Category: Economy

Business as usual

And so, what else is new? My previous post touched on the Occupy Wall Street phenomenon, the people’s revolt against the wealthy and corporate interests, who don’t pay their fair share in taxes, yet harvest bundles in a listing economy even as millions suffer and others wait for the shoe to drop.

Currently, corporate cash holdings are at an all time high. Did you know, for example, that corporations comprising Standard & Poor’s 500 index have currently stacked up more than $1 trillion in cash and short-term investments?

Now mind you, the figures I gave you don’t even take-in the banks, whom I’ll get to in just a bit.

While our economy hasn’t recovered and there’s the very real possibility of a double-dip recession in your near future, corporations and banks are raking in the bucks. Wall Street jubilantly anticipates per share earnings for stocks in the S&P 500 will reach $100 per share by year’s end; in 2012, slower growth, but $104 per share. True, if the economy dips again–did it ever recover?–we could see these projections tumble. Still, don’t bet against the banks and corps. Like a nimble cat, they tend to land on their feet, come wind or rain.

And so what are the corporations doing with their wealth? Well, they’re doing what you and I would probably do were we in their shoes; namely, shoring up for future contingencies. One thing they’re not doing is hiring workers, given market insecurity. They’re also not desisting from awarding themselves egregious bonuses. Hey, we spent nearly a trillion bailing these guys out. Thanks for the memory!

As for the banks, they’ve proven themselves adept at getting around recent congressional moves to protect consumers by imposing caps on credit cards, overdrafts, and debit card merchant fees. That helps explain the sudden deluge you’re getting in bank mail, announcing new terms for checking accounts, reduced credit card awards, and higher ATM fees. Some banks, like Bank of America, are imposing a monthly charge for deposits or withdrawal using a teller ($8.95 at BOA). Banks like Chase now charge $25 for closing an account within 90 days of opening it. It gets worse at PNC and U. S. Bank, which charge $25 for closing an account within 180 days of opening it.

Want to get your statements in the mail? Think again. BOA again charges $8.95 monthly for the privilege, with other banks now lining up.

You prefer pay-as-you-go, using your debit card. Nice way of keeping your budget tidy and avoiding credit card charges, except that some banks are now charging a $3 fee for the privilege.

The gimmick that galls me above all others, since I was on the recipient list, was learning I’d be charged a monthly fee even if I had a 0 credit card balance. You can be sure I got out of Dodge.

You’d like to buy a home at today’s record interest lows? Fine, if you’ve got the minimal 20% down payment. That eliminates a good many first timers, especially young people.

Want to refinance? Not so fast. What’s your home really worth versus the mortgage presently owed? The banks are going to want to take a close look. And don’t forget the closing costs.

When banks and corporations bleed you and me and refuse to loan or invest in the body politic, they divest in stimulating recovery and should be held accountable.

Watch your step. Corporate and bank IEDs are everywhere.

Hats off to the Occupy movement. I adore you!

Reflections on the Occupy movement

Yesterday marks a month ago that the Occupy Wall Street movement began. Modeled after the protests of what’s become known as the Arab spring, it seems to have taken its start from a Twitter post on July13 that slowly gathered interest via other Twitter posts and with numbers, momentum, spreading to other large American cities and, lately, to other parts of the world, particularly Europe. It remains a social media-driven phenomenon. One of its oddities is that it was initially fueled by environmentalists and organic food enthusiasts, among them vegans rather than by the Left. I’m one of those, so from the beginning, I have liked this movement.

As I see it, it’s primarily kindled by resentment that the wealthy along with corporations don’t pay their fair share of taxes and that the banks continue in their public-be-damned parochialism. As such, the movement claims to represent the 99.1 of us denied a place at the table.

One of its oddities is the lack of defined goals amidst a motley of mindsets ranging from far Left to Libertarians, including Tea Party advocates who share an antipathy towards banks, though not corporations, per se. As a whole, however, the occupiers see government as needing reform rather than dismantling.

