculate the amount of food it can grow annually, sustainably. Assume zero use for biofuels. Assume zero use for fiber crops. Divide that amount by the number of mouths.
Now you can calculate the amount of carbon fuel needed to produce crops in the quantity you have calculated. If this is not a sustainable amount, reduce the quantity of food grown accordingly.
It's a deep subject. But I think the more deeply you get into it the more you will begin to see that the actual carrying capacity of Planet Earth is fewer people than the number we currently have. The key issue to be considered is sustainability-- unless you assume that the world will have to come to an end at some determined date-- the date at which we run out of everything.
Published: May 12, 2008 1:29 PM
fundamentalist
Michael: “What they were saying was that at the rate we were going, some day we would run out of food and oil and everything else.”
That’s simply not true. They were screaming that we were running out of food, oil and everything else at that time.
Michael: “Obviously you have no engineering background. If you had, you'd say that this was a complex but solvable problem.”
The response of socialists to Mises presentation of the calculation problem was much the same as yours. In my defense, I will offer US government statistics as evidence of the impossibility of accurate estimates of economic activity in one nation. Now compound that difficulty by thousands and you have an idea of the difficulty of calculating the “carrying capacity” of the entire planet. I’m not saying that some fool won’t eventually claim to have done it. I’m saying that their calculations won’t be worth anything. In order to make the calculation you suggest, someone will have to make a lot of assumptions they don’t have any business making, and they’ll have to work with a paucity of data.
Michael: “We can assume a limitless amount of land available, as the water is our limit not the amount of land under plow.”
That seems like an unreasonable assumption to me. Some areas have too much water, such as North America, while others nearer the equator have too little. With mountains and deserts, I don’t think assuming limitless land would be a good idea.
Will you allow for irrigation or not? Most of the world’s farmers don’t irrigate. What about fertilizer? Most world farmers don’t use fertilizer except for a little cow manure. Which variety of seeds will you use, high yielding Western varieties or low yielding third-world varieties? Do you freeze technology everywhere at the current level of implementation and low productivity, or allow poor countries to use Western technology and farming techniques? After all, most farming is done with a short-handled hoe. Using an animal like an ox would improve productivity dramatically? Do you freeze the current patterns of land use or assume that more land will be farmed in the future as prices rise? Which foods do you concentrate on, rice that requires lots of water or grains that require little water? Will people continue to feed some crops to animals, such as hogs and cows, or consume all of what they grow?
Published: May 12, 2008 2:33 PM
Rod Campbell-Ross
Fundamentalist on land - a good try. Let me help you out - Actually arable land is a problem. It is down some 20% from the max ever cultivated. Problems include deforestation, building/paving over, desertification, salinity, waterlogging, slash & burn etc etc. Water is also a problem, the SE and SW US are suffering terrible long term droughts. Australia is in the midst of a long drought that many ascribe to Global Warming - I do to). Fertilizers are part of the oil problem - sky high prices mean for instance that in Kenya only half the crop will be planted this year. Finally high oil prices have raised farmers costs of running diesel driven machines and trucks. so much for the supply side.
On the demand side 2007 saw half the world urbanized and utterly dependent on non-subsistence agriculture.
People talk about the continued growth of population to 9bn by 2050. I think it extremely unlikely.
Published: May 12, 2008 5:47 PM
Ireland
Hello michael,
ok, it's nice to have a debate that's worth participating in. Let's see if we can address some of the issues raised by the idea of "gold as money". Warning: with so many points raised it'll be a bit longer answer.
If we put a stop to the creation of more money (which is just the medium we use to regulate exchange), we have to try to conduct an increasing amount of business with a shrinking amount of capital.
This may need a slight clarification. First is money named a medium of (indirect) exchange which I'll agree with. Then the mention of capital seems to make money equal to capital. I'd prefer to stick with the definition of "capital" to be the sum of means for producing end products, which includes certain amounts of liquidity, but also covers machinery, know-how, people etc. Ok, we can rephrase the objection to
[...] conduct an increasing amount of business with a shrinking amount of money..
Let me first say that in the past 100 years we've been doing business with a growing amount of money. Todays dollar is worth a few cents from hundred years ago. Going in the opposite direction would be unusual, sure, but there are subtle hints that it may be good for us.
The main reason why the idea of monetary deflation seems so alien comes from us living our whole lives in the world of money-inflation-sponzored boom and bust cycles. It's correct that yes, in these cycles the moment when money supply inflation ends, it marks the start of recession, then depression, then collapse, depending on how big bubble was blown by the inflation and how much we resist.
The central (austrian) idea here is this: the bad things have happened during the money-inflation sponsored boom, and the recession is just a correction needed to bring things back to sane state. Prevent the monetary inflation => there will be no malinvestments => no need for a recession.
Yes, I agree it would be funny new world, where the prices (in gold) will slowly drop across the board, and those who save will earn a reward. Most unusual would be the getting used to regular wage cuts. But with the costs of things droping faster, it'd still be a nice deal. Some people could even prefer it to losing their job altogether, which is what happens too often in the after-inflation recession. Not the governments though; these would have to beg their dollar from the people, as opposed to just "printing" it today.
Too much money being created and you have inflation. Too little and you have recession.
As hinted above, it's more like:
1. too much money created (this is the inflation)
=> 2. causes distortion in the markets and malinvestment occurs, also CPI grows in some sectors, money bubble forms there
=> 3. as bubble bursts, money flows to other sectors and overall CPI grows (this is called inflation nowadays)
=> 4. with economy now facing the hard reality, malinvestment is corrected - recession comes
=> 5. if the government fights the correction, the troubles deepen and we're blessed with depression
=> 6. if the government still doesn't get it, the collapse finaly removes the government too
The reason is that if they get it wrong-- either too much or too little-- calamity results.
Here is another interesting part: The central bankers are supposed to get it right. Yet there's quite hard time explaining how exactly are they supposed to do that. I know, they have numbers and statistics, and models, but ... Well, what we can measure, is that during last century they managed to remove more than 90% of dollar's purchasing power. One has to wonder what does this tell us about them getting things right.
Croesus and his limited amount of silver talents
Yes that's a good comment. One of the reasons why the metals became used as money, was their good divisibility. With ~10^23 atoms in ~100g of silver we'd go a long way dividing it to smaller and smaller pieces before getting stuck. We'd also invent some very precise scales along that road :-).
they would be totally unable to do the work we require of money in today's society.
The austrian perspective is that the peole who form the society, if only let to make their free choices, would select the best of all the things available to serve them as money. Back in the days it was salt, then metals, if they now choose paper money, it is perfectly fine. But if they don't select colored pieces of paper, then there may be some good reason why. For example the very possibility of too easy inflation of such currency.
[...] price line for oil and gold are both running parallel at present [...] because new gold is currently coming on line at about the same rate as is new oil
True enough. Moral of that graph is in the comaprison between "troubled" USD, "better" EUR (not much, really) and gold. The goal of using gold is to prevent arbitrary manipulation with money supply. If the relative abundance of oil and gold changes, the lines will diverge to reflect it, fair is fair. But then we're sure it is the real thing, an important signal for the markets. Moreover, both gold and oil production are somewhat predictable, while predicting where the fiat money bubbles form and when they burst is more tricky.
new gold, perhaps on the asteroids
Partially addressed above: if we let the market decide what it wants to use for money, it will choose the best alternative. During ages both gold and silver were used; the free market can take care of switching to appropriate alternative if gold becomes for some reason unusable. If only we could get the government monopoly on money out of the way.
I agree with nearly every economist working today, that the supply of money should be carefully managed so that it grows in tandem with the demand for money-- as measured by the world's industrial and agricultural output
Well michael, there may be some hard time finding such economists on this blog. Austrian economists may have to fit into that "nearly every economist" space generously provided, as Austrian econ offers a different take on the matters. A glimpse of it was hopefully provided above.
On technical side I'd keep asking things like: Why it should be so? And can "we" really carry out the proposed task? How can "we" measure the mentioned output?
But let's not forget the moral hazard created by the existence of fiat money - as in that it tempts the government to "print" new money whenever it pleases, and so transfer part of the government's bill onto others - that should be moral hazard right out of the book.
