"The current financial crisis in the U.S. is likely to be judged in retrospect as the most wrenching since the end of the Second World War." -- Former Federal Reserve Chair Alan Greenspan, Financial Times, March 17, 2008
Breakfast of economic champions?
Photo: iStockphoto
Drawing on past-life experience as a financial reporter, I have been trying to make sense of the crisis now spreading through the U.S. economy -- a debacle brewed up on Wall Street that's affecting us all. These are critical issues for the environment, because economic crises rarely lead to more ecologically benign policies.
Look, for example, at the biofuel boom -- our government's major response to the recent surge in oil prices. Biofuels have not significantly reduced oil prices or our carbon footprint, but they have led to an ongoing surge in agrichemical use. The biofuel policy has also ramped up food prices at a particularly precarious time for consumers. In this column, I sketch out a plan that would ease food prices while also lessening food's impact on the environment.
Why is such a plan necessary? Because while U.S. Federal Reserve officials shuffle around Wall Street with suitcases full of cash trying to assure finance execs that everything's all right, things are turning tense on Main Street. Grocery bills are climbing, gasoline prices set record after record, and credit cards are maxed out. Meanwhile, recession looms, signaling stagnant wages and job cuts. According to BusinessWeek, consumers carry a stunning $740 billion worth of credit card debt, up 15 percent from five years ago. One of the few engines of job growth, The New York Times reports, is consumer-debt collection. Ouch.
So what is the federal government doing to ease the burden on consumers? Beyond the Bush administration's one-off tax rebate -- equal to less than most people's monthly mortgage or rent payment -- not much. Recent spikes in food prices can be tied directly to the biofuel boom engineered by the Bush administration (and supported, to be fair, by Congressional Democrats, including the leading presidential contenders). President Bush was recently heard muttering that "we got to do something" about the spike in food prices caused by the ethanol boom he engineered. But he has done ... nothing.
The Poor Get Poorer ... Nutrition
While ethanol producers suck in as much corn as they can, cheered on by the politicians, consumers are getting squeezed at the grocery line. Over the past year, we're paying significantly more for staples like eggs (up 25 percent), milk (17 percent), cheese (15 percent), bread (12 percent), and rice (13 percent), The New York Times reports.
Federal Reserve Chair Ben Bernanke.
Photo: federalreserve.gov
Meanwhile, Federal Reserve Chair Ben Bernanke has used his bully pulpit to cajole banks to be kind to debt-distressed homeowners, but he's actually opened his checkbook to ease the plight of banks themselves. Awash in debt and ravaged by its dubious mortgage investments, the once-mighty investment bank Bear Stearns recently flirted with ignominious collapse. But in a dramatic and unprecedented intervention, the Fed nudged it into the waiting arms of megabank JP Morgan Chase at a fire-sale price. The Federal Reserve had to agree to take on as much as $30 billion of Bear's debt if things sour. That means we taxpayers take on most of the deal's risks, while JP Morgan Chase shareholders stand to rake in any gains.
Bernanke's other high-profile activity has been to repeatedly slash interest rates. Low rates ordinarily benefit consumers, but only if they embolden banks to lend, businesses to invest, and the economy to expand. As it is, banks remain way too skittish about the mortgage mess to lend. The Fed's rate cuts have merely inspired foreign investors to dump U.S. assets, causing the dollar to plunge. For consumers, a weaker dollar means higher prices for the imported goods on which we've come to depend -- including our biggest import of all, crude oil.
In green circles, rising gasoline prices sometimes cause celebration. But absent public policies that give people alternatives to the car, high oil prices do little to curb consumption. Instead, they merely act as a regressive tax on people trying to get to work -- taking money out of the pockets of people who can afford it the least.
As I've written before, a similar logic holds true for industrial food. Surging corn and soy prices aren't likely inspiring cash-strapped people to trade up and shop at the farmers' market. Rather, food-price hikes are likely sending most people down the food chain, looking for the cheapest -- and too often least healthy -- food possible.
Meanwhile, Bernanke's tortured quest to save Wall Street from itself is likely far from over. Not only are untold tainted subprime mortgage assets still festering on banks' balance sheets, but that above-mentioned $740 billion in credit card debt is also haunting the Street. As with subprime mortgages, the banks spent much of the last decade essentially bundling credit-card debt into packages and selling it to each other and to hedge funds at great profit, BusinessWeek reports. If cash-strapped consumers start to default, expect more shrieks from Wall Street -- and more Rescue 911 acts from Bernanke.
But there are other ways to respond to these mounting crises than merely bailing out the banks and letting consumers twist in the wind.
Beyond Bailouts
The first thing I'd do is end the government's absurd, expensive, and myriad biofuel subsidies, which are jacking up food prices while providing little if any environmental benefit. According to one reckoning, the federal government has committed $92 billion between 2006 and 2012 to prop up biofuel production. Attracted by this government-guaranteed market, the very same investment banks and hedge funds that brought us the mortgage debacle are now buying and selling corn and soy futures, snatching profits while consumers gape at the price of grocery staples.
Pulling the plug would cause grain and soy prices to drop, bringing down food prices but hurting farmers. To limit the latter effect, the government could step in and buy excess grain and hold it, replenishing stocks that have fallen to all-time lows. That would keep farmers in business while also improving food security.
With the massive savings that would result, the government should invest in local and regional food-production infrastructure, which has been systematically dismantled by agribusiness over the past half-century. Such a program would not only provide consumers with a ready alternative to industrial food, but would also re-establish food as an engine for building wealth within communities -- and lessen its ecological footprint.