This movement reminds me of the protests concurrent with the Vietnam War back in the 60s and early 70s, composed largely of young people. This comes as a surprise, as the present generation has been vastly silent, though not so in Europe and North Africa. But “the times are a changing,” given our economic doldrums, the worst since the Great Depression, with a stagnant 9.1 percent unemployed, a figure much higher among young people and minorities. In supposedly one of the richest nations in the world, growing poverty now engulfs more than 20% of our population. In some of our cities, nearly 40% of Blacks and Hispanic under 24 can’t find jobs. This is social dynamite that could escalate into the race riots we saw in the 60s.

Meanwhile, it’s business as usual on Wall Street. The banks that perpetrated our economic downturn, bursting the bubble their speculative greed had created, were
bailed out with huge cash infusions by the government, beginning with Bush but vastly accelerated under Obama. Our national indebtedness consequently has swelled, threatening to turn America into a Greece, Italy, or Ireland, unable to pay its bills. In an effort to keep the steam engine from derailing, we now see austerity measures, both local and national, exacerbating the job crisis. Meanwhile, there’s the continuing rampage of globalization with its consequence of out-sourced-jobs.

Fighting two questionable wars doesn’t help either, diverting huge sources of capital that are vitally needed to rekindle confidence in the economy, leading to job growth through increased consumer spending. You don’t make things better by laying off teachers, police and fire fighters, curtailing libraries, and closing parks.

The banks, of course, haven’t mended their ways. To get around some scrutiny measures recently passed by Congress, the banks have cunningly found ways to circumvent, inventing new income sources through initiating higher interest, fees, and restricted borrowing. Few couples have the 20% down payment required for most mortgage loans, crippling the housing industry which along with car sales, provides key impetus in encouraging a robust economy. The obscenity of huge CEO bonuses continues. Concurrently, they’ve gotten their paper work together and are now foreclosing on delinquent mortgages at a blitzkrieg pace. In short, it’s business as usual, the public be screwed.

Actually, there’s been this gargantuan transfer of wealth going on for some time, with the middle class its victims. The rich don’t pay their fair share of taxes, yet some 37% of Americans don’t pay any tax whatsoever, buttressed by numerous exemptions. It’s a vast simplicity to put all the blame on the wealthy. In fact, this poses one of the dangers for the Occupy movement: that it simply becomes a self-pitying indulgence in envy, rather than meaningful effort to ameliorate; a dangerous wedge masquerading class warfare.

This, of course, may hint at two other dangers, the offshoot of opportunists:

1. That the movement will become politicized by a political party and/or trade unions. This would dilute the movement’s effectiveness as a voice for the people. If anything, we need a third party, say a Green Party. Appropriately, most interviewed participants are suspicious of both major parties. No party should have us in its hip pocket and commit identity theft to advance its own agenda.

2. That the anarchist and Marxist spectrums will infiltrate and nullify through calculated violence such as we saw in Rome last week as hooded, masked street toughs burned and looted. I still believe in a market economy, with safety nets in place.

I am for this protest, though I wish it had a third party corpus. Romanticism can be a beautiful thing, but it needs boots on the ground. As is, I fear that come winter’s icy wind and falling snow, the movement will lapse into memory.

Obama’s assault on Social Security

Although vociferously claiming entitlement programs aren’t on the table in securing deficit reductions, the President’s recent actions prove his rhetoric to be little more than political chicanery in upholding the integrity of Social Security, for an example. In an effort to stimulate the economy by putting more money into our pocketbooks, President Obama has proposed continuing the payroll tax reduction (now 4.1%) for Social Security. In fact, he wants to cut the Social Security payroll tax still further, or to 3.1% of earnings below the traditional maximum of 6.2% on $106,800 income. This amounts to a $240 billion dollar funding hit on Social Security, a program already in trouble due to changing age demographics. In 25-years, it will only be able to pay out $75.00 on every $100.00 owed in benefits.

More specifically, his proposal represents a direct raid on the Social Security Trust Fund, short-changing our young people. As is, his proposal cuts $175 million from the employment payroll contributions and $65 billion in employment contributions. The President’s new, massive stimulus package before Congress, $440 billion, draws 55% of its funding from Social Security funding. You do the math. It’s simply untenable, an indulgence in political opportunism, betraying American workers and their future.

