It is getting bad out there

So yesterday, we had Fed Chairman Bernanke state that the current economic slowdown “is nothing like the Great Depression”, mostly because of the awesomeness of the current Federal Reserve. Aside from the obvious self-serving nature of the remark, that he was forced to even make that statement is a testament to the degree to which people are hurting right now. Oil and gas are at new highs, food prices have climbed dramatically, and many other commodity prices are rising as well. Indeed, food riots have broken out in Egypt, Haiti, etc. and skyrocketing rice prices, the staple for half of the planet, are making quite a few governments very, very nervous.

It should be noted that there has never been a serious famine in a functional democracy. Furthermore, there has not been a widespread famine since the early 1960’s when Mao’s Great Leap Forward screwed up China’s farm (or really anti-farm) policy and killed 30 million people. Not to diminish those episodes of hunger in Africa since then but those, while heartbreakingly severe, were mostly geographically contained and more limited in scope. Moreover, technology has improved crop yields and transportation efficiency and allowed nations facing shortages, should they choose, to import their way out of droughts, crop failures, etc. Due to increasing demand, loss of arable land, and a few other factors, that flexibility, however, may no longer exist.

The point I am making here is that the increasingly democratized global economy has never had to respond to a harsh, widespread and prolonged food shortage. And that globalization is part of the issue; global markets mean that food shortages have the potential to spill across multiple nations, rather than remain isolated. Just as the US credit crunch spread to economies around the world, so to can food price inflation.

I am not sure that the economic caretakers around the world have the tools to combat this sort of thing or the political will to take the necessary steps to correct it. Even during the worst days of the Great Potato Famine, because of policies indifferent to the suffering of the natives, Ireland was a net exporter of food. History is full of other equally foolish practices that inevitably punish the poorest of the afflicted society. I seriously doubt there exists much incentive in Western nations to mandate that their farmers stop producing biofuels in favor of food stocks because Southeast Asia needs rice but such somewhat Draconian measures may be required to forestall the shortage from getting really nasty. As always, time will tell.

The larger point is that a few billion people around the world must now pay an ever increasing share of their meager income providing bare sustenance. This is obviously a Bad Thing. High food prices may well be the new normal and an organized global response may be needed. Here's to hoping that the central banks, economic policy coordinators, agronomists, and the like can get their shit together before this gets out of hand. But as has been said before, hope is not a plan.