Paul Krugman recently attributed to global warming the Egyptian civil unrest, using elevated wheat prices as the conduit through which global warming affected Egyptian politics. He needed something other than Bernanke’s printing presses as the culprit for elevated wheat prices since he has steadfastly promoted monetary stimulus as a necessary part of the cure for the economic doldrums of the West, along of course, with an even greater fiscal stimulus than the $1.5 trillion annual deficit implies. So, he blamed hot weather in Russia last summer for creating a wheat supply problem pushing up prices, sending angry Egyptians, Tunisian, Jordanians, and Yemenis into the streets.
He’s wrong of course; the current wheat crop is quite ample, not even accounting for the massive stockpiles worldwide of surplus grains from several years of bumper crops. Imagined problems with wheat supplies are not causing worldwide commodity price increases (in dollars) ranging from thirty to a hundred- thirty percent in less than a year. Indeed, it is most probable that Mr. Bernanke’s printing presses are the culprit, i.e., the very reason Mr. Krugman attempted to preclude with his trip to the anthropogenic global warming altar. Except for a massive increase in global liquidity, nothing much has changed about internationally-traded commodities, especially of the agricultural type.
Never minding that wheat and other crops generally fare better in warm rather than cold weather and global warming, were it to actually be occurring, might actually enhance our ability to feed ourselves (Canada and Siberia become breadbaskets), let’s carry the relationship between global warming and economic activity to its logical end. The underlying premise of anthropogenic global warming is that man’s economic activities produce greenhouse gases, particularly carbon dioxide, that then suffuse through the lower atmosphere, trapping heat at the surface. The basic idea is that all those fires we burn–from the spark of gasoline or diesel fuel in an internal combustion engine to the flaming behemoths of coal-fired power plants–are releasing carbon dioxide into the atmosphere, which is then allowing the atmosphere to soak up and store more energy from the sun.
Curiously enough, the theory doesn’t account at all for the heat generated by all those fires. Presumably, the heat of the actual fires is either to small to be important, or dissipates so rapidly that its effect is negligible. It would seem that some enterprising young scientist might be able to establish a correlation between the heat generated by all the fires and global temperature increases. All that anthropogenic global warming theory rests upon is the as-yet unproved correlation between global temperature and atmospheric carbon dioxide. If it could be proved that warming, such as it seems maybe there is, is due simply to the increased heat of mankind’s various fires, then limiting the output of carbon dioxide alone wouldn’t do the trick.
During the Great Recession of 2008 and 2009, man’s economic activity declined across the globe; by the reckonings of the AGW theory, so too must his carbon dioxide output have declined. Everything from total oil production and usage to total electricity production and usage declined for the first time in decades. Thus it should not surprise any believer in the tenets of anthropogenic global warming that the winter of 2010/2011 is shaping up to be one of the coldest in several decades, at least in the northern hemisphere. Less carbon dioxide produced by man should yield less of a greenhouse effect, thus more warmth escapes into space, the effects of which would be especially noticeable in winter. If you live in the deep South and didn’t much enjoy having to scrape snow off your vehicle this morning–for the fourth time this year, dammit–you have only your deadbeat neighbor who couldn’t pay his subprime mortgage to blame. (I know the idea is preposterous, but not any more so than pegging Egyptian riots on AGW. AGW theory can be applied both ways.)
But how might Bernanke end global warming? With the economic crash now building due to his monetary shenanigans.
Commodity price increases due to inflation, i.e., more money chasing the same or fewer goods, not global warming or any other such gibberish, is yielding huge, worldwide market distortions. First and foremost is the tendency, particularly with agricultural commodities, for purchasers to buy more than they need in the expectation they will save money in the long run. Hoarding is endemic during inflationary times, and feeds into the inflation. Inflationary price increases, i.e., price increases due to monetary mischief, yield real demand increases, though temporarily, as buyers try unload their money into supplies they know they will eventually need before the money becomes even less valuable. This is characteristic of an era where the inflation rate is high and climbing, and expected to increase at an accelerating pace. It is an era of second-derivative inflation, and that era has arrived. As Caroline Baum reports in Bloomberg, hoarding is Bernanke’s worst nightmare, and hoarding is already upon us. Inflation feeds hoarding, that in turn feeds inflation, and economic activity expands, at least for a time. The self-reinforcing cycle appears virtuous to a political economist trying to keep the braying wolves of Congress off his back, but isn’t.
Even as inflation has pushed hoarding into overdrive, in some markets government policies have distorted demand so effectively until it appears that supplies are running out. I speak, of course, of corn, where the US government’s obsession with ethanol has pushed demand for corn as fuel to forty percent of the total. Never mind that it costs more carbon dioxide to make and burn a gallon of ethanol than it does to make and burn a gallon of gasoline, thereby providing further proof of the principle that whatever the intended aims of a government program are, the exact opposite will be its effect. The US government creates dollars to pay ethanol subsidies, thereby increasing prices for all commodities (just a little, compared to the wholesale printing the of the Fed, but still) and specifically fuels inflation in the corn market by creation of contrived demand.
Of course, the reporting on the phenomenon of ag commodities inflation is as feckless as the government’s ethanol fetish. In Marketwatch in the Wall Street Journal, it was reported that “Red-hot prices aren’t cooling the appetite for U.S. grain as in the past”. Indeed they aren’t. In fact, they are fueling the appetite. It’s called hoarding.
Just as in any overbought/bubble market (i.e., lately tech stocks, residential real estate, etc) something trips the inflationary cycle–with residential real estate it was subprime mortgage defaults–and prices crash, revealing the oversupplied status of the markets relative to real demand. The price crash begins a deflationary cycle just the opposite of the inflationary cycle–price declines push more supply on the market (as sellers try to get rid of their rapidly-depreciating supplies), but buyers that can do so wait to purchase to see how low the prices might go, and economic activity precipitously contracts. Economic fires smolder to embers and get snuffed out around the edges.
But joy! Less carbon dioxide is emitted due to the inflation-induced contraction in economic activity. The world quits warming. While the Deep South shivers, Bernanke is credited with saving the world from its humans.
Of course, Bernanke’s not really to blame for all this. Bad monetary policy can only do so much, and even then, only temporarily. Notwithstanding the claims of political economists like Krugman, monetary policy is a mechanism that is only as effective as it is obscurant, and it can only obscure for so long. Over the long run, supply and demand metrics change for real, rather than monetarily-contrived illusory reasons. And the real reason for the looming global economic contraction has much more to do with aging and stagnant, yet immensely wealthy, populations in the West and Asia than with Mr. Bernanke’s monetary machinations. Either way, the end result is the same. Less economic activity should mean fewer greenhouse gas emissions, which should mean, if the fantastic premises of anthropogenic global warming are taken at face value, a cooler planet than there otherwise would be.
Thus for those that simultaneously believe, as apparently does Krugman, that monetary policy actually matters in the long-run determination of real economic outcomes and that man’s economic activities threaten the habitability of the planet, there is no good outcome. Either wise application of monetary policy yields increased economic activity and the planet is thereby doomed, or poor monetary policy impoverishes mankind, but saves the planet. Is it economics that’s the dismal science, or just economists that are dismal? I can never quite remember.