Compounding the demographic and political pressures on Social Security, today’s massive unemployment has ignited a rush in applications for disability income (SSDI). According to the government’s own figures, applications showed a 21% increase just between 2008 and 2009. While the rising number of aging baby boomers may account for some of this increase, it seems more likely this sudden swell has is origin in our down economy. Frankly, one has to suspect Social Security is being used as a ruse for welfare in many instances. Obtaining benefits also qualifies one for Medicare, no matter one’s age.

In its defense, the Social Security administration argues it has strict monitoring procedures in place to assure legitimacy in the application process, with only 30% of applications approved. This is true, however, only at the initial application stage. While denied applications going through the appeal process can take up to 2-years, persistence pays and ultimately most applicants, or 67%, get their benefits approved before an Administrative Law Judge. Meanwhile, legal representation for applicants has turned into a lucrative specialty.

What’s mind-numbing is that this deluge in disability applications is leading some trustees of the Social Security disability program recommending Congress reallocate money from the Social Security Retirement program to offset deficits in disability funding!

As is, the present and proposed cuts in Social Security payroll taxes don’t offer assistance to the many unemployed, retired, disabled or those, like teachers, who are ineligible for SS. More substantially, short-changing Social Security exacerbates its perilous future.

Wise words from George Washington on government spending

Just moments ago I finished reading George Washington’s Farewell Address (1796), and I’m glad I did. While its language may be steeped in 18th century formality, it remains a sobering speech in its prescient wisdom. Had Congress over the years heeded our first president’s wise admonitions, we’d have avoided the divisive partisan rancor that imperils our financial solvency and our future. Make no mistake about it: We haven’t solved our financial dilemma in raising the debt ceiling. The truth is we spend too much while wanting more. If you spend, you must have revenue, today’s euphemism for taxes. To avoid raising taxes, you must cut your spending. Unfortunately, we’ve gotten ourselves into such a corner that we need to balance the equation, spending less and increasing revenue. The words below are Washington’s; the underlined passages, my own:

1. On political factions:

All obstructions to the execution of the laws, all combinations and associations, under whatever plausible character, with the real design to direct, control, counteract, or awe the regular deliberation and action of the constituted authorities, are destructive of this fundamental principle, and of fatal tendency. They serve to organize faction, to give it an artificial and extraordinary force; to put, in the place of the delegated will of the nation the will of a party, often a small but artful and enterprising minority of the community; and, according to the alternate triumphs of different parties, to make the public administration the mirror of the ill-concerted and incongruous projects of faction, rather than the organ of consistent and wholesome plans digested by common counsels and modified by mutual interests.

I have already intimated to you the danger of parties in the State, with particular reference to the founding of them on geographical discriminations. Let me now take a more comprehensive view, and warn you in the most solemn manner against the baneful effects of the spirit of party generally. Without looking forward to an extremity of this kind (which nevertheless ought not to be entirely out of sight), the common and continual mischiefs of the spirit of party are sufficient to make it the interest and duty of a wise people to discourage and restrain it.

It [party faction] serves always to distract the public councils and enfeeble the public administration. It agitates the community with ill-founded jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot and insurrection. It opens the door to foreign influence and corruption, which finds a facilitated access to the government itself through the channels of party passions.

2. On Federal deficits:

As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible, avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it, avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertion in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden which we ourselves ought to bear. The execution of these maxims belongs to your representatives, but it is necessary that public opinion should co-operate. To facilitate to them the performance of their duty, it is essential that you should practically bear in mind that towards the payment of debts there must be revenue; that to have revenue there must be taxes; that no taxes can be devised which are not more or less inconvenient and unpleasant; that the intrinsic embarrassment, inseparable from the selection of the proper objects (which is always a choice of difficulties), ought to be a decisive motive for a candid construction of the conduct of the government in making it, and for a spirit of acquiescence in the measures for obtaining revenue, which the public exigencies may at any time dictate.

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The Constitution option?

