14 September 2010

Reducing Hunger and the "Iron Law" of Climate Policy

Today the Food and Agriculture Organization of the United Nations released a preview of its flagship report, "The State of Food Insecurity in the World," which is due to be released in October.  The preview has some good news: the number of people worldwide in chronic food shortage dropped 10% over the past year to "only" 925 million.  This can be seen in the graph below from the release.

Let me try to disentangle this in a way that might help to illustrate the "iron law" of climate policy that I discuss in The Climate Fix.

First, why the big drop in 2010?

According to FAO:
The 2010 lower global hunger number resulted largely from renewed economic growth expected this year — particularly in developing countries — and the drop in food prices since mid-2008.
Thus, economic growth means less hungry people.

Second, why the big spike in 2009?

According to FAO last year (PDF), one primary reason was the cost of fuel:
Given the increased importance of biofuels and the new linkages between agricultural and energy markets, increased cereal yields, if achieved, may not necessarily continue to lead to lower cereal prices. Because the world energy market is so much larger than the world grain market, grain prices may be determined by oil prices in the energy market as opposed to being determined by grain supply.
Thus, higher priced energy means more hungry people.

These twin dynamics illustrate several important boundary conditions for a successful climate policy -- that is, one focused on stabilizing atmospheric concentrations of carbon dioxide at a low level.  The boundary conditions are that (a) economic growth must not be slowed, and (b) energy cannot be made appreciably more expensive. (You need only have a look at the Kaya Identity to see why this is the case.)

Policies that reduce economic growth and/or make energy more expensive will lead to more hungry people around the world. This is just an empirical reality.

The FAO notes:
Two thirds of the world's undernourished live in just seven countries — Bangladesh, China, the Democratic Republic of Congo, Ethiopia, India, Indonesia and Pakistan.  
In 2008, those seven countries accounted for almost 30% of total global carbon dioxide emissions, a proportion that is growing rapidly.  The realities of poverty alone help to explain why India and China, in particular, have approached climate policy as a lower priority than economic growth.

Yukiko Omura, Vice President of the International Fund for Agricultural Development, explains that,
"the world's hungry are not just numbers. They are people — poor women and men struggling to bring up their children and give them a better life; and they are youth trying to build a future for themselves. It is ironic that the majority of them actually live in rural areas of developing countries. Indeed, over 70 percent of the world's extremely poor — those people who live on less than US$ one a day — live in rural areas. That's a billion people, and four out of five of them are farmers to some extent or the other."
In this context, arguments about long-term costs and benefits and unaccounted for externalities -- no matter how theoretically valid -- simply will not trump the immediate challenges of reducing hunger.  To put more bluntly -- few are going to be willing to increase (or arrest the decrease of) the number of starving people around the world to further an emissions reductions agenda.

So we'll simply have to find another way -- one that prioritizes (rather than slows) economic growth and one that focuses on making energy less costly.  Until we do so, climate policy will continue to make little progress.  It is an iron law.


  1. Roger

    We absolutely agree on energy prices and poverty. The governments and corporations of the world take the opposite view. They want to increase energy prices through ETS and that will cause real suffering. They tell us they want to save the poor from global warming. Goldman Sachs and Tony Blair want to help the poor ?

    The reason why people go hungry is the criminal stranglehold of global markets by the same people who control the United Nations, namely the Anglo American corporatocracy.

    The financial collapse was partly engineered by raising food and fuel prices on the commodity markets triggering mortgage defaults. It was the subject of a BBC documentary which tracked it down to Chicago.

    Hedge funds accused of gambling with lives of the poorest as food prices soar

    • Commodity speculators push cocoa to 33-year high
    • Bets 'risk the most vulnerable in the world starving'

    The group used figures in Goldman Sachs' annual report to estimate that the bank made a profit of $1bn (£650m) through speculating on food last year. The bank, however, says the "overwhelming majority" of its activities in commodity markets are on behalf of clients and that the WDM's profit estimates are "ludicrously overstated".


    The Food Bubble: How Wall Street Starved Millions and Got Away With It

    Democracy Now! - July 16, 2010

    While Goldman Sachs agreed to pay $550 million to resolve a civil fraud lawsuit filed by the SEC, Goldman has not been held accountable for many of its other questionable investment practices. A new article in Harper’s Magazine examines the role Goldman played in the food crisis of 2008 when the ranks of the world’s hungry increased by 250 million. We speak to Harper’s contributing editor Frederick Kaufman.

    FREDERICK KAUFMAN: Yeah, this is really—it’s really outrageous. And on a certain level, this reform bill is really a sham, because it does not cover, in any way, shape or form, what Goldman Sachs—and really, let’s be honest here, it wasn’t just Goldman; it was Goldman, and it was Bear, and it was AIG, and it was Lehman, it was Deutsche, it was all across the board, JPMorgan Chase—what these banks were able to do in commodity markets, really which reached its peak from 2005 to 2008, in what is now known as the food bubble. And as Juan points out, this is unconscionable what happened, in the sense that their speculation and their restructuring of these commodity markets pushed 250 million new people into food insecurity and starving, and brought the world total up to over a billion people. This is the most abysmal total in the history of the world.