Best regards,
Ireland.
Published: May 12, 2008 6:30 PM
michael
Ireland, I enjoyed reading your defense of the tight money theory. It has become apparent to me that you're the brightest guy on the defense team here. No one else has actually come to grips with the issues.
So let's give it a theoretical try. We're in the midst of a readjustment right now. A lot of money is going out of the real estate market, the derivatives market and all the other places where people bank their excess funds. Let's assume that the economy will let all these excess trillions fizzle away if we adopt sensible rules that preclude their re-creation.
To add scale, isn't it correct that our M1, all the cash in circulation, doesn't amount to quite one trillion dollars?
So in your eyes we're adding to the mess by dropping the prime so low and adding easy money back into the economy. I can see that-- historically, such a move just stokes the fires for the next bubble.
Let's try the experiment. We hike interest rates up somewhere in the 14-18% range, so new money is virtually unobtainable, venture capital just a memory and the secondary investment market in a terminal state. Virtually every bank on earth will have collapsed in a chain reaction, as the funny money propping them up disappears.
I won't paint the rest of picture for you. Get back to me with what our economy would look like. Thanks in advance.
Published: May 13, 2008 8:39 AM
michael
ireland-- I have yet another of my brilliant ideas. Try it on for size.
Gold is sort of antiquated, really. It's nice for jewelry and for contact points. But otherwise, not so much. Gold teeth have even fallen out of fashion. While on the other hand, the world runs on oil. What better standard to reflect that total worth of everything on earth that holds value than the number of barrels of oil in circulation?
Sure, you'd have to standardise it. But you could certainly price all forms of energy in relation to a carefully defined, 42 gallon barrel of sweet crude. And the beauty of such a basis for monetarisation is that it would reflect the actual productivity potential in our tech-based society. Gold is at best inelastic, and at worst, subject to infusions of limitless new gold were we to be able to refine it from seawater.
If oil can be debased-- let's say, by perfecting the thermal depolymerisation method, so that we can begin making all the oil we require-- so be it! That would be a grand development, and we could readily use all the new money thus created.
Naturally, actual barrels would be a little clumsy for use in ordinary commerce. So we'd need some sort of scrip. The remaining question would be whether the scrip would be convertible on demand... or whether it would be merely pegged to oil.
Published: May 13, 2008 9:20 AM
Ron
Michael,
I imagine Ireland will be able to provide a better answer than I, but I'd like to give it a shot now that we've returned to constructive discourse...thankfully so.
Let's assume that the economy will let all these excess trillions fizzle away if we adopt sensible rules that preclude their re-creation.
Yes, dollars are moving out of the markets that are experiencing readjustment, but they're not being destroyed. They're simply being redirected to other uses. The money supply is not decreasing.
We hike interest rates up somewhere in the 14-18% range, so new money is virtually unobtainable, venture capital just a memory and the secondary investment market in a terminal state.
If the FED didn't set interest rates they would behave as any other price, fluctuating according to supply and demand. More money in savings would mean lower interest rates, which makes monetary loans for capital projects more affordable. Less money in savings would mean higher interest rates, resulting in a shift of focus from long-term, capital-intensive projects to more immediate needs.
Since more money is being consumed rather than saved at this point (thanks to the inflation-caused recession) because money is being shifted from savings to consumption, interest rates could naturally be expected to rise, even without the FED's help. This will, of course, mean that less money is borrowed for capital projects, resulting in a slow-down of growth. Some industries will indeed suffer during this period, but since banks would be able to adjust their prices (the interest rate) to account for changes in demand, they wouldn't suffer nearly as badly as they would if the FED were to jack up interest rates to some arbitrary level.
There would (and will) be a great deal of turmoil in some industries during the readjustment period, as capital (including labor) is shifted from lower-valued uses to higher-valued uses. It will be painful for many people, but if it is allowed to happen without government meddling it will be less painful and will pass much more quickly as prices are allowed to adjust.
How'd I do?
Published: May 13, 2008 9:46 AM
Ron
Michael: Gold is sort of antiquated, really. It's nice for jewelry and for contact points. But otherwise, not so much. Gold teeth have even fallen out of fashion.
I think it's important to separate the utility of gold from its value. The two can be related, but in terms of use as a medium of exchange they really have no bearing on each other. In fact, I'm no monetary theorist, but I think that once you begin to use anything as a medium of exchange there can arise a kind of "conflict of value" wherein one must decide whether the substance is more valuable as "money" or as something physically useful.
If you had a barrel of oil, you could choose to exchange it for something else or refine it and use it to lubricate and propel your car. I think it's worth exploring the circumstances under which you may choose one or the other.
Also, oil suffers from one of the same problems you mention about gold...it's not completely inelastic. In fact, oil is even more elastic than gold, at least for now. Wouldn't this introduce an even greater possibility for inflation?
Published: May 13, 2008 9:55 AM
michael
Ron-- thanks for the comments. You say "...I'd like to give it a shot now that we've returned to constructive discourse...thankfully so."
Duly noted that when we back off from the subject of activities occurring in the real world, and return to those exclusively within the sphere of theoretical economics, we have "returned to constructive discourse".
As this field gets to define its own terms, and they only need to be internally consistent, I suppose that's fair game. My point was more real-world, in that there are times when economic activity slows to the point where humans are inconvenienced. Products aren't moving off the shelves, and so jobs are eliminated. This causes us distress. At these times the simple positing of more available cash can help us out of the mud. Thus we are advocates of the injection of seed money during times of need.
We also hope that our leaders prudently pay this seed money back once the pump has been primed. The money itself does not actually exist, other than by common agreement. It's only there to suit our purposes, and we can do anything we like with it to further our uses for it.
That's the kind of economy we vote for. Then there's the crystal ball kind of economy, which is actually just an imaginary construct. In this one, the needs of people are beside the point. In fact, if a person has no money, he does not even exist in this world. This economic world is perpetuated only to promote the health of the dollar (or whatever its medium of exchange may be called).
In this world, neither consumers nor employees have any worth. It's the dollar that counts. And policies promoting a strong dollar are to be preferred. This, in my view, is the Misian perspective. And you, I'm assuming, have described it correctly.
You also say "I think it's important to separate the utility of gold from its value . The two can be related, but in terms of use as a medium of exchange they really have no bearing on each other. In fact, I'm no monetary theorist, but I think that once you begin to use anything as a medium of exchange there can arise a kind of "conflict of value" wherein one must decide whether the substance is more valuable as "money" or as something physically useful."
Gold only has value in that it can be exchanged for money. And money only has value in that it can be exchanged for objects of utility (or services). So neither has intrinsic value. What counts is the object of our economic desires: a meal, a tank of gas or someone to clean our house. Therefore you can use anything and call it money, so long as everyone else agrees.
The limitation to fiat money is that if irresponsible people assume management of the supply, they could mess up.
The limitation to gold is that its supply has an arbitrary relationship to demand. If the demand for money expands, and we don't find fresh supplies of gold, we're out of luck. Fiat money, managed properly, is much more elastic.
The advantage to oil is that the amount of potential energy we have access to has a DIRECT relationship to the size of our economy. If we have less energy sources we have less economic activity. Larger energy supply, more activity. To me, that makes oil superior to gold. Or, you could call the unit therms. Or kilowatts.
Final comment: I've been using fiat money to conduct business since about 1950. I've never been inconvenienced by the current system. In fact I think it's been managed fairly well. If I had a preference I'd prefer it to be managed after the manner of JM Keynes rather than as it has been since 1980, after Milton Friedman. But those are quibbles. I like a managed economy better than a static one that's forever fixed in amber.
In a static economy, the more people you have, the less money there is to go around. Remember King Croesus, and his ten thousand talents? They don't divide up very well between 6.8 billion people.
Published: May 13, 2008 11:36 AM
fundamentalist
Michael: “My point was more real-world, in that there are times when economic activity slows to the point where humans are inconvenienced.”