As I write, we face an unbelievable, yet possible deadlock scenario in reaching compromise on lifting the debt ceiling as both political parties hunker down, unable to reach compromise on spending cuts. At this point, you’re hearing a lot about the Constitution option by which the President would simply raise the debt ceiling on his own. Former President Clinton said this is what he’d do and let the courts sort it out later. Many Democrats now concur. At the moment, the President has said he doesn’t think it applicable. Nor do I. Besides, it’s a very bad idea.

1. What is the Constitution option?

We’re talking about the 14th Amendment, Article 4, adopted in 1868. It says,

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

2. Why it doesn’t apply to our present debt crisis:

The Article is part of the 14th Amendment pushed by radical Republicans in the post-Civil War era to extend their political power by ensuring the citizenship and voting rights of Negroes. One might think of the Amendment as the beginning of the Reconstruction era, since it sanctioned the dividing of the South into five military districts. Article 4 ironically disallows Southern, or Confederacy debt (e.g., reimbursement for the loss of slaves, etc.), while allowing for the legitimacy of the Federal debt. The Article became law in 1868 after its ratification by the States. At best, it recognizes the legitimacy of the national debt. The post-war government needed revenue sources after fighting an expensive conflict. It wanted to be paid. The Article doesn’t allot the right to increase that debt. I have yet to find any proponents of implementing this Article quoting beyond its first sentence. Reading the Article in its entirety clearly establishes its post-Civil War context and limitations.

3. Why it would be bad policy to invoke Article 4 of the 14th Amendment:

Resorting to this solution would set dangerous precedent, giving future presidents a blank check on spending without Congressional approval. The Constitution is clear on its mandate for a check-and-balance system of the Congressional, Judicial, and Executive branches of government. Besides, we want a solution to our overspending, and not its perpetuation.

In the short run, it would likely incite an impeachment attempt even though it would fail in the Senate, where Democrats hold a slight majority. At the very least, it would add to the fractiousness between the two parties and heat the political temperature still further as we head into an election year.

It’s sound policy, whether at the personal or government level, to always weigh the possible consequences of any decision. Decisions are like stones cast into the water. They make ripples.

A letter to Congress

The other night, President Obama asked Americans to contact their reps in Congress and urge them to pass a responsible deficit cutting bill. Many of you did that, resulting in a mammoth switchboard overload. My wife resorted to email, writing the following message:

Senator McConnell,

Please, please, please use your unparalleled power to limit cuts to Social Security, Medicare, Medicaid, etc., in the proposed budget. It is utter nonsense that we of the middle class get trampled on every time there is a financial crisis in this country.

My husband (retired) and I (close to retirement) have worked hard and, as millions of others in our tax bracket, deserve some consideration here. The GOP, mainly that damned Tea Party faction, is more than likely forcing us to look outside this once great nation for more comfortable living. Funny–I love my country; it’s getting so I just can’t afford it.

Please help put a stop to this foolishness. If our government fails in this crisis, we will have lost all hope.

More baloney

Last night, the President finally appealed to Americans to support deficit reduction, urging them to contact their representatives in Congress. Problem is that it’s not going to get the job done, as even Americans are divided as to the best approach.

Polls indicate that what Americans fear even more than the government defaulting on its loans are cuts in Medicare funding, and with good reason. It’s no secret Obama has been touting slicing some $600 billion dollars out of Medicare, largely by cutting back 30% on payments to doctors and hospitals. Finally, the AARP, usually in lock step with the Obama administration, is vociferously protesting and running spirited ads.

I just don’t see how it’s going to fly. Yesterday I had to visit my ophthalmologist. In the course of office banter, the deficit crisis came up, and I mentioned the proposal being kicked around in DC to cut back 30% on Medicare outlays. He shared that he didn’t know how he could absorb it. He might have to refuse Medicare clients. His current expenses were running so high it was possible that he couldn’t retire. This from a doctor!

Curiously, when I walked into the doctor’s office, virtually all of us were gray panthers, or getting there in a hurry. It’s reassuring that there are some 50 million of us and we do vote.

I’m not sure Americans remember that one of the President’s carrots for getting his Health Reform Bill passed was a promise to cut some $500 billion from Medicare by eliminating waste. Yeah some waste, but $500 billion’s worth? Hey, am I missing something here? Do the Dodgers still play in Brooklyn?