    JUAN GONZALEZ: Now, what were these commodities markets like before the Wall Street firms got involved? And you have a haunting picture, especially of the Minneapolis Exchange, what it was before, what it was like. Could you talk about how things operated and then what Goldman Sachs did precisely?

    FREDERICK KAUFMAN: The wheat markets, in particular, in this country are the outcome of a process of development of over 150 years. And that is why, from about 1903 to 2003, the real price of wheat in this country has gone down. And this was one of the great reasons for America’s great twentieth century, the fact that we had cheap food, we had cheap bread. And Goldman, in 1991, came up with a new idea and a new product, which, as I said before, completely restructured this market and completely threw it out of whack.


    You don't have to be a pathologically cynical to understand how the world works, but … Actually you do have to be pathologically cynical.

  2. Very well put.
    May I add a bit of information on the FAO figures.
    The number of the undernourished are usually computed by FAO as 3-year averages, because their definition is about people HABITUALLY consuming less than a minimum acceptable number of calories per day. Seasonal or occasional drops or spikes are not caught by those statistics. Un to the 2009 SOFI report, the last 3-year period was 2004-06, and this year's publication will be for 2005-07 (the FAO website shows almost no data after 2007 as yet, as regards agricultural production (the biggest component of food security, followed by trade and the distribution of income).

    However, in 2008-2010 FAO announced rough preliminary estimates steeply mounting up to one billion people (from previous levels of slightly above 800 million). These preliminary estimates were not computed with the same methodology, and were not disaggregated by region or country: it was just a figure for the whole world, methodology not announced.
    The ordinary methodology used for the SOFI reports is a rather complicated one (its latest version can be found at http://www.fao.org/fileadmin/templates/ess/documents/food_security_statistics/metadata/undernourishment_methodology.pdf). It requires estimating the average and standard deviation of food consumption by country. The former is obtained from food balance sheets (FBS), including production, trade, non-food uses, and apparent food consumption (or "availability for human food consumption") obtained as a residual. The Std Dev comes from consumption, income or expenditure surveys per country, and is updated at intervals as new surveys are carried out. The methodology uses those inputs to estimate a log normal distribution of food apparent consumption. The fraction below a threshold of minimum acceptable consumption are regarded as undernourished. Due to inherent uncertainties, especially variation in individual needs, figures below 5% are regarded as non significant.
    The worldwide estimates of 2008-2010 are not the result of this painstaking procedure, but rough guesses, probably motivated also by the desire to spin public attention towards hunger, a noble purpose. They were mostly issued as a FORECAST, earlier than the completion of each year, and not adjusted later when actual data started to come in. The current sudden drop is probably partly a reflection of facts (the recession and the price surge are fading) but also an indirect way of coming to terms with reckoning that the previous forecasts have not been confirmed by facts. It is difficult for an organization like FAO to acknowledge a past exaggeration. Thus instead of issuing a revised version of the previous estimate for 2009 they may prefer to announce or forecast a sudden drop in 2010.
    I'm not mad as hell, but slightly uneasy with this mixture of scientific assessment with advocacy, an unholy mixture as we have seen in other fields.

  3. FAO's reports on the state of food insecurity in the world (SOFI) are at http://www.fao.org/publications/sofi/index_es.htm.

  4. I wish every religious group that was joining the climate change bandwagon could read this post. "Corrective" climate action will/does have many unexpected but unfortunately predictable consequences that will severely impact the lives of many people, particularly the poorest amoung us. Proceed with caution.

  5. -2-Hector M.

    Very interesting. Thanks!

  6. ...one that focuses on making energy less costly

    Crux of the matter. Despite the wild flucuation of oil over the last two years, the decadal trend is clear - more expensive. While depletion outstrips discovery and the use of tar sands, deeper and deeper off-shore wells, lower grades of crude, and biofuels becomes more common - the end of 'cheap oil' is obvious.

    Second choice for personal transportation is natural gas which is much more broadly deployed than electric vehicles. But low energy density leads to storage issues which lead to inconveniences such as shorter range, less storage room, and more frequent fueling stops. In other words - similar costs to gasoline but with convenience issues similar problems to those related to electric vehicles.

    Without widespread use of electric vehicles, coal, nuclear, hydro, wind, and solar are not replacements for oil. (Note that the electric train is one relatively wide-spread option for transportation).

    There is no magic transportation solution that is as convenient as oil, cheaper than oil, and more available than oil was in our recent past. Future energy costs, especially in regards to transportation, are likely to continue to increase.

    The "iron law" is TANSTAAFL.

  7. Food should be insecure. It's usually about to be eaten.

  8. Given the apparent links from higher energy costs, to higher food costs, to greater global hunger, here is a question: what will happen, a few decades out, if energy costs are appreciably higher in real terms?

    Many people have recently become believers in "Peak Oil."

