The Mexican Navy discovered the bodies of 72 people in a mass grave near the Texas border last week. They were apparently migrants passing through Mexico from Central America on their way to the United States. The price of passage to the United States was pegged at about $5,000 per head. Presumably those massacred had either not paid the toll, or had paid it to the wrong people. For more details, go here.
Mexico is spiraling very nearly out of control. Vast swaths of its northern regions bordering the United States are controlled by drug and smuggling gangs. The gangs operate to make it expensive for both drugs and people to pass through, and since both operations are illegal, they settle market disputes the efficient way–by killing their competitors (and apparently by occasionally killing the clients of their competitors).
Domestically, 2009 saw another decline in the birth rate and in the absolute amount of live births in the United States. According to the Centers for Disease Control, birth rates and aggregate births have been steadily declining since reaching a high in 2007.
In the international commodities markets, BHP Billiton, Ltd has submitted a hostile bid for Potash Corp. of Saskatoon, Canada. The Australian mining company, BHP, is the world’s largest. Potash Corp, like its name implies, mines potash. Potash is one of three main ingredients in fertilizer (nitrogen and phosphorous are the other two).
These events (like all events everywhere in a universe that started as one tiny infinitely hot, dense point) are related, and closely enough to make them remarkable.
The first two impact the demographic profile of the United States. The latter is an implicit acknowledgment that declining demand due to demography will impact hard ore mining more than agricultural chemicals.
The killing of 72 people trying to (illegally) immigrate to the United States means immigration is getting more expensive. That the gang killing them had purportedly wanted $5,000 per head to send them on their way shows just how expensive illegal immigration has become, even when the immigrants are allowed to survive. This can’t be good for demographics in the United States. The only source of population growth in the US is immigration, illegal and otherwise. Without immigrants, the US very rapidly ages and its population begins declining, such as is happening now in Japan. It is not good for the economic prospects of the United States if immigration is made more expensive, whether by border patrols on our side or smuggling gangs on the Mexican side.
Coupled with immigration becoming more expensive is the impact a declining birth rate will have on demography. 2009 had the lowest recorded birth rate in a century. Without babies or immigration, there is no hope for declining demand to sustainably reverse and begin growing.
Economists have long observed a tight correlation between economic development and birth rates. As economic development proceeds, birth rates tend to fall. No one knows for sure what causes women to have fewer children as they get richer, but the correlation is documented the world over.
Yet, since 2007, it seems that the US birthrate has declined in the face of a stagnating economy. The lagging birthrate was attributed to the declining economy by the National Center for Health Statistics (a sub-agency of the CDC that reports birthrates), but that’s just idle speculation. Neither they nor anyone else could reasonably make such a causative conclusion on just the correlative statistics. The drop in the birthrate could very well be the result of more expensive immigration making for fewer impoverished mothers making their way to the US. Birthrates rapidly decline for immigrants a generation or so after arrival, but until then are at roughly the levels of the lesser-developed countries from which they emigrated.
What does all this have to do with the purchase of Potash Corp. by BHP Billiton, Ltd.? BHP’s revenue is generated mainly from hard metals, such as aluminum (bauxite), steel (iron ore) and copper. The market demand for these metals is very sensitive to changes in economic activity, causing prices to plummet or soar, depending on the direction the activity is heading. The price of these metals are also subject to the whims of central bankers, that can sometimes cause incongruous price hikes during periods of declining demand and vice versa. One means of hedging against fluctuations in quantity demanded for metals that detrimentally impact revenue streams would be to mine agricultural chemicals, whose quantity demanded is more stable (no matter how low goes economic activity, people still have to eat). During times of declining demand, particularly of declining demand due to demographic forces, i.e., a long-term, structural decline in demand, an agricultural commodity should hold its value better than one heavily dependent on building trains or bridges or skyscrapers. It is practically a given that central bankers will print currency to attempt to forestall price declines that should accompany demand declines, and in such an inflationary environment, agricultural commodities, whose demand remains relatively robust, should hold their value well. It may be giving BHP more credit than it’s due, but they possibly grasped (perhaps unwittingly) the long-term reality of weak demand growth due to demographic realities in the West and Japan, and even China (after it completes concreting its country). Before the aging Japanese, French, Germans and Americans die out, they’ll still be eating, even if they won’t be needing many new SUV’s or interstate highways.
So, a massacre in Mexico; a declining birth rate and a proposed merger of two minerals giants are connected by a thread–population dynamics–running through all of human history. For a great many years it was assumed that population only increased. For reasons no one fully understands, we are discovering the growth assumption to be fundamentally flawed. How aging and declining populations resolve will impact nothing less than the remainder of human history. In the meantime, a great many data points, like Mexican massacres, birth rates, company mergers, et al., will be available in providing clues for where it appears things are heading.