To play fair, I’m equally chagrined at the Republicans, intimidated by their purist Tea Party colleagues, resisting an increase in tax revenue. As I’ve pointed out in an earlier blog, it would solve our budget deficit problems in short order over a space of several years. You just can’t have your cake and eat it, too. We need a mix of cutting spending and raising revenue.

By the way, where are the cuts in benefit outlays for members of Congress? Oh, I forgot–they’re not under Medicare!

The psychology behind Obama’s decision making

It’s Monday and a new day begins for troubled markets as party chiefs once again try to resolve the deficit impasse that threatens a financial meltdown with global implications. Nevertheless, I remain optimistic that cooler heads will prevail and a deal will be struck, though perhaps to no one’s liking. Whatever we do, it’s probable our credit rating will drop from triple to double A, resulting in higher borrowing interest for everybody.

In this post, however, my focus is on the psychological dynamics at work in our President’s seeming inability to provide firm, creative, leadership across the board. Quite frankly, he lacks leadership spunk, the resourcefulness of occasionally putting up his dukes, or more bluntly, becoming a just plain son-of-a-bitch, Harry Truman style if you will. Mind you, we’re in a war, economically speaking, with high stakes. We can’t afford taking the wrong options. As on a real battlefield, leaders must develop a strategy and prove decisive in its execution. Our president, however, a kind man, lacks the killing instinct to get the job done. It’s never a straight path for him. He’d rather waddle. In my previous post, I spoke loud and clear on the President’s tendency to put up the white flag prematurely, undermining his promises, and in the process, giving strength to the opposition, who increasingly perceive him as vulnerable.

Why is he this way? With the increasing advances in neurobiology comes a possible answer. Medical researchers can now map and measure the brain’s capacity to respond to our emotions. Frankly, some of us are wired to be hot, or emotionally sensitive; conversely, there are the cold types, or those said to have “ice in their veins.” I suspect good relief pitchers in baseball belong to this tribe. The worst of the cold types, of course, are the sociopaths, who can shoot 76 teens in a Norwegian camp and argue afterwards how it was necessary. Neurology has grown so advanced that we can even detect who the sociopaths are.

In the realm of finance, an offshoot of neurology has been the development of neuroeconomics, or the study of the cognitive processes at work behind financial decision-making. Let’s take a case scenario: Investors in Wall Street who consistently earn little tend to be markedly conservative, with little appetite for risk. A few losses and they quickly panic. Often they’ll opt for investing in bonds rather than equities, even though over a sustained period, and despite market downturns, the latter out perform bonds. This conservatism, rampant among the hot types, has given rise to what’s known as “myopic loss aversion.” As British psychologist Kevin Dutton remarks, “Emotion, it would seem, is so oriented toward risk aversion that even when the benefits outweigh the losses it henpecks our brains into erring on the side of caution” (Split Second Persuasion, 20011, p. 208).

Our president, surely one of the more cautious and feeling presidents we’ve known, unfortunately mirrors the hot-wired grouping of those undermined by an excessive capacity for empathy. He can see, or better, feel both sides. The result: consensus or compromise, whittling down previous commitment.

In the business model, you may not like it, but the ruthless prove the most successful entrepreneurs, whether Bill Gates or Steve Jobs. In his now classic studies, Harvard’s Stanley Rachman studied bomb disposal experts with 10-years or more experience, specifically those decorated and undecorated. What separates the great ones from the merely good? Rachman made a startling find: the heart rate of the undecorated remained stable, even though subject to high stress. However, here’s the thumper, the heart rate of the decorated proved unstable. It went down!

Rachman discovered something else: not only did successful risk-taking have a physiological basis, but something additional was in the mix–confidence (Stanley Rachman, “Fear and Courage: A Psychological Perspective,” Social Research 71(1) (2004),14976).