    The idea is that existing conventional oil wells are depleting rapidly. While many sources exist for potential new oil production, such oil is mostly in expensive and hard to access places. This means ultradeep offshore, the deep salt fields off Brazil, tar sands in Canada. We can certainly get the oil at significant time and cost, but can we get it fast enough to ramp up worldwide production much above today's levels, when replacement of rapidly depleting oil wells is taken into account? Remember when the North Sea used to produce about 3 times as much oil as today?

    There are disagreements about whether we really are near "Peak Oil." I'm not arguing either way. For the sake of argument, however, let's say that the world won't be able to produce much more oil per year than is occurring today.

    Let's posit that in order to balance supply and demand for oil and oil based commodities, prices in 2020 have to equilibrate at, say, $175/bbl., which would equate in the U.S. to something like $6 to $7/gallon gasoline.

    Anyone want to analyze what will happen to food prices?

    Follow on question: if such a situation comes to pass, will the world community be worried more about climate change or food availability to those who can't afford it?

  9. Iron laws are administered by physics and chemistry, and are immutable. The second law of thermodynamics rules, as stated in by Ron in -6-. Your statement of an iron law regarding contemporary economics is ill-formed, since nothing about human policy-making is immutable. The poor will suffer first and most from the impacts of GHG accumulation in the environment, and one of the worst aspects of their suffering will be reduced food availability in drought-prone poor countries. It may indeed be a race as to whether more expensive food due to higher energy prices will bite more deeply than creeping drought, but the certainty is that both are coming. The tragedy is that both effects could be mitigated, and that both probably will not be. For a complex and inter-related set of critical issues with the rising human impacts of energy and the environment, our policy responses are triflingly small. Your position seems to be that we can't use price to signal emissions' costs. If that's the case - we have to decouple the price of energy (one component of food cost) entirely from its future societal cost, you are in good company with fossil fuel supporters, who agree. If we do ban that tool unilaterally from the toolbox, even for the much greater swath of humanity who _could_ afford the cost, then good luck with the rest of the possible GHG mitigation policies, and good luck finding that silver bullet technology solution. I read what you're saying on your blog generally and parse it often as 'adaptation is the definitive policy position, and devil take the hindmost.' The rest of the time I either get 'technology will solve the GHG accumulation problem' or 'other people are overstating the certainty of impacts of GHG accumulation.' I believe that creeping incrementalism is not going to do a good job of reducing future suffering due to climate change, and your advocacy of small thinking and tinkering around the edges in policy, if adopted, will result in greater future human suffering, though admittedly there is no scientific certainty of that.

  10. -9-Sam

    Thanks for your comments, a few replies ...

    As far as: "Your position seems to be . . ."

    There is no need to speculate or make things up about my views, my views are fully elaborated in my new book. And no, you have not characterized them properly. Try again.

    And as far as me banning the use of price signals, such as a high carbon price ... no, that isn't my doing. I am simply reporting the realities of what is happening around the world.

    The iron law of climate policy is, for the foreseeable future (which is not forever), every bit as immutable as the second law of thermodynamics. Sorry to have to break the news.

    And as far as whether the policies I advocate will lead to greater suffering, I offer the same in response to the policies that you advocate. So there;-) Now that we each have that bit of high-horse moralizing out of the way, can we discuss actual policy options?


  11. Interesting post, and thank you Hector for what looks like well-founded doubt on the precise numbers.....

    World population in 1970 was 50% of present day, so haven't we done well halving the % in hunger.

    Has the definition of 'chronic hunger' changed over that period? Hector refers to 'minimum acceptable consumption', which I would expect to have risen not fallen if it has changed. Hector also refers to a 'latest version' of the methodology, indicating that it might change.

    I appreciate these are not the real points of the post, which are well made.

  12. -10-


    an actual policy option to discuss for EU and US and China and India: an increasing tax on carbon emissions set at $2/tonne and increasing $2/tonne/year up to $50/tonne. Proceeds of the first $5/tonne to fund RDD&D on GHG emissions reductions of all stripes, the rest refunded to taxpayers, with priority to low-income citizens whose energy and food costs comprise a relatively larger portion of their household budgets. Phased in first in the US and EU, and started 5 years hence in China and 10 years hence in India. Carbon tariffs on imports to enforce international signatory compliance.

    By the way, iron laws do not apply just for foreseeable futures. You may be describing what you see as political reality, and you are almost certainly correct. But what you describe as a law are simply collective choices made by short-sighted but free-willed individuals. Describing these likely choices as an inviolate absolute, and sticking policy discussions to the art of your views of the politically possible does not free the children of the poor (or any of us) from the truly iron laws that will impose their consequences.

    I ordered the Climate Fix today to see what might be there that is different than what you put up here and what is proposed by the BTI.

  13. Ron Broberg said... 6

    "Crux of the matter. Despite the wild flucuation of oil over the last two years, the decadal trend is clear - more expensive."

    It's only been a single decade trend. The inflation adjusted price for both oil and coal dropped thru the 1980's and 1990's.