I think your statement hilites one of the main differences between Austrian econ and mainstream econ. The economy “slows” only in mainstream econ, which has no explanation other than sticky prices and wages and shocks from oil prices. Logically, there is no reason for the economy to just slow down. Different sectors will have slow periods as technology and tastes change, so the structure of the economy changes, but there is no reason for whole economy slowing. If it does slow down, as it does about every ten years, there is a good reason for it. Austrian econ says that the economy wide slowdown results from bad investments made during an artificial boom.
Michael: “At these times the simple positing of more available cash can help us out of the mud. Thus we are advocates of the injection of seed money during times of need.”
This is another example of where Austrian econ differs from mainstream econ. Mainstream says “pump money into the economy.” Austrians say “leave it alone. Let the bad investments liquidate themselves.” As the bad investments are liquidated, businesses and people will save more; those savings will go into new investments which hire more people and the economy will recover on its own. By pumping new money into the economy as the mainstream demands, the Feds create an artificial boom, more bad investments, and sets the stage for the next slow down. That’s why booms and busts are so regular and predictable.
Michael: “In this world, neither consumers nor employees have any worth. It's the dollar that counts. And policies promoting a strong dollar are to be preferred. This, in my view, is the Misian perspective.”
The whole point of the Austrian Business Cyle Theory is that the downturns in the economy caused by mainstream theory hurts the poor far more than the wealthy. Only the Misian, ABCT is concerned about the poor. Mainstream (Keynesian) certainly isn’t.
Michael: “The limitation to gold is that its supply has an arbitrary relationship to demand. If the demand for money expands, and we don't find fresh supplies of gold, we're out of luck.”
That’s the way mainstream econ thinks. When you’ve been educated in mainstream econ, as I was, it’s hard to bend your mind around Austrian econ, which is nearly the opposite of mainstream in important areas. The “demand for money” is nothing but the demand to hold cash balances, which in turn is nothing but the cash that people want to keep handy to pay bills and buy groceries. Why would that demand change radically? It only changes when the money supply changes, such as when the Feds pump new money through credit into the economy. Without the Feds messing with the money supply, demand for cash will be fairly stable. In other words, it’s the Feds who cause the demand for cash to change.
Michael: “The advantage to oil is that the amount of potential energy we have access to has a DIRECT relationship to the size of our economy.”
Oil has the potential to be a good limit on the money supply. Any commodity in which the growth of that commodity is limited would make good backing for money. The reason gold is better is that the increase is limited to about 3%/yr, and it’s more easily stored and transported. But the Feds could mirror gold-backed money by simply limiting the expansion of credit to 3%/year. In fact, all they would have to do is to target the price of gold as Alan Greenspan did in his early years.
Michael: “If we have less energy sources we have less economic activity. Larger energy supply, more activity.”
That’s another fallacy of mainstream econ. The amount of money has nothing to do with how well an economy does. The real drivers of economic growth are 1) savings and 2) technology. If the money supply remains fixed, and I mean with zero percent increase, it would not hurt the economy at all. All that would happen is that prices would fall at the rate of the increase in production. Nothing more. If the money supply grows at the same rate as the economy, prices remain the same. The US in the 19th century is a good example. The population and economy grew at astounding rates with prices at the end of the century virtually the same as at the beginning. There were periods of boom and bust caused by paper money, but the growth in the economy was outstanding even with a very slow growth of the money supply based on gold.
Michael: “If I had a preference I'd prefer it to be managed after the manner of JM Keynes rather than as it has been since 1980, after Milton Friedman.”
You must have loved the stagflation of the 1970’s, then. If so, you’ll really enjoy the next decade because the Fed has returned to good old fashioned Keynesian econ.
Michael: “In a static economy, the more people you have, the less money there is to go around.”
Don’t confuse a static economy with a fixed money supply. A dynamic economy depends upon savings and technology; the amount of money is irrelevant. That’s the Austrian view, not the mainstream view.
Published: May 13, 2008 12:20 PM
fundamentalist
PS, mild inflation, as the mainstream recommends, is devastating to the poor because increases in their income lags far behind increases in prices, making them poorer all of the time. Mild deflation, as would happen under a fixed money supply, would benefit the poor because then wage reductions would likely lag behind price reductions, making them richer with time. It would also benefit savers. If you really care about the poor, you'll want a strong dollar because a weak dollar steals from the poor and gives to the rich.
Published: May 13, 2008 12:24 PM
michael
fundamentalist-- You do show some familiarity with the problems inherent in calculating the earth's carrying capacity. But saying that you can't imagine how that might be done is not the same as saying it CAN'T be done. It has been done, several times. You summarise the problems thusly:
"Will you allow for irrigation or not? Most of the world’s farmers don’t irrigate. What about fertilizer? Most world farmers don’t use fertilizer except for a little cow manure. Which variety of seeds will you use, high yielding Western varieties or low yielding third-world varieties? Do you freeze technology everywhere at the current level of implementation and low productivity, or allow poor countries to use Western technology and farming techniques? After all, most farming is done with a short-handled hoe. Using an animal like an ox would improve productivity dramatically? Do you freeze the current patterns of land use or assume that more land will be farmed in the future as prices rise? Which foods do you concentrate on, rice that requires lots of water or grains that require little water? Will people continue to feed some crops to animals, such as hogs and cows, or consume all of what they grow?"
The answer is simple: calculate using current technologic methods. Use the historical curves for resource depletion and commodity production, and don't postulate unrealistic future solutions. That's the safest way to extrapolate from the present.
At current methods and current rates of water use, soil and water depletion, the oil requirement to use current rates of fertilizer, pesticides, farm equipment and transportation, etc. the calculation has come out that with six billion people (the number we had back at the turn of the century), if we were to bring each and every one of them up to the level of prosperity enjoyed by the average American (that is, one three hundred millionth of US GDP) we would require the resources of four and one-half earths. Which is a way of saying our current methods of resource utilization are unsustainable.
And even if the balance of the earth's population chooses to remain poor (which they won't) the current rate of use just in the developed world is well beyond sustainable.
Most minerals can be recycled using known methods. We will probably run short on copper and platinum, but we can reuse most metals satisfactorily, mining landfills for our materials. The problem comes with our use of water and petroleum well beyond replacement levels. Our prosperity in the past two centuries has come about because we are spending down geologic stores of groundwater and oil and gas in decades that have taken hundreds to millions of years to accumulate. So it is predictable that the day will surely come when groundwater and petroleum reserves are both essentially tapped out, i.e. no more recoverable reserves at any realistic price.
Both can be manufactured. We can make ag-grade water from ocean water and we can make medium-length carbon chain molecules from organic waste. And our techniques and efficiencies are getting better. But we are a very long way from being able to make either in the kind of quantity that will satisfy demand for the entire earth. Where we fall short is the humongous energy requirement.
I suspect that it's a tenet of your world view that there cannot be actual limits to natural resources, and that we can always create new ones as the need arises. I could only suggest that you look more closely, and crunch the numbers we have on resource stores, replacement rates and most importantly, the curve on use rates. The closer we look, the less cause we find for optimism. Unless we posit magic.
Published: May 13, 2008 12:26 PM
Ron
Michael: Duly noted that when we back off from the subject of activities occurring in the real world, and return to those exclusively within the sphere of theoretical economics, we have "returned to constructive discourse".
Actually my comment about constructive discourse had nothing to do with whether we were discussing "real world" or "theory". It was related to the fact that this thread had devolved into a lot of unproductive name-calling and other disrespectful activities thanks to a particular poster. It wasn't directed at you at all, I apologize for not being clearer.
My point was more real-world, in that there are times when economic activity slows to the point where humans are inconvenienced. Products aren't moving off the shelves, and so jobs are eliminated.
Why does economic activity slow? This is a crucial point, and one that Keynesian economics does not properly address, as it defines "economic activity" entirely as consumption and ignores savings and capital improvements. It is certainly possible that consumption may slow, but (absent government meddling) this only means that individuals are saving their money rather than spending it. This is what causes interest rates to fall in a free market...a greater supply of money to lend, thus a lower price to borrow that money. They're not flushing their money down the toilet, so it still exists, and it is still working in the economy. Rather than buying toasters and DVDs, it's paying for new machinery to build automobiles or new software to run Amazon.com.
