Friday, April 11, 2008

Panem et Circenses

Bread and Circus Games. Formula, political strategy? Whatever it was, the Romans used it to keep the population happy for hundreds of years. So what happens to a system that relies on two basic principles to keep the populace pacified when one of them fails? The Romans gave the people the pleasures of food, gladiators, exotic animals, public baths, chariot races, sports competitions and theatre. Today's equivalent of this empire, a complicated system of inter-relationships between nations who share the ideals of capitalism as a means of distributing wealth and well-being with the USA as its figurehead has maintained a similar system to keep us all happy. But could it all be coming apart at the seams? Could the system that has been created literally snatch the bread from our mouths?

In case you haven't noticed, the world economic system is turmoil. OK, China, India and Russia have become financial powerhouses, the US has lost some clout as the dollar slides into irrelevance, oil is selling for over $100 a barrel and gold has also tripled in value in the last few years, actually breaking the $1000/ounce barrier awhile back. But people don't live on oil, or dollars or gold. We need food and water. So what happens when the price of food gets too high to afford? An economist would argue that this simply couldn't happen. The forces of supply and demand will ensure that prices will remain within a range where people will be able to buy and sell. However, this system seems to be breaking down as new money is pouring into the futures market for grains as investment banks search for new sources of high returns. Interestingly this has lead to a situation where somehow the cash price of certain grains isn't always matching the future contract prices on expiry. (It's a little complicated, NY Times story here). Other factors in the rising prices include, droughts in a few grain exporting nations (Australia), political unrest (Zimbabwe), biofuels being produced from maize, soybeans and palm oil (US, Brazil) and even a massive strike in Argentina. So, the supply side is screwed. The picture looks even starker on the demand side, at least easier to understand, as the world's population spirals out of control. We're also seeing demand for a higher-protein diet in growing economies like China an India. Finally, another wildcard that has to be mentioned, but will not be explored here, climate change.

So, what's the bottom line? When people start to feel nervous about having enough to eat, anything can happen. The same can be said of countries. Food riots caused a change in government in Haiti just this weekend. Investigators in Manila caught profiteers last month who were repackaging 20,000 fifty-kilogram bags of rice from subsidized government supplies for sale as higher-grade grain. The Phillipines, the world's largest rice importer, can't find anyone to sell them rice as China, Egypt, Vietnam and India, representing more than a third of global rice exports, curbed sales this year, and Indonesia says it may do the same. Violent demonstrations against the rising cost of living have been staged in several West African countries, including Cameroon, Burkina Faso and Senegal. Meanwhile, the government of the Ivory Coast was forced to cut taxes on basic household goods as food rioting threatened to spiral out of control. Here's Thai farmers guarding their crops.

So the price of bread has more than doubled in the past year while rice has skyrocketed 75% in just the last two months. What can be done about it? World Bank president Robert Zoellick called on rich countries including the United States, Japan and European Union to immediately fill a $500 million funding gap at the United Nations World Food Programme to offer food aid to the world's poorest as he warned that soaring food and energy prices were a serious concern that threatened to foster social unrest in an estimated 33 countries. Meanwhile US Treasury Secretary Henry Paulson warned on Sunday that governments should resist the temptation to try to control soaring food costs through price controls, which he said would likely make the situation worse. Hmmm, I wonder if there's anyway to provide this funding to save human lives...

I guess this is where the circus part of the equation comes into play. Not that I would ever equate war to a circus, or heaven forbid a US presidential election, but just a quick look at the numbers reveals what is fundamentally wrong with the world today. At a cost of $5,000 per second, the price tag for what is the quagmire that America has gotten into Iraq would fill the food gap in 100,000 seconds, or a little more than a day (a day, 3 hours and about 45 minutes). OK, yes, those figures on based on the estimated long term cost of the war, but remember that you have to pay the interest on your mortgage too! Barack Obama used the same figures in a recent speech when he said the war was costing each American family $100 a month (In fact the price is a little higher). This is costing the same people who are crying about paying $4 per gallon for gasoline to drive their SUV's to Blockbuster. Staying with the home of the brave and free, the candidates for president later this year have raised a total of over $800 million, so far. Now, whether or not you view any of these two events as a circus, you must admit there are better ways to "entertain" the people.