Random thoughts on our vegetarian future

One of the strategies seen by climate futurists (ie those who believe in global warming and who are offering possible solutions) to save mankind is for the world to become more vegetarian. Unfortunately this has been derided (mainly by climate sceptics) for being, well, too lefty and radical.

What I can predict, however, is that even if nothing gets done currently, the future will be vegetarian - there will be no choice. And the reason for this is not due to smarmy governments relenting to PETA, but market forces.

Let's say that in 20 years time, climate change is impacting food production worldwide. Changes in rainfall because of global warming have resulted in less rain falling in breadbaskets and more rain falling on areas not used much for farming.

So with a drop in food supply comes the natural market response - an increase in prices. And it is not just one particular foodstuff but all that are affected. So the price of grains, vegetables, dairy and meat goes up.

Of these the most expensive is meat, which means that the market would respond to higher meat prices by dropping its demand. In its place would come an increased demand for meat substitutes, which are essentially protein based crops such as lentils, chickpeas and soy beans (to mention just three).

One main reason for this occurring is that the farming of grains and legumes produces more joules of food energy per square metre than your standard cattle station (or non-cattle equivalent). It would therefore make economic sense for farmers to shift their farms from meat production to grain or legume production. With this under way, farms would then be able to produce more food energy to meet the sky rocketing demand.

Of course this change will not come overnight, and nor will the change be the same throughout the world. The world's farmers are not suddenly going to kill their cattle and grow lentils. Instead, it will be a gradual process and there will still be meat producing areas around the world catering for the richer nations.

Unfortunately it will be the poorer nations that will suffer the most during this switch-over, as they are the least likely to be able to cope with a change in crops, less grain production in drought affected areas, and the technology and know how to take advantage of changing conditions. Expect famine in other words.

Random thoughts on population decline, economics and the Islamic hordes

One of the greatest errors made in modern studies of demography and economics is the assumption that population decline and an ageing population is somehow disastrous.

Behind this assumption are two further assumptions - that taxes are somehow bad and that a decline in GDP is bad.

It is true that many western nations will have a declining population by 2050. Many of these nations have old age pension systems funded by tax revenue, so the retired and aged people living in these countries will be supported by these taxes.

But of course the assumption is that increasing these taxes are bad. They're not. And the reason is that when a population declines, a country is spending less money in the following areas:

• Property: Less people means less demand for property.
• Infrastructure: Less people means less need for new water, electricity and telecommunications infrastructure to be built.
• Education: Less people at the younger age spectrum means smaller schools and colleges.

So for all the doctors and nurses and administration staff that is needed to support an ageing population, there will be a drop in demand for constructions workers and teachers to compensate for it. In other words, an increase in welfare spending on the aged is matched by spending decreases in other areas of the economy.

Ah, I hear you say, but constructions workers and teachers are essential for economic growth whereas nurses and doctors looking after retired people are a drain on the economy. Not necessarily - they are all producing goods and services. What you're worried about is GDP.

An increase in GDP is not necessary for good economic conditions. Economist Robert Solow's exogenous growth model proves that the natural state of an economy without any growth inputs is one of stabilisation. In other words, it is quite possible to have a stable state economy that provides workers with full employment.

Of course, when a population declines the effect upon the economy is negative. Yet that is not necessarily a bad thing. If an economy is in decline as a result of a population decline, the trick is not to aim for growth, but to focus on GDP per capita. In other words, so long as GDP per capita increases, total GDP can continue to fall. Another way of looking at it is to ensure that GDP decline is slower than population decline: If GDP declines by 0.5% in a year while population declines by 1% over the same period, then you have a good thing happening.

There is one final problem with people worried about population decline - they do not seem to understand basic demographics. "Populate or Perish" is one catch cry that sums it up - we must increase our population or else our nations will die out.

That's rubbish.

Take the USA. In 2009, the USA had just over 309 million people. If the population in the US begins to decline such that there would be 209 million people by 2109, is that such a bad thing? Population decline won't wipe a country off the map - no one is going to "perish". Unless, of course, people somehow think that Moslems will continue to have lots and lots of babies and take over the world - a common semi-racist belief amongst many. It is racist because it is based mainly upon ethnic assumptions and because it assumes that such ethnicity will not change. The reality is that many Moslem nations have exhibited a substantial drop in fertility rate over the last ten years.

