Shocked and Persuaded

This is something I wrote in response to an article by Dr. Jagdish Bhagwati and Arvind Panagariya at Project Syndicate. I love this site and really the thinkers and practitioners run the ideological gradient. Read the rest of this entry »

Thanks to a great article by Nelson D. Schwartz in The New York Times. Can you believe this?

Of course we have been doing the same here in the US since September of 2008 when Lehman Brothers collapsed. This type of mixing and matching would make even the most devious street hustler blush given the trickle down, up, left, and right of a group of greedy bankers and profligate sovereign governments. The idea that this type of thing couldn’t have been stopped is nonsense and to go one step further the Greenspanian idea that you don’t prick a bubble is pure hubris mixed with a large dose of Cigarette Smoking Man “After all, villains don’t think they are villains”.

What was it that John Maynard Keynes said about capitalism run wild. Oh yeah…“Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.“

Well say what you want about Lord Keynes politics and the bastardization of his work and theories by the left and the right, but the fact remains we have never seen a paradigm proved so faulty, so often, in so many disparate economies, and with so many casualties than we have with Capitalism. Don’t even think I am espousing Socialism across the board I am not and would never, but a reexamination of the facts when they change should lead us to change our minds about Capitalism as it’s universal application is clearly misguided and when you wipe away the muck and bombast very dangerous for lots of folks.

It seems that we may be hitting the point the Romans and many others inevitably approached and violently surpasses. It is the point at which our cumulative GDP growth has flattened out while population growth continues to grow albeit at a mild rate.

To the right you see a graph of the ratio of Cumulative Annual US GDP to Population Growth from 1930 to 2008.

This ratio did not become positive until 1940 on the eve of WW II and spiked at the war’s conclusion in 1944-45. At this point this ratio began a steady decline to a low of 4.52 in 1963. While it experienced a bump between the 60s and late 90s it has remained relatively flat between 1950 and 2008 deviating very little from it’s ~60 yr average of 5.43.

Another way of looking at this “Economic Ceiling” is from an agricultural perspective. I have plotted the Yield to Nitrogen (N) Applied ratio for Corn here in the US from 1943-2007. On the Primary Y- and X-Axis the relationship for the raw data is shown, while the Secondary Y- and X-Axis depicts the relationship on a log scale. We see two things here: 1) the shape of the relationship is dependent on how the data is presented and 2) the raw data demonstrates quite conclusively that we have reached a similar asymptote to that described above for our economy relative to population growth. This is a disturbing trend given our over reliance on corn here in the US. GMOs and fertilizer technology will only be able to do so much in fighting this apparent biological inertia. The rest of the quagmire will require a new paradigm if it is to be fixed. That should include a gradual transition to a more diverse produce and dry goods food economy in keeping the the proselytizing of Michael Pollan. However, alot of this will involve tough medicine, which should start with decreasing national obesity from it’s current rate of 33% to 15% or what it was in 1980. This may sound quixotic but really it is a necessity and weening ourselves off our addiction to High Fructose Corn Syrup would probably put a 5-7% dent in our national obesity on it’s own.

It is high time we start to seriously discuss the idea that Eugene Fama’s “Efficient Market Hypothesis”, Adam Smith’s “Invisible Hand”, and Milton Friedman’s “Shock Doctrine” are a thing of the past designed solely to benefit the top 0.1-0.5% of the G20, G8, or OECD. We must turn our attention to what I will call an Asymptotic Economic Hypothesis or the Steady State Economy (http://www.steadystate.org/) acknowledging the ubiquitous influence of Keynes’s “Animal Spirits” and the fact that nothing grows forever.

It would be absolutely acceptable if we didn’t shift towards an economy with strict ceiling and floor constraints BUT if we do our children will be very mad at us!

This past winter/spring many were overcome with a sense of fear centered on the peanut and pistachio industries and products derived from these 2 nuts. However, lost in the debate was the fact that most of the problem lay at the feet of big processors such as ConAgra, Nestlé, or the Blackstone Group. In a recent article in The Times Michael Moss (http://www.nytimes.com/2009/05/15/business/15ingredients.html?scp=1&sq=Food%20Companies%20Are%20Placing%20the%20Onus%20for%20Safety%20on%20Consumers&st=cse) noted:

“…corporations that supply Americans with processed foods are unable to guarantee the safety of their ingredients… Other companies do not even know who is supplying their ingredients, let alone if those suppliers are screening the items for microbes and other potential dangers, interviews and documents show. Yet the supply chain for ingredients in processed foods…is becoming more complex and global as the drive to keep food costs down intensifies.”

All the while communities reliant on pistachio production in California and the peanut producing capital of the US Blakely, GA are being hit as hard if not harder than Detroit and Flint, MI. It absolutely appropriate to be concerned about food safety, but I would just suggest we not act hastily in breaking our peanut butter habits, without contemplating the trickle-down cascade this type of pullback has on many economies may be devastating and more importantly may be permanent. The profit margin for the folks in Blakely is quite small, with many already out of business and small operations not seeing much light at the end of the tunnel.

Given that the FAO is predicting we will have to double global food production by 2050 misplaced bullying of the world’s farmers does no one any good (http://www.commondreams.org/headline/2009/01/26-8).

These are real people with real families and real worries. When they take their commodity to processors they assume (somewhat naively) that the latter will safely and efficiently get the finished product to market. However, the constant lengthening of the food-chain is allowing for infiltration by some who feel an allegiance to a board or stockholders. So, for example farmers in California have turned to regulating themselves, because the FDA has continuously failed to perform their responsibility (http://www.nytimes.com/2009/04/17/business/17leafy.html?scp=1&sq=To%20Fill%20Food%20Safety%20Gap,%20Processors%20Pay%20Inspectors&st=cse). As I said California farmers are relying on self-regulation out of desperation…Need I say more?

The point is that we need to accurately identify the culprit(s) responsible for recent agricultural scares and shine a light on their practices and obfuscation of the data. I would imagine based on recent accounts that light will shine not on the rows of corn, peanuts, soybeans, etc. in this country and around the world, rather it will be the multi-nationals whose short-term fiduciary responsibilities have put the jobs and lives of small-town America (You know real America!) at risk of extinction. Who will feed us then? Monsanto? Sweet! Supporting local agriculture is not just about warm & fuzzies it is about safety. Small-farmers have a greater love of what they do, tend to use less chemicals and hormones, greater sense of purpose, and strong affinity for their communities. I would imagine they also take more seriously what they feed their kids and themelves. Data is scant and an undestanding of Concentrated Animal Feeding Operations (CAFO) would probably lend some insight into how the latest swine flu mushroomed (http://www.chelseagreen.com/content/will-allen-we-need-food-and-farming-regulation-now/). Treating animals this way will eventually cost us dearly just as treating our farmers as if they actually wanted to make us sick!