Friday, November 19, 2010
- Don't Panic Glenn
Nothing assures political unrest as absolutely as starvation. No one will stand by and respect the political authority of their leaders while watching their children go hungry. Thankfully this is not a problem that we in the US are likely to have. Environmental activism notwithstanding, America has some of the most productive and efficiently managed farmland on the planet and as a result, food represents a smaller portion of American earnings than anywhere else in the world. Our poor people aren’t starving, they’re struggling with obesity. And given current trends, you’ll see Washington DC reduced to ash and congressional staffers crucified along the beltway before that changes in any meaningful way.
To be frank, that’s why I’m not so worried about a little inflation. Even double digit inflation for a short time won’t be that big a deal for the vast majority of Americans. People won’t like it, and the standard of living will be reduced modestly for all of us. But for most people, it won’t be a matter of life and death at all. Even our ‘desperately poor’ in America with their cell phones, cable TV, and air conditioning have a very ‘middle class’ existence when compared to the third world. So our standard of living can fall a LONG way before it’s anything like a real crisis.
But some people don’t see it that way. The romantic appeal of an apocalyptic vision is strongly embedded in some people, even though the odds of seeing it are really very small. Personally I see no issue with buying a little insurance against catastrophe, but I don’t think it makes sense to go too far overboard. I have generator and enough fuel to run it for 48 hours in case of a power outage. I have a house FULL of guns (but mostly because it’s my hobby) and my wife shops at ‘big box’ stores because (to be perfectly frank) she’s cheap. But I haven’t invested the tens of thousands I would need to take my home off the grid or stockpiled a decade of canned food and MRE’s. After analyzing the probabilities I just don’t think it makes economic sense to spend that much for something that’s so unlikely.
But not everyone feels that way. Glenn Beck, for example, is trying to rally his troops to store a year’s worth of food, but I think that’s way over the top. I’m a fan of Glenn more or less, but he doesn’t seem to understand that inflation doesn’t cause scarcity, it causes higher prices. And just because people can’t afford high end Beef anymore doesn’t meant they’ll starve. What’s more, as prices rise, so too will the supply as more marginal land is brought under cultivation. Yes it will all cost more. But any real food shortages will be local and sporadic at worst.
That’s not true in China however. In China any substantial rise in food prices means people WILL be starving. With 25% of the population involved in agriculture and surviving on barely better than a subsistence level, a serious rise in food costs are a real problem. What’s worse, with such a low standard of living the only solution China has for addressing a problem like this is price fixing, and that DOES lead to shortages. And that’s where things can get really out of control for them.
I’m assured by people who know that the Chinese Army will have no problem suppressing any civil unrest, but that’s the sort of thing that doesn’t look good on the front page of the New York Times. (Especially to the China worshipers in the Times editorial section.) The Chinese rulers know this of course, and would prefer not to get to that situation. So while Ben Bernanke is flooding the global markets with cheap dollars in order to create a little inflation, the Chinese are raising their banking reserve requirements in an attempt to pump it out.
Make no mistake about it… this is what a currency war looks like. And in a war like this the US will certainly win. The Chinese can’t possibly remove liquidity as quickly as the US can pump it in because of the political constraints on their actions, not the economic ones. Whatever anyone in this debate says, we have more breathing room, and less drastic choices. So we can have a QE2, or QE3 or QE10 without having to worry about real problems of law and order. That doesn't mean it's a good idea, but it's not the end of the world either... not for us at any rate.
Ron Paul may end up punching out Barney Frank, or beating him with his cane on the floor of congress or something before it’s all over. But as bad as things may be in our economy we’re still a long way from a genuine crisis. And civil unrest is not going to be brought on by managed inflation in spite of what Glenn Beck says, even if the level gets a little higher than anyone planned. This will remain true even with an utterly incompetent administration, and a Congress frozen in stasis.
In the end, we all have to deal with the world as we find it. So before it's all over, the American poor people will be choosing between the unlimited data plan on their cell phone, and a second line for the kids. Or maybe they'll be giving up HBO and Showtime in exchange for setting the air conditioner at 70 degrees. But the Chinese poor will be choosing between trying to steal the Army's food supplies and risk getting shot, or watching their children starve to death. Based on that, I think it's easy to figure out the global winners and losers.