Demographers have pointed out that when you take into account things like infant mortality rates, accidents and other conditions, the average woman must have 2.1 children in order for the population to remain stable (ie 10 women producing a total of 21 babies). If the average woman has less than 2.1 children there will be (eventual) population decline, while if they exceed 2.1 there will be (eventual) population growth. Of course, many western nations have fertility rates of 2 and below, which indicates population decline. But here is a list of nations with predominately Moslem people who are near or below 2.1:

• Bahrain: 2.29
• Lebanon: 2.21
• Kuwait: 2.18
• Indonesia: 2.18
• Turkey: 2.14
• Iran: 2.04
• Tunisia: 1.93

And all of those nations have declined from higher fertility rates in the past. This proves that there are Moslem nations that are not breeding children to take over the world, which means that Moslem nations which are having lots of children can also drop down to low birth rates.

In summary, population decline is not an economic problem, it will not cause economic and social chaos and it will not allow a horde of Moslems to take over the world.

More random thoughts on government debt

All Western nations - with the notable exception of Australia and Norway - have high levels of public debt that will inexorably erode any economic recovery over the next decade.

Back in 1996, the Howard government in Australia enacted all sorts of austerity measures to cut government spending. At the time they did this, unemployment was still relatively high at between 7 to 8 %. Within 10 years, all government debt had been paid off.

There is still some level of Australian government public debt - the market needs some sort of government backed securities to act as a benchmark for lending elsewhere - but this is balanced out by government investments in the market (called the future fund).

The advantage this has brought Australia is profound: 100% of government spending goes towards government programs and policies, rather than debt servicing.

Western nations, especially the PIGS (Portugal, Italy, Greece, Spain), all have very high levels of public debt, and that debt has meant that a huge proportion of government spending goes towards debt maintenance rather than on health, education, law and order, and so on. Paying off debt is essential to maintain quality government services.

A government won't collapse because of debt. If a government takes on too much debt they can simply choose to default. But the result of this default will be to strip investors (which includes the pension funds and savings of ordinary people) of their savings. In other words, the pain of the default is felt by the market and by households.

The other thing about debt is that indebtedness is a liability during an economic collapse while savings are an asset. As anyone knows, losing your job with $10,000 in the bank is better than losing your job with $10,000 owing on your credit card. So it is with governments.

Governments can and should run fiscal deficits during hard economic times - but these deficits must be balanced out by savings when economic times are good. The governments of both Australia and Norway had erased their public debt leading up to the global economic crisis, which has allowed both nations to enter the crisis in a strong fiscal position.

OSO's Debt Watch

GDP = 14.4634 Trillion (2009 Q4 Advance estimate)
Public Debt = $7.84075021334220 Trillion (2010-02-10)
Debt/GDP ratio = 54.21%
Population = 308,833,264 (Resident Population + Armed Forces Overseas, 2010-01-01)
Public Debt / person = $25,388.30
Tax Receipts = $2.044758 Trillion (Year-to-date, Monthly Treasury Statement, 2009-12-31)
Debt/Receipt ratio* = 383.46%

Notes:

Monthly Treasury Statement for January is late due to "Snowmageddon" in Washington

In October 2008, the Debt/GDP ratio was 43.43%
In October 2008, Public Debt / person was $20,264.04
In October 2008, the Debt/Receipt* ratio was 231.82%

* The Debt/Receipt ratio measures year-to-date government revenue as a percentage of current public debt. A good way to compare it would be to compare your current income to what you owe on your mortgage.

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Where we are now in terms of economic philosophy

I just posted this over at a comments thread at Reddit. It is part of a discussion on why socialism was abandoned so quickly by Western nations after the collapse of communism:

Socialism in Western nations began dying off at least ten years before the Soviet Union collapsed. Socialist policies in the US, Britain and Australia (to name just three) were progressively reversed via market-friendly governments.

Part of the reason was ideological. In Britain and the US especially, dogmatic socialism had promised much but failed to deliver. At the same time, economic ideas favouring the market began to prosper.