    Hence, a reasonable person could have concluded in the year 2000 that the only way for renewalable /alternatives energy sources to ever catch fossil fuels would be to cap fossil fuel consumption.

    The world changed, fossil fuel prices are outpacing inflation.

    We can accelerate the price increase in fossil fuels or accelerate the price decrease in alternatives.

  14. The post makes an interesting point, but it approaches the GHG problem from the assumption that the ONLY impact of GHG emission reduction policies would be to increase the cost of energy, and therefore food. It is worth mentioning that the potential negative impacts of continued global temperature increase are likely to disproportionately impact the already poor and hungry of the world. What fraction of the poor and hungry live close to sea level? What fraction are negatively impacted by increased frequency and severity of storms? Bangladesh, for example, accounts for a large fraction of the hungry, and is susceptible to catastrophic flooding.

    The greatest impacts of unbound GHG emissions are likely to be felt by those unable to afford to adapt to them. Wealthier nations and individuals might cope, but increasing global temperature will only result in the poor and hungry getting poorer and hungrier as the global climate shifts against them.

    As others in this thread have already mentioned, the price of energy in general and oil in particular has been rising and will continue to do so. The question is not whether we need to invest in producing energy cheaply, but whether our investments should go towards new ways of obtaining additional fossil fuel resources -offshore deep water drilling a la Deepwater Horizon? :( - or towards a new infrastructure based on more sustainable and less carbon-intense energy resources.

    Finally, and unfortunately, the motivation for most campaigning against GHG emission reduction policies are not directed towards reducing human suffering. That is to say, the "cost savings" of not implementing GHG controls will not be applied to alleviate the suffering of those in need.

  15. -14- FEC,

    You're arguing about playing off a well established cause and effect relationship (energy / food) with others that are quite speculative. Not to mention that the energy / food effect is more or less immediate, rather than something that will slowly change over time, even if what you assume about other effects of GHGs is true.

    So while it may be true that those least able to afford it will be affected by not limiting GHG emissions, it is assured that those same people will be hurt by the subject of this post.

  16. "The inflation adjusted price for both oil and coal dropped thru the 1980's and 1990's"

    Yes, and the price increased ten fold from 1998 (Kyoto Protocol signing ) to 2008. It would have been projected to go down by any rational analysis. The poor oil companies were supposed to be losing market share.

    Does Tony Soprano believe in the free market ? OPEC used to set oil prices, remember them ? They still exist.

  17. -15- Matt,
    I don't want to get into a huge argument here, but I would say that economic "laws" tend to be more speculative than physical ones. There isn't much speculation that water expands when it is heated or that CO2 absorbs infrared radiation emitted from the earth. These facts can't be changed. The established energy/food relationship is only true given our current economy, and though it may be hard to change, it isn't a hard law. In this regard, I am in agreement with -9- Sam, and disagree with Roger's assertions in -10-.

    I do agree that the poor get the short end of the stick in either scenario. I think they suffer more with climate change, which makes them irreversible worse off. It is easier to change policies later than change the oceans.

    My real point here is that arguing that GHG emission control hurts the poor and hungry, and so we should avoid it is flawed logic. They will be hurt by not controlling GHG emissions as well, perhaps more. Using the poor to argue against GHG emission control only bolsters the arguments of those who tend to profil (in the short term) by inaction, at the cost of long-term peril for everyone, especially the poor and hungry.

  18. -17-FEC

    In the book I describe the iron law along the following lines -- while people are willing to pay some amount to achieve environmental objectives, that willingness has its limits. Those limitations may fall at different thresholds in different places, but there is a limit, everywhere.

    I'd be the last person to argue for covering laws in the social sciences ;-)

  19. -17- FEC,
    I agree with respect to economics vs physical laws in general. But we have an observed phenomenon vs a speculative phenomenon.

    I agree that you think they'll (i.e.,the poor) will suffer more due to climate change. My point is that your beliefs do not carry as much weight the observable link of energy prices, food prices, and the effects thereof on the poor.

    Your argument relies on a whole lot of shaky assumptions, and I think that they are therefore far outweighed in this case. I would argue that it would be better to enrich the poor than to impoverish everyone else. And top down solutions to GHG emission reductions would inhibit that process.

  20. Roddy asks: "Has the definition of 'chronic hunger' changed over that period? Hector refers to 'minimum acceptable consumption', which I would expect to have risen not fallen if it has changed. Hector also refers to a 'latest version' of the methodology, indicating that it might change."

    the current definition of undernourishment is basically the same that has been in use since the 1970s. However, there have been some improvements and changes in some details. For instance, the actual caloric needs of humans have been revised by international expert bodies (commissioned by FAO and WHO) in various occasions, most recently in 1981 and 2001. The changes have been in general towards a slight reduction in the estimate of the energy intake requirements. These requirements (for an average person of given age, sex and adult height) have not changed much; they are from 2000 to 2300 kcal/person/day in different countries. This is for an average person at the midpoint of a range of acceptable weights for age, sex and height; below the minimum acceptable weight you are regarded as dangerously thin or emaciated; above the range you become overweight or obese. For undernourishment, the energy needed to maintain the minimum acceptable weight with minimum physical activity is taken as the cutoff point, which is normally between 1600 and 1900 kcal/person/day (varies across countries).

