Economics
A looming Malthus moment?
Feb 10th 2011, 16:51 by R.A. | WASHINGTON
MY COLLEAGUES are making my job easy today. At Democracy in America, W.W. notes that despite Republicans' best attempts to see inflation pressures in American data, they simply aren't there. Here at Free exchange, G.I. cites the example of the Asian crisis to explain how a Fed reaction to rising commodity prices would be a mistake. Meanwhile, Buttonwood details the possible extent of the commodity price pressure to come:
Were Chinese oil consumption to reach US per capita levels, its demand would rise ninefold, while Indian consumption would have to go up 23-fold. That would push global oil demand up to 260 million barrels per day, compared with just under 90m barrels a day at present. Clearly, that's not going to happen. But along the way, some combination of much higher prices, a setback to developing nation growth or a switch to alternative fuel sources might be needed; all of which could be very disruptive.
The key factor is that US demand is no longer crucial for setting the global price of all commodities.
America's per capita oil consumption is significantly higher than that in Europe, and so it's unlikely that either India or China would approach those levels, but the point stands; billions of emerging market residents have been consuming resources like members of poor countries and they're increasingly consuming resources like members of industrialised countries. The world will need to adjust, and the price mechanism is the means through which that adjusment will occur.
There is little that developed world central banks can or should do about rising commodity prices. Labour markets are too weak to allow much worker bargaining, and so higher prices are unlikely to lead to a wage-price spiral. The impact of dearer commodities on household budgets is also likely to be contractionary. Consumers must simply adjust their consumption behaviour.
In emerging markets, the central bank decision is more difficult. As members of Economics by invitation note this week, prices in tighter economies will be more likely to pass through to wages, particularly when commodities make up a larger share of household purchases, as they do in poorer countries. Meanwhile, higher food prices could be politically destabilising, which adds an additional consideration to policy.
But the temptation for governments in both rich and emerging countries will be to shield consumers from rising prices, through subsidies and other market interventions. This is likely to do a lot of harm. Fuel subsidies can grow very expensive very quickly amid rising prices. And given real supply constraints, actual changes in behaviour are necessary, and subsidies will deter these shifts.
The days when just one-sixth of the world's population consumed an outsized proportion of available resources were pleasant ones for that lucky one-sixth. The transition to a different distribution will not be easy. But it is inevitable.
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I'd like to see more about the likely effects of these changes. Government's can of course choose whether to help or hurt matters, they'll likely do a bit of both but with a bit more of the hurting than the helping the longer we wait for action.
I do think though that talk of Malthus makes the problem seem worse than it is. A fairly small proportion of our resources are actually devoted to agricultural production today. Also, the quantity of meat in our diet has gotten very high and that takes a great deal more land, labor, fuel, and capital to produce than plant based foods. I don't really see much likelihood of a population cap anywhere near current numbers, the shifts to support a higher population don't seem that hard to make given current wastage and inefficient diets. Wind and solar are promising sources of energy for rural areas, while they will involve higher costs, I see food production adapting, though it may be hard to sustain smaller towns distant from concentrations of industry. On the whole though, I don't see why we should expect major problems with agriculture. Water supply is somewhat more worrying, but again, if necessary energy sources should be available for desalination, it's already used extensively in the Middle East, no reason to expect a Malthusian crisis from this.
The real question is how wrenching shifts to smaller houses, shorter commutes, less meat in the diet, and less personal vehicles will be to the existing social order. I don't know if anyone has tried to extrapolate potential modern effects from earlier ecological shocks or resource constraints. While drawing parallels may be hard, cases do exist and may be informative, especially if combined with knowledge of how modern economies adapt to shocks.
So we should be extacting as much as possible over the next decades to reduce our trade deficit.
"The days when just one-sixth of the world's population consumed an outsized proportion of available resources were pleasant ones for that lucky one-sixth. The transition to a different distribution will not be easy. But it is inevitable."
This is such a snotty, canned comment. Another fun way to cast this would be, "The days when just one-sixth of the world's population was responsible for making everything and was behind every improvement in mankind's lot.... "
It's a lazy way to shame the West for being economically dynamic. When resources run short, rich and agile societies pivot very quickly and adjust their consumption.
@aaron
You mean, we should transition away from oil usage as fast as possible to reduce our trade deficit, right?
We'll see. That 'lucky one-sixth' aren't referred to as barbarians in other parts of the world for nothing. My prediction: if you're not a Mongol or a Viking, be very afraid.
"Labour markets are too weak to allow much worker bargaining, and so higher prices are unlikely to lead to a wage-price spiral."
So we should pretend that the quantity theory of money was a mistake and money plays no role in the economy? Very sad.
Dean,
Sure, while we extract as fast as possible.
(without damaging total production capability)
Speaking of China and oil....
Oil Firms Hit by Hackers From China, Report Says
By NATHAN HODGE And ADAM ENTOUS
Hackers who appear to be based in China have conducted a "coordinated, covert and targeted" campaign of cyber espionage against major Western energy firms, according to a report expected to be issued Thursday by cybersecurity firm McAfee Inc.
Law-enforcement agencies said they are investigating the incidents, which McAfee said have been going on at least since late 2009 but may have started as early as 2007. The company said the attacks, which they dubbed "Night Dragon," were still occurring.
http://online.wsj.com/article/SB1000142405274870371690457613466111151886...
How could you miss that?
If they can hack oil companies, who kwows what they are doing to online finincial institutions.
Regards
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