Earlier you said that the money being invested in real estate and derivatives markets consisted of "excess funds", but I believe this is a misrepresentation of what is actually happening. It seems to suggest that the only time anyone invests is after they've paid all their other bills or something, and that the money invested was just stuff laying around that they weren't sure how to spend...as though they were going to the horse races or playing slot machines. I'm not sure why you've characterized it in this way, but I'd be interested in knowing that, so if you could explain further that would be cool.
In this world, neither consumers nor employees have any worth. It's the dollar that counts... This, in my view, is the Misian perspective.
Honestly, this is the exact opposite of the Misesian view. Dollars only have value in that they can be exchanged for other things. People, whether they are consumers, employees, or business owners, create wealth by providing goods and services to which others attach value. As stated before, money merely provides a convenient medium of exchange and calculation. You said so yourself later, so I'm not sure where we disconnected on that.
Gold and other precious metals were adopted early on as media of exchange because they are 1) nearly universally valued intrinsically, 2) easier to carry around than chickens, bushels of corn, or wagon wheels, 3) relatively difficult to extract, refine, and divide, and 4) highly divisible. It's this last reason that makes the argument about "running out of money" so silly...even if there were only a million dollars in circulation we wouldn't run out of money because we can keep dividing dollars ad infinitum. Right now, the lowest denomination we have is the penny, which is 1/100th of a dollar, but who's to say we couldn't further divide a penny into 100 units and use those to exchange for goods and services? More demand for money would simply mean that money is divided into finer and finer units.
There is no need to inject new money into the economy, as prices will adjust to reflect changes in supply and demand. The natural state of an economy with a relatively fixed money supply, that continually generates wealth, is steady deflation. Prices will continue to fall because there will be more "stuff" to spend money on, thus a greater demand for money. The price of money will therefore increase. It could one day increase enough that some items will cost less than a penny, so you'd either have to buy more than one, or you'd have to further divide the penny.
Think of it this way: Let's say you can buy a potato for a dollar. You are buying the potato with your dollar, and the potato farmer is buying your dollar with his potato. The price of a dollar is therefore one potato. If the value of the dollar increases, the potato farmer will be willing to give you more potatoes for your dollar, so the "price" of the dollar would increase to more than one potato. The opposite of this is inflation, where the price of the dollar declines to less than one potato.
I know this all seems elementary, but I think it's crucial to understand, since this entire debate revolves around the nature of money.
In this [economy], the needs of people are beside the point. In fact, if a person has no money, he does not even exist in this world. This economic world is perpetuated only to promote the health of the dollar (or whatever its medium of exchange may be called).
Why, then, does any market exist? If people didn't have needs and desires, there would be no exchange at all. How does it follow, then, that the needs of the people are irrelevant? How can anyone profit without meeting some need or desire held by people? The only other way is through theft/taxes, which is not actually profit but redistribution.
I've been using fiat money to conduct business since about 1950. I've never been inconvenienced by the current system.
I imagine not. The current system is very convenient, but that doesn't mean it's a good system. In fact, the majority of the information on this site argues that it's a terrible system.
I'm not sure why you think an unmanaged economy would be "static", as if the status quo were frozen in place. In fact, I think the exact opposite is true, as the FED and the central planners work tirelessly to maintain the status quo. In so doing, they create the mighty swells, upheavals, and painful readjustment we see now. An unmanaged economy would be more stable, as prices could adjust as often as necessary to maintain that stability, and it would be much more dynamic as a result.
Published: May 13, 2008 1:29 PM
fundamentalist
Michael: "At current methods and current rates of water use, soil and water depletion, the oil requirement to use current rates of fertilizer, pesticides, farm equipment and transportation, etc. the calculation has come out that with six billion people (the number we had back at the turn of the century)..."
That's actually very interesting. Do you have a link to a web site that shows how they calculated those things? Without having looked at the methods used, I wonder how they handled the currently very low levels of ag productivity in the undeveloped world, which is most of the world. It would seem to me that if the current level of low productivity can support 6 billion people, how many could we support if the productivity of farmers in the undeveloped world was improved to our levels? The gap between our productivity and theirs is about 20:1.
Also, fertilizer today is largely made from petroleum, but it need not be. Huge improvements in output can result from natural fertilizers.
Published: May 13, 2008 2:28 PM
michael
Fundamentalist-- Your interest in the subject is very encouraging:
"That's actually very interesting. Do you have a link to a web site that shows how they calculated those things?"
There's actually a large volume of work being done in this field. The first place to look would be your local library. Population dynamics, resource utilization and the management of the planet are wide subjects about which many people have written volumes... ones you may have passed over due to your interest in primarily economic subjects. It's a very different way of looking at the world.
The model you follow says the best management practise for the allocation of scarce resources is the market. And in such a model, people with more money can outbid people with less money for corn and soy. The winners in this game can use it to feed their cattle and gas tanks, while those unfortunates who need the food to stay alive are just out of the game.
I agree, if you remove any moral dimension to the equation this world works just fine. But to my taste, in establishing an optimal social system for the human race some weight should be given to dire need. We've reached a hinge point this year where that half of the planet surviving on $2 or less per day can no longer afford to eat.
How can that be? Why can't they just subsist?
"Without having looked at the methods used, I wonder how they handled the currently very low levels of ag productivity in the undeveloped world, which is most of the world. It would seem to me that if the current level of low productivity can support 6 billion people, how many could we support if the productivity of farmers in the undeveloped world was improved to our levels? The gap between our productivity and theirs is about 20:1."
The fact is that before the developed world impinged on the other continents, they did-- in far lower numbers. Their methods were inefficient but every family could achieve a certain security because there were enough resources to go around. And the excess numbers died in infancy, from disease or from low-level warfare. So population levels remained stable.
We can't go back to that world. In the 1950s the who brought sanitation and vaccination to that world, and people started surviving. With births greatly outnumbering deaths, the population took off. Also, these remote villagers now found the enticements of the modern world-- Jesus, transistor radios and motor bikes. They flocked to the cities in search of work.
That's where the model breaks down. No one has thought through the best use to which to put all these third world millions. True, they provide a cheap labor force, as everyone survives poverty by preying on his neighbor. But as we've seen in the Haiti discussion, it forms no good model for investment. You would be much enlightened by taking a trip to Lagos today, to see how half the world lives.
The plain fact is, no society can be properly run where there's a disconnect between the number of souls and the number of jobs. That's the #1 economic issue. Because everyone without gainful employment becomes a burden to the rest of us. We need to find ways to minimize the number of negative human assets and employ these people in greater number. And the current trend is exactly the reverse.
In the global development model, huge areas are being cleared of these "inefficient" subsistence farmers who were only supporting their families-- at no measurable economic benefit. The land is sold to first-world investors and put into cash crops for the world market, while the evicted population has to crowd into the cities in search of some way to survive.
That's the dominant model. And that is what has created the world we live in today. A fairly small number of affluent participants and a huge number of those left out. Pardon me if I don't think this is the best and highest achievement man can aspire to. It's a prescription for decades of bloody struggle between the haves and have-nots, until our numbers collapse to manageable proportions.
"Also, fertilizer today is largely made from petroleum, but it need not be. Huge improvements in output can result from natural fertilizers."
The resistance comes from the manufacturers of artificial fertilizers. So long as they are making money, that's what they'll sell the growers. With the rise of carbon-fuel prices this will correct itself, and organic manures now often wasted will be harvested at greater profit. But either way, food's going up. Most of the organics once sequestered in the soil and forest at the earth's surface are now out of reach in the sky or the ocean... because they were a waste product of industrial civilization. It won't be cheap finding this wasted carbon and putting it back to work for us.
I applaud your recognition that there may be another dimension to life than that denominated in dollars. In the coming century I think greater weight will be placed on clean water and organic carbon products-- the true wealth of the earth.
Published: May 14, 2008 9:34 AM
fundamentalist
Michael: “The winners in this game can use it to feed their cattle and gas tanks, while those unfortunates who need the food to stay alive are just out of the game.”