Obama is fond of Abraham Lincoln, perhaps intuitively in seeking a mentor of what he would like in himself. While we obviously aren’t able to map Lincoln’s brain via an fMRI, we can presume he had the necessary prerequisite of confidence to make the crucial, hard decisions necessary to preserving the Union, whether in opposing the expansion of slavery, declaring war, changing generals, or issuing the Emancipation Proclamation. In the previous century, three presidents again demonstrated this confidence factor, the Roosevelts, and Ronald Reagan. Regardless of your politics, they inspired a nation with their own confidence and took us from the dark places into the light.

Unfortuately, Obama, a hot type, isn’t wired this way. In truth, he’s more Carteresque than vintage Lincoln. Compassion and equity surely have a place, but not when their offspring is paralysis.

Keeping the faith

In a recent riveting analysis of decision making by President Obama, Praising the Hostage Takers, liberal Paul Leob painfully laments the President’s overweening zeal for compromise.
Will Obama ever hold the Republicans accountable for their reckless and destructive actions? No matter how outrageous their demands, he keeps giving them legitimacy, first resisting, then compromising, then praising the result as bipartisanship. He’s forgotten the basic lesson of negotiation — you don’t hand everything over before you start, particularly to people who have utter contempt for your values and goals. He’s also forgotten the importance of fighting for your principles, so people have a reason to support you.

As I write, top brass from both parties are scrambling to come up with something feasible by Monday morning.  Ultimately, the parties will strike an agreement on easing the deficit crisis, though it’s likely to be bad news for most of us, with options for changing the cost-of living formula for social security, applying a means test to both, and eliminating the mortgage deduction among those on the table.  Meanwhile, no tax increase on incomes above $250, 000.  It’s no secret there’s been a massive transfer of wealth going on to the upper class for some time, ultimately creating something like what you have in South America: you’re basically poor or well off.  The upcoming scenario simply expedites that trend.

In my own case, a retired prof with a still working spouse, my own income from social security and a retirement annuity invested in over the years has been declining even as inflation heats up and Medicare premiums and deductibles soar.  Meanwhile, I’ve not received any cost-of-living payout in social security due to inflation in the last two years. That doesn’t stop the Feds from taxing my social security heavily, as they count my wife’s income as total family income.  It’s worse for others.

The scandal is that fifty percent of Americans pay no tax at all.  Family size, mortgage exemptions, low wages, etc., contribute to this scenario.  Unlike South America, in our country, the poor get attended to and the wealthy get their loopholes.  Wall Street and the banks get their bailouts.  You and I, the middle class, we’re the pack mules

But I want to get back to Obama.  In campaigning for the presidency, he posed as the people’s protector.  On the other hand, he hasn’t walked the talk since getting elected. Loeb, gives us a disturbing litany of what the President has “compromised” away:

Obama’s almost pathological devotion to compromise started early in his presidency. Republicans and a handful of corporate-funded Democrats used the Senate filibuster to block action on issue after critical issue. Instead of calling them to account and marshalling public pressure against them, Obama responded as if their intransigence was reasonable, giving them instant political cover. He did this on health care, financial regulation, and attempts to pass a sufficiently large economic stimulus. On climate change, he tried to prove his reasonableness by allowing offshore oil drilling (just before the BP oil disaster) while securing not a single vote in return. Republican Lindsay Graham was planning to offer precisely this enticement to convince borderline Senators to support at least some price on carbon, and said Obama effectively killed the bill by leaving him with nothing to offer people Obama similarly refused to take a firm stand on ending the Bush tax cuts, which he could have simply let expire. He’s now retreating on the debt ceiling battle, saying he might have to sign off on a deal that cuts spending now a the vague promise of reforming taxes later.

Anything to get the deficit ceiling raised:  erosion of social security, betrayal of the environment, continuation of the Bush tax cuts, perpetuation of corporate loopholes, et cetera ad infinitem! Obama might take a lesson from Ronald Reagan, who raised the deficit several times during his presidency.  Up against it on several occasions, the Great Communicator would take his case to the American people.  And he always won.

Mr. President, call the Tea Party bluff.  No deficit agreement?  So be it! We’ll get through, but the Tea Party won’t.

Mr. President, if nothing else, exercise your Constitution option.  Raise the deficit!  Pay the bills!

We don’t need a Chamberlain buying peace for now, mindless of tomorrow. You don’t betray the American people to placate the opposition.