    By whatever measure, the rate of undernourishment has steadily fallen since the 1970s (about 35% in the developing world) to the 2000s (19% in 2004-06). This means respectively a fall from 28% to 13% of the whole world population. Children malnutrition (stunting or wasting) has also fallen accordingly. On the other hand the growing problem of overweight and obesity is starting to afflict developing countries, especially in Latin America, Asia, and the Middle East. In Bolivia for instance, the most affected LA country after Haiti, wasting among preschoolers (under 5) is about 1.5%, while overweight in the same group is about 7% as per their latest nutrition survey.

    There are, also, assessment of the expected impact of climate change on malnutrition, especially by Gunther Fischer and other researchers at IIASA, Austria. Their integrated assessment models predict vanishing undernourishment by 2050-2080, even in the most pessimistic IPCC scenarios.

  21. Here is a real food protest movement. No Hollywood 'acting', no corporate backers and not a front for the UN like the one billion site.

    The truth is always something like this (in the modern world). Yes. it was a conspiracy, and yes it was the bankers. They created a boom in 2007/2008 that cause enormous suffering around the world including crashing housing markets.

    How are they doing it?

    Historically, ‘futures contracts’ were created in US financial markets to help farmers deal with the uncertainty of growing crops (such as unforeseen weather conditions). A futures contract enables farmers to sell their crops at a future date at a guaranteed price. However, these contracts can also be bought and sold by bankers who have little or no involvement in the actual food being traded but bet on food prices, to make money.

    During 1990s and early 2000s, aggressive lobbying by bankers led to weaker regulations over food speculation. New and complicated financial products were created to allow more ways to make money from betting on food. Banks such as Goldman Sachs created special index funds to help financial companies make money from food prices, just like they do from share prices.

    While bankers are reaping huge profits from betting on food, poor families across the world are paying the price of hunger and malnutrition.


  22. eric144,

    Derivatives didn't cause the boom and bust. Derivatives were created to deal with the vast amount of money that was being pumped into the economy by the Federal Reserve to try to prevent a recession. But that sort of prevention never works for long, it only delays the inevitable and makes the crash worse.

  23. DeWitt

    Dervatives have a fairly long history. They are basically insurance contracts. Sorry, they are unregulated insurance contracts, and in the shape of credit default swaps, have the potential to be weapons of financial destruction (Warren Buffett quote).

    Even global warming and hedge fund supremo George Soros has commented

    "America must face up to the dangers of derivatives"


    What I meant to say is that simultaneous artificially created bubbles in fuel and food prices triggered the collapse in sub prime mortgage repayment. That is a fact. The BBC broadcast a one hour documentary on the subject.

    I suspect it may have been done deliberately. Then again, I am strongly culturally biased in that direction !!

    Arguably, the most credible opinion in this area, former government savings and loan regulator William Black says

    "Lehman’s failure is a story in large part of fraud," Black roared. "Lehman was the leading purveyor of liars’ loans in the world. For most of this decade, studies of liars’ loans show incidence of fraud of 90%. ... If you want to know why we have a global crisis, in large part it is before you."


    Guardian economics editor Larry Elliott appeared on a conspiracy radio show and said there had been a giant crime committed.


    That is strange because the first rule of corporate journalism is that there is no such thing as a conspiracy.

    This is an interesting article on the role of cds in the financial collapse.


  24. Eric144 points out that the 1billion site looks like a UN front - and that does seem likely from the website. But when you look at the alternative he suggests - the WDM - you find it maundering on about climate debt! I would love to support efforts to reduce poverty and hunger, but how on earth can you do this without signing up for someone’s political agenda as well?

  25. Marlow

    I feel exactly the same.

    Here is the friends page which has a link to the UN World Food Programme and the Agriculture Organization of the United Nations which is the origin of the program.


    Food and Agriculture Organizationof the United Nations


    I did notice the AGW info on the WDM page before I posted and yes I would have joined up if it wasn't for that. I sent them a strong reprimand and a link to my web site. It should only take a few days for them to renounce global warming.


  26. P.S. I do not endorse anything on the Infowars site, or any other conspiracy theory site, or any conspiracy theory, on any subject, not even the Kennedy assassination.

  27. Thanks eric144. It is frustrating to hear easy answers for complex problems and climate seems like the ultimate easy answer. Corrupt governance sounds a bit better for some countries, but doesn't ring true for India and China. From my understanding of Roger's article, economic growth and more and cheaper energy are the most realistic solutions, but it seems unlikely that the UN or climate politics will deliver those. It just leaves me feeling slightly nauseous and hopelessly confused. But hopefully Roger's book - now on order - will make me feel a little better!

  28. "Many people have recently become believers in 'Peak Oil.'"