You have structured the argument so that free markets lose by default and definition. In a static economy, you’re right: the wealthy may let the poor starve so they can feed their animals (by the way, mainstream econ studies static economies almost exclusively). However, in a real, dynamic economy, people and prices adjust. Real rich people help the poorest with charity. The poor switch foods. If corn prices are high due to shortages, the poor switch to wheat or rice. In early the Dutch Republic, farmers ate cheaper, imported rye and barley bread so that they could sell the wheat they grew to wealthy people in the cities. In addition, if prices of all food is high, farmers increase acreage planted and switch to growing the types of food with the highest prices, eventually causing prices to fall (assuming a fixed money supply).
Michael: “I agree, if you remove any moral dimension to the equation this world works just fine. But to my taste, in establishing an optimal social system for the human race some weight should be given to dire need. We've reached a hinge point this year where that half of the planet surviving on $2 or less per day can no longer afford to eat.”
I agree that the poverty in the world is very sad. But why do you blame free markets for the current food situation when no country on this planet has a free market? The poorest nations are those with the least free markets. The US has the most free market, but the ag industry is highly regulated. For example, even though Mexico is experiencing a shortage of white corn for tortillas, NAFTA limits the amount of white corn the US can export to Mexico, even though we have a surplus. Free markets are preventative, not curative. If unfree markets cause a crisis, which they always do, free the markets will not save people because they take too long to implement. The countries which have accomplished the most in reducing poverty, India and China, have done so by liberating their markets only slightly. The tremendous boost in wealth that tiney increases in freedom has caused in those two nations should cause everyone to stand in awe of free markets. I know the Chinese are in awe of their progress and we should be, too.
Michael: “Their methods were inefficient but every family could achieve a certain security because there were enough resources to go around.”
If you read some of the economic development literature, you’ll find that most farming in the third world is done by women with a short-handled hoe. This is cave-man technology. Egyptians at least used oxen in 3,000 BC. If third world farmers could use oxen, their productivity would sky rocket to amazing heights. Horses and mules can allow farmers to produce even more, but only with mechanized farming did the West achieve its high levels of productivity. So why don’t these millions of third-world farmers advance to the productivity level of Egyptians in 3,000 BC? As the UN has discovered, the fact of wide-spread theft prevents them from even trying. In addition, most third world states use price controls to keep the price of food artificially low in the cities, but those artificially low prices discourage farm production.
Michael: “The plain fact is, no society can be properly run where there's a disconnect between the number of souls and the number of jobs. That's the #1 economic issue.”
No, it’s not the #1 economic issue. You should read anything you can find written by the late Peter Bauer, one of the best economists on third world econ development. Development economists have known since WWII that the key to development in the third world is improving farming productivity. But third world governments aren’t interested. Increased farm productivity enriches farmers who then demand manufactured goods. Increased manufacturing then absorbs much of the excess farm labor. I could go on, but many books have been written on the subject. Bauer’s tend to be the best.
Michael: “The land is sold to first-world investors and put into cash crops for the world market, while the evicted population has to crowd into the cities in search of some way to survive.”
You’re right; that has been a real problem. It happens because third world nations have virtually no property rights whatsoever, otherwise the people on the land would not sell. Usually, the US corporations don’t buy the land from the farmers because the state doesn’t recognize the farmers’ property rights. The US corps bribe the local politicians who then simply evict the poor farmers without compensation.
Michael: “That's the dominant model. And that is what has created the world we live in today. A fairly small number of affluent participants and a huge number of those left out. Pardon me if I don't think this is the best and highest achievement man can aspire to.”
I couldn’t agree more. But the dominant model has nothing to do with free markets or capitalism. It’s just the opposite.
Michael: “The resistance comes from the manufacturers of artificial fertilizers. So long as they are making money, that's what they'll sell the growers.”
Natural fertilizers abound, though, and they’re cheap. For example, the Southern Baptist Missions Board has many agricultural missionaries who teach third world farmers better techniques. Back in the 80’s, they discovered poor Philippino farmers trying to farm poor dirt on hillsides because the state had given their fertile land in the valley to a US fruit corp. They farmers were starving. The SBC missionaries taught the farmers how to terrace the hillsides using native plants hold the soil and to harvest the plant leaves to make fertilizer. Within a few years, the farmers and their families were not only well fed, but selling excess produce in the local markets and prospering.
Michael: “I applaud your recognition that there may be another dimension to life than that denominated in dollars.”
The most annoying people are those who think they know what motivates others. I got interested in economics because of my experiences in third world countries. I have lived in Iran, Afghanistan, Mexico and Morocco and seen a lot of poverty. I took a class in college on third world economic development because I wanted to know why the people in those countries are so incredibly poor. In the process, I found a huge gulf existed between development economics and mainstream econ. That gulf exists partly because mainstream focuses on static economics while development econ concentrates on dynamic economics. I earned an MA in econ, but my disenchantment with mainstream econ led me to Austrian econ, which agrees in every way with the best of developmental econ. My interest in economics is directly related to my deep concern for the poorest people in the world. I’m totally not interested in making the West richer. I support capitalism and free markets because they have proven, for 300 years, to be the only way to reduce poverty. And you don’t have to have a totally free market to experience huge increases in wealth. China and India have demonstrated that very very tiny improvements in freedom and security of property generate enormous gains.
Published: May 14, 2008 10:34 AM
fundamentalist
PS, In addition to price controls that make farming unprofitable in most poor nations, those farmers also can’t borrow money to make improvements. Because they lack secure property rights to the land they farm, banks won’t lend to those farmers. So farmers are at the mercy of loan sharks who charge 200% and more. In order for farmers in poor nations to improve their productivity, and get out of poverty, their governments must get rid of price controls and make their property secure so they can borrow from banks and so that neighbors won’t steal what they have. As a stop-gap measure, many charitable organizations have created micro-lending banks, but they don’t help a great deal because of the other problems.
Published: May 14, 2008 10:52 AM
michael
Thanks for your complete responses, fun. (May I call you fun?)
"You have structured the argument so that free markets lose by default and definition. In a static economy, you’re right: the wealthy may let the poor starve so they can feed their animals (by the way, mainstream econ studies static economies almost exclusively). However, in a real, dynamic economy, people and prices adjust."
Our world moves forward in the dimension of time. When we measure the economic progress our species is making, we find in 2008 that the poor are still growing poorer, the rich are still growing richer. This is due to the ongoing processes of globalization. I don't see how you can call this a static economy... it's a progressing condition.
"The poor switch foods. If corn prices are high due to shortages, the poor switch to wheat or rice."
Right you are. Deprived of rice, the people of Haiti are now eating dirt and leaves.
"I agree that the poverty in the world is very sad. But why do you blame free markets for the current food situation when no country on this planet has a free market?"
The poor nations of the world are all signing FTAs with the rich ones-- principally, the USA. We write the rules, they follow them. Should we then blame them that they have signed badly written agreements?
The problem is that the global market is now in the finishing stages of abolishing the older subsistence economies. Families that used to grow food and fiber for themselves, neighbors and people of their district are now economically pressured through devious means into growing crops for the global market. They take out usurious loans to buy trademarked seed, fertilizer, pesticides and farm equipment-- and grow crops that fail to repay the loans at current free market prices. Then they fail, and their land is bought up by multinational corporations. You should see the stats on suicide rates among evicted farmers in India. It's an epidemic.
"If you read some of the economic development literature, you’ll find that most farming in the third world is done by women with a short-handled hoe. This is cave-man technology."
This marks the third time you have repeated this factoid. It obviously has had a pronounced effect on you. Actually, you should see the trend in dynamic terms not static ones. :)
Traditional farming methods had evolved to the point where one family could subsist on the produce of one farm. When a family had in excess of one male child, primogeniture dictated that excess male progeny move to the city in search of work.
This system is being replaced by a global model that uses that family's labor as a disposable commodity. It has been designed to facilitate profitability-- not to serve as the basis for a rewarding and sustainable life style. And while we can't castigate this system for not doing something it never intended to do, we can at least recognize that for human beings, it's not a good choice.
I should limit this post for brevity. Here is a vital problem on which we differ:
Michael: “The plain fact is, no society can be properly run where there's a disconnect between the number of souls and the number of jobs. That's the #1 economic issue.”