You want to be liked?  I tell you this: Keep your promises and to paraphrase Carole King, “they’ll come running.”

Food for thought

The news is quite predictable now, with its 24/7 coverage of unrest in the Middle East.  And the contagion is swelling _initially, Tunisia, then Egypt, now Yemen, Bahrain, and just recently, Libya.  Can Saudi Arabia, a critical source of the world’s oil, be far behind?

Most media report the unrest as an unprecedented quest for democratic government and the choices it provides to individuals.  I argue that this over simplifies, not the first time media has done this, of course.  The root causes rest in the economic and, more specifically, in sharply escalating costs for foodstuffs.  To cut to the chase, these are food riots.

According to the United Nation’s Food and Agricultural Organization (FAQ), food prices on the world market have risen 30% over those of a year ago.  In January, these increases reached their highest point in 20 years, plunging 44 million into the already swollen ranks of the impoverished.  According  to World Bank president Robert Zoellick, “It is poor people who are now facing incredible pressure to feed themselves and their families as more than half a family’s income goes just to buy foodstuffs.”

In Egypt,  56% of a person’s income is spent on food.  In Yemen, prices for wheat and wheat products have doubled over the past year.  Wheat dominates North African and Middle East imports of foodstuffs. Gulf countries import 100% of their foodstuffs, offset by oil revenues.

According to the FAQ, which traces monthly international prices of commodity products, including meat, dairy, cereals, oils, fats, and sugar, in just the last 3 months, sugar has risen 20%, oils 22%.  It’s worse with corn, now priced 73% higher than in June, 2010.

The contributing sources to these ills are multiple and largely of human mischief.  


1.  natural calamities:  2010 saw wildfires in Russia due to record breaking temperatures and prolonged drought.  Floods devastated Pakistan and Australia.  In Sri Lanka, floods destroyed 30% of its wheat harvest.  Drenching rains despoiled South Africa of much of its anticipated harvest. (I have written of the connection of volatile weather with global warming in an earlier post.) 


2.  escalating oil prices, driving up transportation costs. 


3.  diversion of cropland for production of biofuels to offset oil import costs.  In the  U.S., government grants oil companies a tax credit for each gallon of ethanol it produces, costing American taxpayers 6 billion dollars annually.  This has resulted in a 40% rise in corn prices on the world market.  

To these factors, I would like to add another often missed: the exponential increase in human numbers and its corollary, increased demand.  In the U. S,, one of the world’s fastest growing industrial nations, population increased from 130 million in 1940, to 150 million in 1950, and now doubled to a current 308 million.  

The UN anticipates a 9 billion world population in 2050, up from just under 7 billion presently. To feed everybody will require more land and water use and decimate forests still further.  Even if we were to succeed, many would remain malnourished and impoverished.  70 million, or two Californias, are added annually to the world’ s population.  While some take solace in declining fertility,  two thirds of Egypt’s population is under age 30.

And whatever happened to the Green Revolution with its high yield grain varieties, innovative pesticides and fertilizers?  The grim  reality is that its initial gains have been swamped by increases in human numbers.  Initially, a catalyst to its early promise was an increasing reliance on irrigation, with unforseen consequences for all in dropping water tables.  India, which became a food exporter, now imports rice, mostly from Australia,   Unfortunately, that windfall may be drying up quite literally.  Australia has cut its rice exports 90% because of prolonged droughts and more recent cyclones.

In China, the water tables are dropping 10 feet a year.  In the U. S, it’s worse, with water levels over past decades dropping 100 feet in Kansas, Oklahoma, and Texas.  By 2025, two thirds of the world’s people will live in locales lacking sufficient water.  Water, not oil, may well mitigate future conflict between nations.

Meanwhile, upheaval in North Africa and the Middle East signals warning of history’s tendency to repeat itself.  Tomorrow, the just returned exiled Muslim Brotherhood cleric Yusuf al-Qaradawi will address a mass rally in Cairo in Tahrir Square.   A brilliant articulator of purist Islam (100 books), he despises the West and loathes Israel.

Food prices?  More important than you thought: they can determine history, affecting us all.
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