Meanwhile, In China, the Communists under Deng Xiopeng began Socialism with Chinese Characteristics, which was pretty much a code word for abandoning communism by allowing private businesses.

The problem with what I call "old socialism" is that it made the assumption that the government is better at producing the goods and services people need than the free market is. This got proved wrong when government supported industries - such as coal mines in Britain - ran at a loss for many years and acted to drag the economy down with it.

In its place came economic neoliberalism, which sought to reform "old socialist" policies. This was done by privatizing government industries, corporatizing certain government departments, removing subsidies, tariffs, quotas and other trade barriers, lowering taxation and deregulating certain industries such as finance. Reaganomics, Thatchernomics, Rogernomics - all these variant national economic policies were essentially different forms of economic neoliberalism.

What we're seeing now, though, is the failure of many neoliberal policies. Ironically this has come at a time when market dogmatism has reached its peak. In other words, the exact same conditions that killed off "old socialism" are now present killing off pro-market ideas.

And just as old socialism was dogmatic about the government being the only way to solve everything, so currently are market advocates arguing that the market is the only way to solve everything.

Yet the evidence against this is profound. A deregulated financial market has resulted in the "Great Financial Crisis", while market-based health care in the US has been shown empirically to be less efficient - both in terms of money and outcomes - than the government run universal health care systems of America's allies.

The lesson we must learn is this:

* The government can be very efficient in some areas, and not very efficient in others.
* The market can be very efficient in some areas, and not very efficient in others.
* So let's work out which ones are more efficient. This may mean both the privatization of government industries AND the nationalisation of private industries.

Check out Ordoliberalism.

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Current Real Interest Rates

* Source: The Economist (2010-02-04)
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=15457236
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=15457172
** 3 month bonds
*** Source: The Economist (2009-11-05)
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=14816582
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=14816566
† Indicates what effect the change in real interest rates has had on the economy. Any movement ≤ ±0.1% is considered "stable"


Real Interest Rates measure saving vs spending conditions. The higher the rate, the more saving is encouraged; the lower the rate, the more spending is encouraged. Changes in real interest rates over time can indicate changes in economic conditions.

Comments

Monetary conditions in the United States have now eased to the point that, by one measurement, real interest rates are now negative. As I pointed out just after Christmas, the speed at which real interest rates have plummeted in the United States indicates both an increase in 2009 Q4 GDP for that quarter (I predicted +3%, but preliminary figures showed an increase of 5.7%) and the beginnings of a dangerous inflationary environment in the near future. This means that 2010 in America is due for higher inflation and higher interest rates. the question is - how much will economic growth be impacted by the Fed's increase in rates (or maybe even it's desire to ignore growing inflation)? I don't think the global financial crisis is over yet by a long shot, and Q4 performance is not indicative of what is in store for 2010. Unemployment in January 2010 dropped, which indicates that growth in January has continued at the very least. My prediction is that at least one quarter of 2010 will be negative growth.

According to this measurement, the US is currently experiencing negative real interest rates (using the effective federal funds rate as a benchmark rather than 10 year bonds). Negative interest rates can also be seen between 2002 and 2006 - the exact period which created the bubble environment that helped caused the crisis in the first place. This measurement indicates that Real Interest Rates in the US (based upon the Federal Funds Rate, rather than Ten year bonds as per my measurements) are around negative 2.7 percent.

Here's the data (courtesy St Louis Fed) and the equations:

DFF (Interest Rate)
DFF 2009-12-01 0.13

CPIAUCSL (Inflation)
CPIAUCSL 2008-12-01 211.577
CPIAUCSL 2009-12-01 217.541

(217.541 - 211.577) ÷ 211.577 x 100 = 2.82%

Interest Rate - Inflation = Real Interest Rate
0.13% - 2.82% = - 2.69%

Monetary conditions in Ireland have eased somewhat in the last three months, with real rates dropping from 11.24% to 9.84%. Nevertheless, the rate is still exceptionally high, due to the combination of high bond rates (compared to other nations in the Eurozone) and substantial deflation. Ireland is hardly "out of the woods" yet, but it seems likely the worst may be over. An austerity budget plus being part of the Eurozone means that Ireland's recovery is dependent solely upon an increase in Eurozone demand for its future economic growth.