Fun: "No, it’s not the #1 economic issue. You should read anything you can find written by the late Peter Bauer, one of the best economists on third world econ development. Development economists have known since WWII that the key to development in the third world is improving farming productivity. But third world governments aren’t interested. Increased farm productivity enriches farmers who then demand manufactured goods. Increased manufacturing then absorbs much of the excess farm labor."
When we look at the real world, in order to grade our progress under the globalization model, we find this has not occurred. Those forced off the land who came to the cities in search of work were mostly unrewarded. The few who did obtain jobs found that in a saturated labor market they were paid pennies, making cheap trinkets to sell to Americans. The original design was that they would gain wages sufficient to be able to become consumers themselves-- thus stimulating the development of new factories to satisfy their own wage-driven demands.
For example in the initial phase of NAFTA, Mexican farmers were forced off the land because they could not compete with dumped corn, chickens, wheat and cotton from subsidised US operations. They went to the maquiladora factories on the US border to find new work. But all they did was force pay and conditions down, as the demand for their labor was far less than the supply of newly unemployed people.
So they came to the US, finding cheap work here and sending their pay home to the family. Now they are being thrown out of the US at the same time that crop prices are shooting sky high. Their families are now unable to afford tortillas made from US corn. So presumably they will again return to subsistence farming to grow cheaper corn-- and the experiment will have come full circle.
In summary, the theories glowingly described by Peter Bauer and others were certainly worth a try. I myself was very cautiously optimistic over NAFTA's possible success, back in 1995. But we tried them, and the miracle didn't happen. Now we need to develop a different model.
Take a look at how politics in South America have progressed over the past fifteen years. Every one of those countries swallowed the development koolaid. And they all accrued onerous debts, through a variety of bad management methods, so they had to come begging to the IMF, hat in hand, for debt renegotiation. They owed more than they were worth.
The prescription was for structural adjustments that further impoverished the peoples of their countries. So nearly all those governments were over thrown and leftist regimes came in to replace them. The more successful among them have been able to pay off (Venezuela) or repudiate (Argentina) foreign debt and start anew. Otherwise they would all have been slaves on the IMF plantation.
It was an alluring dream. But it didn't pan out. Let's see how the current round of "free trade" agreements works. My feeling is that those that don't include "fair trade" rules to protect labor and the environment will be making things worse for the peoples of those nations. We'll see in another decade.
Published: May 14, 2008 12:46 PM
michael
You surprise me, fundy. Here I'm thinking that you're just an economist from some dreary tower of learning, and you say this:
"The most annoying people are those who think they know what motivates others. I got interested in economics because of my experiences in third world countries. I have lived in Iran, Afghanistan, Mexico and Morocco and seen a lot of poverty. I took a class in college on third world economic development because I wanted to know why the people in those countries are so incredibly poor. In the process, I found a huge gulf existed between development economics and mainstream econ. That gulf exists partly because mainstream focuses on static economics while development econ concentrates on dynamic economics. I earned an MA in econ, but my disenchantment with mainstream econ led me to Austrian econ, which agrees in every way with the best of developmental econ. My interest in economics is directly related to my deep concern for the poorest people in the world. I’m totally not interested in making the West richer. I support capitalism and free markets because they have proven, for 300 years, to be the only way to reduce poverty. And you don’t have to have a totally free market to experience huge increases in wealth. China and India have demonstrated that very very tiny improvements in freedom and security of property generate enormous gains."
Hard to argue that you haven't had the experiences to know what you're talking about. But I'm suprised you aren't more enthusiastic about microlending. Bankers should love it as it offers safe returns that are hard to beat-- providing they can wrap their heads around the management nightmare. Most seem to prefer lending to one big developer who might very well go under, rather than ten thousand little people with very good repayment track records.
And in principle, this seems very strongly akin to the approach you prefer. I assume when you invoke the mantra of private property rights you're thinking of Hernando de Soto's miracle cure? The only difference is that with the one, the equity is in the character of the recipient-- while with the other, his home gets mortgaged. And so often, in the developing world, we see that the motivation behind the lender's largesse is to engineer the ultimate loss of the property.
I think the problem is that we're still stuck with the host governments. Myanmar this week is a good example of the kind of thing we have to put up with. We have to give the aid to the thieves who stole the country. They can give their people whatever's left over after they take their share. A shame that so many of these miserable places are governed by people we prop up with military foreign aid.
I'll take a closer look at Austrian econ. I've always considered it odd that there should be schools of thought on such a subject. It's like making a distinction between the study of mathematics and "Fred's mathematics". What I've seen so far has failed to convince me that Fred knows better than everyone else.
Published: May 14, 2008 1:12 PM
fundamentalist
michael: "In summary, the theories glowingly described by Peter Bauer and others were certainly worth a try. I myself was very cautiously optimistic over NAFTA's possible success, back in 1995. But we tried them, and the miracle didn't happen. Now we need to develop a different model."
You completely missed the point of my post. NAFTA and similar agreements were the opposite of what Bauer recommended. All of the "free trade agreements" we have signed have nothing to do with free trade. Only a cynic would call them free trade. Everyone familiar with them knows that they are managed trade, not free trade. But regardless of the stupid documents dictators sign, it doesn't change the fact that inside poor nations people have no property rights or any other aspect of capitalism.
Michael: "This marks the third time you have repeated this factoid. It obviously has had a pronounced effect on you. Actually, you should see the trend in dynamic terms not static ones."
But that's the point you refuse to get. I guess I'll keep repeating it until you understand its importance. There is no improvement in farming methods in poor nations. None whatsoever. And the reason is lack of the whole package of capitalism. Today, as I write, most of the farming in the world is done by women with short-handled hoes. They don't do it because of globalization; they've farmed that way for millenia. Globalization has neither helped no hurt them.
Michael: "But I'm suprised you aren't more enthusiastic about microlending."
Microlending helps a few people, but it can never overcome the vast, deep damage that states cause through their price controls and general theft.
Published: May 14, 2008 4:03 PM
newson
to michael:
the exception to your south american model is chile. the pinochet era, which ended following the plebiscite, saw considerable market liberalization. i don't condone the human rights abuses that the regime inflicted on its enemies, but it's the only military dictatorship i know of that had the sense not to try and run the economy. the juntas of all other south american nations implemented central planning and economic ruin resulted. a double tragedy.
the centre-left governments that followed pinochet have largely left his economic reforms intact. property rights had always been secure in chile, prior to allende, and it seems likely to remain that way.
chavez is yet another example of riches pissed up against the wall (following in the hallowed footsteps of castro, who turned one of the wealthier caribean nations in per capita incomes into the present basket-case). as saudi arabia found out, oil wealth doesn't guarantee a rising standard of living for citizens. i don't even think chavez cares. probably sees himself more in the christ/bolivar mould. he's going to be mythologized whatever happens to the country.
re: micro-credit, i refer to you this article, which debunks the myth http://mises.org/daily/2375
Published: May 14, 2008 9:44 PM
TLWP Sam
Did Michael fall the trap that the title sets up? Whose the 'we'? Westerners aren't running out of food instead we're fatter than ever. So much so that there's enough food whereby many people's health go into decline. On the other hand, people in the poorest places always seem to never have enough and millions have starved and continue to do. In a sense they've already ran out of food. Westerners can tighten their belts some when oil and food prices rise but it's doubtful Westerners would come anywhere near starvation. If poor people are living in arable regions then, as Fundy has pointed out, it's an interference issue not a lack of resources.
Published: May 15, 2008 1:24 AM
michael
newsom comments "the exception to your south american model is chile. the pinochet era, which ended following the plebiscite, saw considerable market liberalization. i don't condone the human rights abuses that the regime inflicted on its enemies, but it's the only military dictatorship i know of that had the sense not to try and run the economy. the juntas of all other south american nations implemented central planning and economic ruin resulted. a double tragedy."
You use an odd definition for "economic ruin". Venezuela, for example, is currently enjoying an increase in GDP of 8.7% (2007, CIA World Factbook), has increased employment and access to domestic credit, has paid off all foreign debt, has started free higher education and heath services for the poor, has greatly alleviated the proportion of the population classified as poor and in general has solved every economic problem the country has except inflation. By contrast previous governments, following neoliberal policies, did nothing but allow the debt burden to grow worse. And to allow oil money to flow out of the country to foreign investors.