Finally, the government has to figure out a feasible way to slash demand for oil, to both shield consumers from rising prices and, well, avoid climate disaster. The obvious way is to reinvest in an efficient, functioning national and regional mass transit system. Common wisdom holds that Americans are too in love with their cars to embrace trains and buses. As gas prices gallop toward $4 per gallon, that idea looks increasingly frayed. A recent poll in North Carolina, a state marked by sprawl and heavy car reliance, showed large majorities favor public investment in mass transit.
Meanwhile, an American Public Transportation Association study [PDF] shows that Americans are increasingly using what little public transportation they have access to. The problem, it seems, is not consumer desire but rather political will. According to an extraordinary recent article in The Washington Post, the Bush administration's Department of Transportation has systemically gutted federal funding for mass transit in favor of highway-privatization schemes that favor business cronies.
"The number of major new rail and bus projects on track for federal funding dropped from 48 in 2001 to 17 in 2007, even as transit ridership hit a 50-year high last year and demand for new service is soaring," the Post writes.
That's imbecilic. In the context of early 21st century U.S. politics, gutting harmful biofuel subsidies, reinvesting in local food, and rebuilding the public-transit system count as radical ideas. They're almost completely iced out of the national debate, even during a highly contested presidential election. Meanwhile, heroic and pricy efforts to bail out Wall Street seem, for some reason, are perfectly natural.
Do diesel-based farmers dream of electric tractors?
Top 25 reasons to give a damn about climate change
Global boiling declares war on Thanksgiving
Comments
View as Flat
BornOnANebraskaFarm Posted 2:52 am
21 Mar 2008
Permalink
Farm Bill Girl Posted 4:20 am
21 Mar 2008
I think you are overstating this Tom. As you know, commodity prices comprise a very small portion of total food price. in your loaf of bread, there may be 4 cents worth of wheat. a $4 box of cornflakes has like 7 cents of corn in there, even with $5 cown. (at under $2 corn, which is what corn was at for a looong time, it's like under 3 cents). and when corn was cheap, food prices didn't necessarily go down (see Food and Water Watch report on this). most of the increase in food prices is due to the high price of oil/energy, which goes into the processing, transport, packaging of our industrial food system. shows why comparative advantage and the free trade model to import cheaper food produce might be falling apart soon.
plus, check out the profits of General Mills (makers of Yoplait and Cheerios)...up 61% this quarter! Agribusiness controls food prices way more than commodity prices and farmers at the mercy of the Chicago Board of Trade for their prices.
Thanks for your stressing the reserve. We submitted this letter to the LA Times that was published today on the follies of not having a reserve right now.
Strategic grain reserve is needed
Re "Our daily bread? It costs more," March 16
This article documents the effect rising wheat prices have had on bakers. It is important to note that as recently as 2002, wheat farmers were receiving less than $3 per bushel, lower than 1970s prices. These depressed prices drove thousands of family farmers out of business while food processors' and agribusinesses' profits skyrocketed. Just as some bakers have little market power to control the price of wheat, farmers have little control over the price they receive for their commodities.
We agree with the need to create a strategic grain reserve and believe it is urgent to revive farmer-owned reserves, as most civilizations have had, to better protect food processors, farmers and consumers. Leaving our food security to the whims of the global markets is a recipe for disaster. Twenty-dollar wheat is a threat to our food system, but $3 wheat is every bit as unacceptable.
Katherine Ozer
Executive Director
National Family Farm
Coalition, Washington
Permalink
javaearth Posted 2:02 pm
21 Mar 2008
- I know its too simple. -
Javaearth aka The happy vegan.
Permalink
javaearth Posted 2:16 pm
21 Mar 2008
Over 95% of the US would rather suck up the resources and pollute the planet, just so you can eat your diseased and dead animals.
Sad really.
Permalink
AndrewS Posted 10:45 pm
22 Mar 2008
Buying locally also supports your local farming community.
Try http://www.localharvest.org for a place to start finding out about local food sources.
How about driving less, spending less, buying less "stuff," eliminating credit card debt, and taking action locally on issues important to us as places to start?
Permalink
amc89 Posted 6:56 am
23 Mar 2008
Permalink
msk Posted 2:50 am
24 Mar 2008
I'm all for people eating lower on the food chain and eating more fruits and veggies, but there's no way to dodge the economic hurt of rising food prices completely.
Permalink
BeckyAndtheBeanstock Posted 7:18 am
24 Mar 2008
Permalink
AndrewS Posted 9:39 am
24 Mar 2008
Fruit and vegetables in season bought directly from the farmer are generally cheaper than their counterparts in the grocery stores. In many areas, high volume produce like tomatoes, sweet corn, and summer squash, to name a few, are so abundant at the peak of their season that farmers practically give them away. The trick to saving money later is to figure out ways to store those veggies for times when the farms in your region are producing less. It takes some creativity, research, and effort, but it is possible. I'm still making sauces from local organic tomatoes and peppers that I got free last fall because our CSA had such a bumper crop and didn't have the resources to get it all harvested.
Best of luck.
Permalink
JTS Posted 12:02 am
25 Mar 2008
After the 35W bridge collapse last August, many businesses offered discount transportation passes to their employees. Now the only problem is that we don't have enough seats to go around for everyone!
Permalink
mtvyfan Posted 1:17 am
25 Mar 2008
I also work for an organic supermarket and receive a discount on all of my purchases, which really is helping right now. CSA's are also a great way to help farmers and receive weekly produce.
I am an omnivore, but all of the horrors I have witnessed about confinement practices and the callous disregard that some of the workers have for these poor little beings have encouraged me to really cut back on my meat consumption. I only eat organic free-range meat and since I work in an organic supermarket, I know exactly who owns the ranch and what their stewardship practices are.
There are solutions out there, we just have to get up off our butts and look for them. Sometimes that seems very difficult for some people, sadly.
Permalink
Evets Posted 2:33 am
26 Mar 2008
Keep 'em coming!
thanks...
Permalink