Australia's monetary conditions have also eased in the last three months, though nowhere near as much as other nations. Australia's Reserve Bank has stopped raising interest rates for now, but contractionary monetary policy is likely to be maintain into 2010. GDP growth for 2009 Q4 should be broadly positive.

Recent market activity regarding Greece has raised bond levels to the highest in the Eurozone. This means monetary conditions in Greece have become contractionary. Greek GDP for 2009 Q4 should be low but I expect 2010 Q1 GDP levels to be negative.

Iceland has finally emerged from its negative interest rate environment but this will be accompanied by a continual drop in GDP and a rise in unemployment.

Real Interest Rates in India have plummeted from -3.93% to -7.32% in the last three months. This is due to a burst in inflation. Economic conditions in India are not served well by having substantial negative interest rates, and an increase in rates to control inflation is likely.

Euro Area interest rates have dropped in the last three months, indicating that GDP increase is likely, along with a drop in unemployment. Unlike the United States, interest rates in the Eurozone are still positive, which means that growth is more likely to be lower than that of the US, yet more sustainable since investment bubbles and inflation are less likely to occur in economies with positive real interest rates.

Germany has the lowest real interest rate of any nation in the Eurozone, which should help boost domestic demand (a good thing for an export-dependent country suffering from the global financial crisis)

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OSO's Debt Watch

GDP = 14.4634 Trillion (2009 Q4 Advance estimate)
Public Debt = $7.85007804213127 Trillion (2010-02-03)
Debt/GDP ratio = 54.28%
Population = 308,833,264 (Resident Population + Armed Forces Overseas, 2010-01-01)
Public Debt / person = $25,418.50
Tax Receipts = $2.044758 Trillion (Year-to-date, Monthly Treasury Statement, 2009-12-31)
Debt/Receipt ratio* = 383.91%

Notes:

2009 Q4 GDP updated (Advance estimate)
Population updated
Monthly Treasury Statement updated

In October 2008, the Debt/GDP ratio was 43.43%
In October 2008, Public Debt / person was $20,264.04
In October 2008, the Debt/Receipt* ratio was 231.82%

* The Debt/Receipt ratio measures year-to-date government revenue as a percentage of current public debt. A good way to compare it would be to compare your current income to what you owe on your mortgage.

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Dirty Deeds

From the BBC:

Haiti has charged 10 US missionaries with child abduction and criminal conspiracy for allegedly trying to smuggle 33 children out of the country.

Haitian officials said their cases would now be sent to an investigating judge who would decide how to proceed.

If convicted they face lengthy jail terms, says the BBC's Paul Adams, in Haiti's quake-hit capital city.

When stopped on the border last Friday, they said they were taking the children to a Dominican Republic orphanage.

But it has emerged some of the youngsters had parents who were alive.

Hanlon's Razor says Never attribute to malice that which can be adequately explained by stupidity and I think that is what is going on here. I'm not saying that it's impossible that these missionaries were deliberately stealing children out of Haiti - of course it is - it's just that in this case I don't think their actions were malicious. Misguided? Yes. Stupid? Yes. Embarrassing? Yes. Deliberately evil? No.

When faced with a disaster of the scale of the recent Haiti earthquake, and also faced with advertisements pleading for charity, many people (including Christians) can feel somewhat disempowered. Although their concerns can be assuaged somewhat by giving away money, some have decided on more direct action - especially when there are reports of charity money never actually reaching those who need it most.

So I think this is what happened: A bunch of US Christians from a missionary agency decided on direct action to save and help the lives of a small amount of Haitian children. They flew to the Dominican Republic (the nation which occupies the Eastern half of Hispaniola, while Haiti occupies the Western half), organised some slapdash accommodation, then set off in a bus across the border where, upon reaching Port-au-Prince, they picked up 33 kids who they deemed to be orphans, and then headed east to bring these children to freedom and a better life.

Of course what happened then was that Haitian authorities stopped the bus before it crossed the border, took away the children - some of whom were then reunited with family, including parents, in Port-au-Prince - and arrested the missionaries.

Obviously time well tell whether these missionaries were child trafficking, but I think it is safer to assume that these were well meaning people who committed a seriously stupid act.