Likewise Argentina is now in a period of economic expansion... although they have had to repudiate foreign debt-- in essence, declare bankruptcy following the policies of a succession of failed governments.
Compare both with our protege Colombia, burdened with an intractable civil war, endemic death squad activities, high unemployment, a broken pension system and a two-class system of haves and have-nots. The haves are expanding economically, to the tune of a 6.5% increase in GDP last year.
I note in passing that neither Venezuela, Argentina nor Ecuador have seen juntas, other than one failed one in Venezuela. All now have governments democratically elected in free and fair elections. They are successful in bringing about a general level of prosperity, and thus are the popular choice.
Pinochet's reforms were nothing to brag about. In a country where most people were barely scraping by, and were dependent on their government pension for their retirement, they saw it utterly destroyed. I see no way anyone could support this kind of economic shock therapy-- it was a tragedy, a mistake and a failure.
"the centre-left governments that followed pinochet have largely left his economic reforms intact. property rights had always been secure in chile, prior to allende, and it seems likely to remain that way."
Chile is following a prosperous path currently, combining elements of both neoliberal market policies and socially responsible government programs. I think they're finally in a prosperous mode, where all levels of society benefit.
So it would appear that the definitions of success or failure depend in their entirety on whether one is a beneficiary of the current system or its victim. You and I seem to be on opposite sides of the issue.
I will however, read with interest your article on the failures of the Grameen approach. Since it is known that such loans are safe and profitable for the lenders, and that they target endemically poor people with no other access to credit, and that the beneficiaries have been able to start and maintain home businesses with an outstanding record of success, I look forward to finding out what was so wrong about the program... other than that it strayed from the desirednewsom comments "the exception to your south american model is chile. the pinochet era, which ended following the plebiscite, saw considerable market liberalization. i don't condone the human rights abuses that the regime inflicted on its enemies, but it's the only military dictatorship i know of that had the sense not to try and run the economy. the juntas of all other south american nations implemented central planning and economic ruin resulted. a double tragedy."
You use an odd definition for "economic ruin". Venezuela, for example, is currently enjoying an increase in GDP of 8.7% (2007, CIA World Factbook), has increased employment and access to domestic credit, has paid off all foreign debt, has started free higher education and heath services for the poor, has greatly alleviated the proportion of the population classified as poor and in general has solved every economic problem the country has except inflation. By contrast previous governments, following neoliberal policies, did nothing but allow the debt burden to grow worse. And to allow oil money to flow out of the country to foreign investors.
Likewise Argentina is now in a period of economic expansion... although they have had to repudiate foreign debt-- in essence, declare bankruptcy following the policies of a succession of failed governments.
Compare both with our protege Colombia, burdened with an intractable civil war, endemic death squad activities, high unemployment, a broken pension system and a two-class system of haves and have-nots. The haves are expanding economically, to the tune of a 6.5% increase in GDP last year.
I note in passing that neither Venezuela, Argentina nor Ecuador have seen juntas, other than one failed one in Venezuela. All now have governments democratically elected in free and fair elections. They are successful in bringing about a general level of prosperity, and thus are the popular choice.
Pinochet's reforms were nothing to brag about. In a country where most people were barely scraping by, and were dependent on their government pension for their retirement, they saw it utterly destroyed. I see no way anyone could support this kind of economic shock therapy-- it was a tragedy, a mistake and a failure.
"the centre-left governments that followed pinochet have largely left his economic reforms intact. property rights had always been secure in chile, prior to allende, and it seems likely to remain that way."
Chile is following a prosperous path currently, combining elements of both neoliberal market policies and socially responsible government programs. I think they're finally in a prosperous mode, where all levels of society benefit.
So it would appear that the definitions of success or failure depend in their entirety on whether one is a beneficiary of the current system or its victim. You and I seem to be on opposite sides of the issue.
I will however, read with interest your article on the failures of the Grameen approach. Since it is known that such loans are safe and profitable for the lenders, and that they target endemically poor people with no other access to credit, and that the beneficiaries have been able to start and maintain home businesses with an outstanding record of success, I look forward to finding out what was so wrong about the program... other than that it strayed newsom comments "the exception to your south american model is chile. the pinochet era, which ended following the plebiscite, saw considerable market liberalization. i don't condone the human rights abuses that the regime inflicted on its enemies, but it's the only military dictatorship i know of that had the sense not to try and run the economy. the juntas of all other south american nations implemented central planning and economic ruin resulted. a double tragedy."
You use an odd definition for "economic ruin". Venezuela, for example, is currently enjoying an increase in GDP of 8.7% (2007, CIA World Factbook), has increased employment and access to domestic credit, has paid off all foreign debt, has started free higher education and heath services for the poor, has greatly alleviated the proportion of the population classified as poor and in general has solved every economic problem the country has except inflation. By contrast previous governments, following neoliberal policies, did nothing but allow the debt burden to grow worse. And to allow oil money to flow out of the country to foreign investors.
Likewise Argentina is now in a period of economic expansion... although they have had to repudiate foreign debt-- in essence, declare bankruptcy following the policies of a succession of failed governments.
Compare both with our protege Colombia, burdened with an intractable civil war, endemic death squad activities, high unemployment, a broken pension system and a two-class system of haves and have-nots. The haves are expanding economically, to the tune of a 6.5% increase in GDP last year.
I note in passing that neither Venezuela, Argentina nor Ecuador have seen juntas, other than one failed one in Venezuela. All now have governments democratically elected in free and fair elections. They are successful in bringing about a general level of prosperity, and thus are the popular choice.
Pinochet's reforms were nothing to brag about. In a country where most people were barely scraping by, and were dependent on their government pension for their retirement, they saw it utterly destroyed. I see no way anyone could support this kind of economic shock therapy-- it was a tragedy, a mistake and a failure.
"the centre-left governments that followed pinochet have largely left his economic reforms intact. property rights had always been secure in chile, prior to allende, and it seems likely to remain that way."
Chile is following a prosperous path currently, combining elements of both neoliberal market policies and socially responsible government programs. I think they're finally in a prosperous mode, where all levels of society benefit.
So it would appear that the definitions of success or failure depend in their entirety on whether one is a beneficiary of the current system or its victim. You and I seem to be on opposite sides of the issue.
I will however, read with interest your article on the failures of the Grameen approach. Since it is known that such loans are safe and profitable for the lenders, and that they target endemically poor people with no other access to credit, and that the beneficiaries have been able to start and maintain home businesses with an outstanding record of success, I look forward to finding out what was so wrong about the program... other than that it strayed from the desired ideology.
Published: May 15, 2008 11:12 AM
Inquisitor
"Since it is known that such loans are safe and profitable for the lenders, and that they target endemically poor people with no other access to credit, and that the beneficiaries have been able to start and maintain home businesses with an outstanding record of success, I look forward to finding out what was so wrong about the program... other than that it strayed from the desired ideology."
If you're going to approach everything with this cynical attitude, why even bother?
Published: May 15, 2008 11:20 AM
Eduardo
Micheal,
You'd better check your information on South America. I encourage you not to believe in propaganda.
For instance Argentina is rapidly deteriorating. This week the central bank had to take some measures in order to contain severe financial anxiety. People are starting to buy dollars and euros, and taking them abroad.
There were lots of predictions of an argentinian crisis for next year, but I think that it is coming faster.
Just wait a few months and you will see.
Published: May 15, 2008 12:34 PM
michael
Newsom, I've read the article you suggested. And I find it full of a number of inaccurate assertions:
1) "Why is giving high-interest loans to the inner-city poor considered exploitative in the United States but wonderful and compassionate in Bangladesh?"
Payday lenders profit from maintaining high debt levels for low-wage employees already mired in debt. That's exploitative.
Microloans give people with no employment and virtually no access to credit seed money to start up their own business ventures. Completely different purpose. Not exploitative.
2) "A deeper look at this institution shows not a success but precisely the sort of flop you might expect from a government-subsidized program that is predicated on the view that money alone is the answer to poverty."