    Unless we run out of biohackers, I'm not one of them. And I predict that the number of biohackers and their capabilities will grow exponentially, or actually "double exponentially" (that is, the percentage change per year will not be constant, but will be increasing).



  29. Roddy, DeWitt & Hector -
    Thank you. Actual information.

    eric144 - re-read and digest the good news from Roddy and Hector.

  30. John

    I read it. Things might be better than the 1970s, I accept that. Not a great shock. Standards of living are better everywhere despite a massive redistribution of wealth from poor to rich. The reason, as Roger said is economic growth and that is a function of better technology.

    There were real problems round the world in 2007/8 when fuel and energy prices rose dramatically, caused by market speculation.

  31. -31- eric144
    Don't you see the contradiction between standards of living going up everywhere and a massive redistribution of wealth from poor to rich? What wealth did the poor have taken away?

    If you want to compare the wealthiest vs the poorest, then the difference has increased, but this is not at all the same thing.

    Market speculation was the popular reasoning given by demagogues for the movement in energy prices, but does anyone still seriously contend that this was a main driver?

  32. Matt

    A redistribution of wealth means an increase in the percentage of total wealth to the rich (in this case). Working class standards of living have gone backwards since the 1970s.

    Here is a long lecture from Harvard Law School scholar Elizabeth Warren on related topics.

    The Coming Collapse of the Middle Class


    P.S. In my youth, I was a non socialist political activist.

  33. "Market speculation was the popular reasoning given by demagogues for the movement in energy prices, but does anyone still seriously contend that this was a main driver?"

    I don't understand the demagogue reference. My information came from the BBC which is a source
    of infinte balance, reasonableness and transparency. Britain is probably the most privatised economy in the developed world, with the most deregulated finance industry, by the way.

  34. -33- eric144

    Well, which is it? Living standards went up or down?

    I'm not aware of any convincing evidence that they've generally gone down. Not in the US, certainly. Perhaps the UK is different.

    If you want to warp reality to make wealth generation a zero sum game, then I suppose this odd definition of redistribution of wealth makes sense.

    Consider a period of time. If, at the end, I can buy, say, an hours worth of electricity for my home in half the time it took me at the beginning, but now you can buy the same thing for a quarter of the time it used to take, by your measurement, my standard of living has gone down.

    I may very well envy you, and convince myself that I'm worse off, but that doesn't make it true.

  35. -34- eric144
    I think that wikipedia gives a reasonable survey of the
    possible causes of energy price changes during the 2000s. Demand, supply and a weak US dollar (oil is traded in $US) were the main culprits.

  36. Matt

    My understanding is roughly that inflated adjusted wages for the bottom 10% or so are lower than they were in the 1970s. That means they are poorer. It is certainly true in Britain, where most working class families need two incomes two survive.

    The reason is disenfranchisement. The working class in America do not appear on the political map and it's very much going the same way in the UK.

    I understand your argument. The question is how much inequality leads to greater overall wealth. That is not a simple matter to quantify. There is also the question of balancing the dishonesty of the market and political process. Trickle down economics was a lie.

    Inequality allowed the USA to technologically move forward by importing intelligence from Europe in the 1960s to supplement its cheap, exploited labour. However, you cannot compare absolute American GDP with Europe because of the giant single market which is very recent in Europe.

    I do not identify with the left nor wish to defend a position, but I think Obama is about as far right as American society can go. I seeem to remember it was the Democrats who brought down Gore in Florida, not Bush. If Clinton hadn't been Lewisnkied, Gore would have had a landlside.

    My political position if you want me to be honest is that I don't know, but strongly believe in technological evolution.

  37. Matt I lost a major post.

    Inflation adjusted wages have gone down since the 1970s for those at the bottom. They are poorer The question is the relationship between inequality and overall wealth. Does one lead to the other ?

    In my view, the political system is completely corrupt . Selection of candidates by big business and lobbying for starters. I am not socialist, just anti crime.

    As for Wikipedia, it is run by the legions of Satan for his benefit. I prefer the BBC and even the Guardian.

    Speculators fuel bubble in global food costs

    Sunday 20 April 2008

    Speculative investors have created an unsustainable bubble in international food markets, say economists, exacerbating the sharp rise in prices that has led to riots around the world.

    http://www.guardian.co.uk/business/2008/apr/20/globaleconomy.foodhas led to riots around the world.

  38. -37- eric144

    I'm skeptical about the extent of speculation with respect to food prices, though I'm much less knowledgeable about that vs energy.

    There are at least a couple of issues with respect to "those at the bottom" of the income scale. First, there's a hard bottom, but no such ceiling. But at least in the US, those at the bottom (and the top!) rarely remain there.

    As for inflation...it's a very blunt instrument. Here is a comparison between 1964 and 2010 for what the average American could buy:

    1964: Moderate stereo system
    2010: Home theater system, 50"TV, iPod, Blu-ray player, 300 CD changer, GPS, 14.1 Megapixel digital camera, Laptop computer, HD Video recorder

    Each purchase represented 152 hours of labor (approximately a month of full time work, ignoring taxes--$2.50/hr vs $19/hr).