It is very hard to conceive of any argument against the provision of capital to people without access to capital, for the purpose of starting up businesses where they can become self-employed and thus not dependent on either government help or a rapacious employer.
Also, if any Grameen-type institution is started with government funds, it should nonetheless be profitable. If the program is unprofitable it should be dropped, whether privately or publicly funded. And if publicly funded and profitable, it does not fit the definition of "subsidised". It is a net profit center, not a funding sink.
3) "Why is giving high-interest loans to the inner-city poor considered exploitative in the United States but wonderful and compassionate in Bangladesh?"
Again, it's all relative. Payday loans do not offer a way out, but rather ensnare low-wage earners in a cycle of debt. Grameen-style loans offer a way out of poverty.
High interest? Loan rates of 20% in Bangladesh are less than one-fifth what any local money lender would charge. Any loan program should be undertaken with an interest rate high enough that the lender makes a fair return on his investment.
Has such a program ever been shown to be "a flop"? Not that I can find. But obviously, if an application fails, the model should be corrected and tried again. The failure of Studebaker should not be used as an indication that any automaker must inevitably be doomed to failure.
Bottom line, a microlending institution should always be managed for profitability. If it is, the investor profits whether he be an individual, an institution or a government. If it isn't, the model should be changed.
The original Grameen Bank- Bangladesh says of itself "Borrowers of Grameen Bank at present own 94 per cent of the total equity of the bank. Remaining 6 percent is owned by the government." And if 94% of the equity of the bank has been provided by repayment of loans, I think that's a very good track record. The government's six percent would appear to have been very well invested.
They further say "Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992. It has published its audited balance-sheet every year, audited by two internationally reputed audit firms of the country. All these reports are available on CD, and some on our web-site : www.grameen.com"
As a model, then, the original would seem to be on a good business track.
http://www.grameen-info.org/bank/GBGlance.htm
Finally, your article says "We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?"
Yunus found a model no one else had thought of. And it has worked very well. Now entrepreneurs are trying it in a number of other countries. It is quite conceivable that the mindset of previous South Asian bankers was such that they did not consider their poor to be likely bankable economic risks. If so, they have been proven wrong.
Published: May 15, 2008 12:53 PM
Indian Non-Economist
Michael,
I grew up in a province called Kerala in India. It is infamous for electing the first ever communist government in the world. Unemployment rate is the highest in India. It was the most highly literate state in the Indian Union at the time of independence and today. Most educated among the Keralites leave Kerala looking for jobs elsewhere. Many work in the middle-east, many others in other parts of India.
India itself experimented with a democratic socialist system for long and all it gave them was poverty and misery. Until they started embracing capitalism, there was no progress. Even now it is a crony capitalist state, but it is in a better place economically than 20 years ago.
Same story could be told about China, Vietnam, Russia, Eastern Europe etc.
Even if there was no economic prosperity, I would still support a libertarian society, because it is the most free and most just.
Published: May 15, 2008 1:23 PM
newson
michael says:
"I note in passing that neither Venezuela, Argentina nor Ecuador have seen juntas, other than one failed one in Venezuela"
argentina: peron came to power following a military coup in 1943. the military seized power in 1976 and only let go following the falklands debacle in 1983.
venenzuela: apart from the recent coups (two attempts by chavez in 1992), and one against him in 2002, this country's history is peppered with coups and military juntas. i can't be bothered to list all the players, they're that numerous.
ecuador: 1960's military junta, 1970's general rodriguez lara seized power, general vargas lead military uprising in the 1980's, military briefly seized power in 2000
again, michael:
"Pinochet's reforms were nothing to brag about. In a country where most people were barely scraping by, and were dependent on their government pension for their retirement, they saw it utterly destroyed. I see no way anyone could support this kind of economic shock therapy-- it was a tragedy, a mistake and a failure."
you conveniently neglect the conditions that lead up to the coup. remember this was the only coup in chilean history, so quite anomalous. allende won power with a minority vote, the oppostion being split. he then set about turning chile into the world's first democratically-elected marxist state. the americans were not amused by his nationalizations of various us interests, and their involvement is well covered in the media. less well covered is the support, overt and covert, that allende got from the soviet bloc, very keen on helping their poster boy.
anyway, not wanting to recount the whole cold war, allende's economy was an absolute disaster, high inflation,(that's what destroyed those on fixed rate pensions), economic regression, unemployment, and expropriation of property.
pinochet's coup arose from widespread dissatisfaction amongst the middle-class, alarmed at the increasing poverty and insecurity of property rights.
all other military regimes of south america followed the dirigiste economic model. pinochet abandoned this and set the chicago boys on implementing liberalization. pinochet did voluntarily cede power via the plebiscite, and left the country was in much better shape (pick any statistic - child mortality, longevity, gdp, literacy etc) than when he came to power.
unforgivable though the torture and murder (3000+ deaths) were, the pinochet era was unique in not impoverishing the nation.
leftists hate pinochet not so much for the numbers of dead, (desaparecidos in tiny uruguay during their dirty war were three times those of chile), nor for the improvement in living standards over the course of the regime, but for his deposing allende, who had been the only marxist to ever gain office democratically.
life is very tough in argentina right now, and the streets of buenos aires are filled at night with cartoneros, scavengers of the rubbish, who sell waste cardboard for pennies. a far more desperate picture than when i was last there in 1992.
south america has a long and sad tradition of despotism and shaky property rights. anyone who's really interested in why poor countries stay poor should spend time in central or south america.
Published: May 15, 2008 10:41 PM
newsoN
to michael:
re: grameen bank - we're clearly never going to see eye-to-eye on what turns poor countries into wealthy ones, and vice versa.
i look forward to bangladesh's constant upward march, thanks to this new paradigm.
Published: May 15, 2008 11:17 PM
newson
only ph d's have the requisite knowledge to comment...
the unwashed shall kindly just listen respectfully.
Published: August 23, 2008 9:27 PM
fundamentalist
Anatoly: "In poor economies, information is scarce and very costly. In addition, transaction costs can be extremely high."
That's a very good point. To some people a market is a market. But there are vast differences between tradition markets and modern markets. Traditional markets work very poorly.
Published: September 19, 2008 8:28 AM
Kel Kelly
I just happened to look at this blog for the first time since May.
I’m surprised at the unprofessional criticism aimed at someone whose views you don’t agree with.
Wesley:
Either you have the wrong guy, or you are badmouthing me because you don’t share the same economic views. I doubt you have spoken with someone who went to school with me, as my three degrees were obtained in 1993, 1997 and 2002. As for “promoting” this is the only article I’ve ever written. My background is in financial markets and corporate finance, not economics. I have studied economics for many years, but have never written or advertized my knowledge in any other way. Besides, anyone who would know me knows me to be relatively self-deprecating. My name is not a common one: the odds that you know someone who knows someone else with my name are very slim.
Dalton:
We meet again, and as with your email barrage (where it was you who would not stop emailing), I see you still refuse to stop. Indeed, I did come at you very harshly, as you were the only one of the many responses I received who was rude, unprofessional, insulting, and antagonistic. As you know, you were dishonest in the same way that Wesley appears to be. You claimed that you had a Mises contact who said that I was all too well known at Mises.org (in a negative way). Again, it was my first article, and any search on Mises will reveal that I signed up on Mises.org in April, and had maybe one blog comment on the site – meaning, no one knew me here at all, and they still don’t.
It is a shame that economics can’t be discussed in light of truly understanding cause and effect, and that instead we try to badmouth each other. If we would all like to be professional, I would be more than happy to discuss our differing views, and compare the merits and legitimacies of our various views. Just because some of us believe markets work and others don’t, need not be a reason to insult each other. Indeed, I could well be wrong with my theories. What I care about is truly understanding how the world works.
You have my email address: I will be glad to discuss my work and yours. Wesley, I would be more than happy for you to attempt to prove to me that you know who I am and that I am someone who somehow promotes myself as you unfairly accuse.
Published: September 26, 2008 9:48 PM
Kel
You're obsessively weird. You're a fraud and a coward. Otherwise you would have met my challenge to face me head on.
Published: October 10, 2008 1:25 PM