  39. -37- eric144

    "...I think Obama is about as far right as American society can go. I seeem to remember it was the Democrats who brought down Gore in Florida, not Bush."

    First, it was the voters who actually brought down Gore (as subsequent recounts showed). Obama is actually farther to the left than American society can tolerate, as recent events have been showing.

    I'm sure I can't convince you that "trickle down" economics wasn't a lie, but the alternative of allowing the state to direct the economy is even worse.

    And I (think that I) agree with you that political/economic systems are way too corporatist/syndicalist/fascist. But I think the problem is that the state is too powerful, and so companies have no choice but to lobby the government for favors. And anyone who thinks Big Business leaders are free market isn't paying attention. They take every opportunity to keep competitors out with regulation and legislation.

  40. Matt

    Blue Ray = technolgy advance.

    Those at the bottom are worse off and they have no political representation. It's certainly true here.

    The Democrats pulled the rug on Gore's Florida recount race for sure.

    The tea party was about a massive criminal operation on Wall Street paid for by their taxes and no, I admit they didn't want Obama either. TV money, McCains age and Palin's sex were great advantages.

    The state now represents corporate interests. Goldman Sachs and Monsanto are good examples of identification of state and corporation.

    "And anyone who thinks Big Business leaders are free market isn't paying attention"

    Very true, but you sound like a deep conservative and I don't think there is any way back to the mom/pop main street store of the 1950s American dream. It's broken. Modern commerce is better (imo) for the reason you favour. Efficiency and total value.

  41. eric144,

    All of that list was technological advancement. That was the main point.

    I really can't follow your Gore nor tea party analysis at all.

    I certainly don't have any nostalgia for mom and pop stores of the 50s (that was a bit before my time). And frankly, I love shopping at Wal-Mart.

    Though I would describe myself as a conservative, on economic matters I'm quite libertarian. More than anything, I think Hayek was right about the Knowledge Problem, whether we're talking about making shoes or Energy Policy.

  42. eric144 said
    ´There were real problems round the world in 2007/8 when fuel and energy prices rose dramatically, caused by market speculation.´
    & Appears to believe the BBC is dependable.
    Matt {I think} refers to the 07/8 driver. Diversion of maise to fuel was the driver.
    & You may have been occupied elsewhere: check out the BBC - it was hijacked decades ago by statist, elitist poseurs.

  43. John

    "Diversion of maise to fuel was the driver"

    That was the official explanation, but it was so blatantly false, even the BBC investigated. The Guardian article said the same thing, it was speculation, similarly with fuel.

    The BBC is the media arm of the British government. Britain (I believe)is the most privatised country in the developed world. Not exactly statist, then. Blair sold the defence research establishmest to the Americans ! Some might call that treason.

    The BBC itself is highly privatised. Most programmes are commissioned out to private companies. Even the license fee collection is done by a firm (with thuggish methods).

  44. Matt

    I was implying that Gore, with Clinton aboard would have demolished Bush. The tea party was opposed to taxes for Wall Street bailouts. I would be too.

    I know about Hayek and the Austrian school from paleoconservatives like Ron Paul. However, the anti trust laws that were needed to combat the robber barons should be an object lesson for libertarians. If you want a complex, modern society, you need a state apparatus that protects the innocent from criminality.

    It was deregulation in Britain and the USA that was responsible for the global financial crash.

  45. eric144,

    I think that the main purpose of the state is to protect the innocent from criminality. However, the progressive/fascist obsession with trust busting and corporatism has never made as much sense to me as it apparently has to most historians.

    With respect to deregulation, I would first ask, which deregulation? In the US, at least, there is only one response to this, which was the repeal of the Glass-Steagall Act, but that really doesn't survive any serious analysis. If anything, in the US, it was the intrusion of government via regulation and legislation and monetary policy that was primarily responsible.

    People who think that Bush was the Great Deregulator were not paying attention, else how could we have gotten the economic albatross that is Sarbanes-Oxley?

    I honestly don't know enough about Britain's economy to weigh in on how privatized it is with respect to the rest of the world, but certainly one thing (with respect to the US, at least) leads me to be skeptical: health care. The US government pays for a lot of it here, but doctors, etc., are all private, at least. And most people who are under 65 have private insurance.

  46. Matt

    The creation of the unregulated credit default swap and other derivative insurance deals were the real problem. However, one piece of Clinton social legislation mandating banks give sub prime loans to the poor also had a big effect.

    Major investment banks controversially went public in the mid 1990s and that opened the door to potential Ponzi schemes like some believe Lehman Brothers and AIG (cds) became.

    Britain is extremely privatised these days (the mail is going soon). The reason the health service is still there is that any government who removed it might find themselves swinging from trees. A doctor won an election purely on the basis of a hospital emergency department closing. No one wants to share the American experience, not even with Obama's insurance comp-any written (according to Howard Dean) scam added on.


    Lehman Brothers carried out their dirtiest financial tricks in London and AIG also carried out their outrageous cds operation from London with zero regulation.

    "A number of characters who loomed large in the financial crisis operated out of the UK. Joseph Cassano ran the London-based division of failed US giant AIG that created many of the products that landed the insurer with huge liabilities.

    Peter Cummings ran the commercial banking division of HBOS that presented that bank with huge losses."


    "London appears to have played a key role in approving Lehman's use of Repo 105. The report says Lehman at first tried to find a US law firm that would approve its shifting around of assets. Unable to get US clearance, Lehman turned to London law firm Linklaters, which advised that the practice was allowed under UK law.

    So, assets Lehman wanted to "hide" were transferred to the London operation, which would "conduct the [Repo] transaction on their behalf," the report said



    As it happens, my school and university colleague (same year, exact same classes), **** **** was in charge of the $100 billion HBOS investment fund that lost billions. He has now walked away with a golden handshake and a chairmanship of an investment banker's association. He says he will return to the front line some day !

    I left out his name because his history is online.

  47. eric144,

    With respect to CDSs, I think you're confusing a symptom with the cause. The subprime loans, encouraged and subsidized by the government, both by Fannie and Freddie, and via super low interest rates, and by other pressure to lend money to people who were not credit worthy, were the real root cause.

    But let's also not forget the government imposed oligopoly of the ratings agency (Moody, S&P, Fitch), which were relied upon in lieu of due diligence.

    When the government conspires to create certain things, and then doesn't sufficiently anticipate the consequences, intended or not, nor sufficiently police the bad actors, some think that we just need to add more regulation and laws. I'm of the opinion that the government should stop creating these situations to begin with.

  48. A bit late in the day, I refer to poor Eric144, who said among other erroneous things: "Standards of living are better everywhere despite a massive redistribution of wealth from poor to rich."

    Eric, no such massive redistribution. The rate of poverty (people below a certain poverty line) has been decreasing steadily; moreover, it is true whatever the poverty line you choose. The overall inequality level, as measured by the Gini coefficient, has also been decreasing at the world level. I suggest reading Sala-i-Martin, Xavier, 2006. The World Distribution of Income: Falling Poverty and . . . Convergence, Period. The Quarterly Journal of Economics 121(2):351-397.

  49. Matt

    Fannie and Freddie were private when the crash happened.

    I am not confused. If you don't know what MBS and CDS are, then you simply don't know. Mortgages were the detonator. The first bailout was bigger than all the outstanding mortgages in the USA put together. It was a derivative crash.

    Danny Schecter reckons $200 trillion evaporated.

    This is an expensively made film


  50. Hector M.

    "I refer to poor Eric144"

    Do you mean I am not a right wing ideologue ? True.

    Everything I have read suggests there has been an increase in inequality.

    "World inequality between households has increased, according to the latest studies.

    The income of the richest 1% (50m people) is the same as the income of the poorest 60% (2.7bn people).

    And the all the gains in world income in the middle of the last decade went to the richest 20%, while the inomc of those a the bottom actually declined."


  51. Neither Fannie nor Freddie have ever been truly private. They were known as "Government Sponsored Entities." While in theory they didn't have the full backing of the US Treasury, in reality, that's what everyone assumed. And then when they failed, the US Treasury stepped up and backed them up.

    Fannie and Freddie's main purpose was to launder sub-prime mortgages into MBSes. And they were effectively ordered by the US Government to buy up worse and worse mortgages. The Bush administration made some attempts to get Fannie and Freddie under control, but Congress wouldn't let them (e.g., google "Barney Frank roll the dice").

    I agree that MBSes were a big part of the problem, but again, due to government meddling via Fannie and Freddie, lax ratings agencies and too easy money. And, yes, CDSes were another symptom/consequence of this problem. But don't think that it was a lack of regulation that caused it. Just the opposite.

  52. Matt

    Yes, Fannie, Freddie and the Fed are excellent examples of 'suspect' American half way house institutions.

    This is what I remember. Bush tried to reign in sub prime, while missing the real action, derivatives which they allowed through unregulated (not deregulated).

    Bush can share the blame for financial crisis

    The (Bush) administration did push hard on Capitol Hill to rein in Fannie Mae and Freddie Mac, only to find itself stymied by Congress. But the administration's intense focus on fending off what it foresaw as a looming housing crisis did not extend to the proliferation of fiendishly complex mortgage-backed securities, said Harvey Rosen, an economist who served on Bush's Council of Economic Advisers, briefly as its chairman.

    "Maybe there should have been," Rosen said, "but we were focused more on the fact that if these entities just held plain-vanilla mortgage-backed securities, it was still a disaster in the making."


    This is what cause the global crisis (imo).

    Pay-up time for Lehman swaps

    Sounds fishy? Insured debt of $360 billion while the total outstanding of Lehman debt amounts to only $150 billion? The explanation is a simple one, that the CDS are not necessarily linked to the buyer of the credit insurance in fact holding any Lehman debt.

    To put it in different terms: a CDS is the financial market equivalent of being able to take out an insurance that will pay out money to you in case your neighbor's house burns down