Economic Alarms Greg’s Note: Sometimes economics works like a domino effect. When one area of the economy goes bad, many others will follow. So many areas of our economy are related, and many are related closely. From the way population effects food supply, to how the price of oil can change almost anything. Lord William Rees-Mogg takes a look at how alarming our current situation may be and what kind of gloom and doom we could soon expect. Send your comments on this important matter to greg@whiskeyandgunpowder.com Whiskey and Gunpowder
June 12, 2008
By Lord William Rees-Mogg
London, England, U.K. House of Cards Economic theory tries to deal with a limited number of factors and the mechanisms by which they interact. The main factors are population, food, energy, property, and manufactures, all of which are physical realities capable of being counted. They are the beans that bean counters count with. There are four mechanisms of exchange: money, barter, markets, and allocation. These are the mechanisms by which the beans are exchanged. Different economists have put emphasis on different factors. David Ricardo, the classical economist of the 19th century, was a banker who gave special attention to money; Thomas Malthus, another founder of 19th-century theoretical economics, paid particular attention to population. Indeed, he is the founder of population studies. ~~~~~~~~~~~~Special~~~~~~~~~~~ Saudi Arabia Drops a Bomb Shell With friends like Saudi Arabia, who needs enemies. We’ve long been told by our Middle Eastern “allies” that there is plenty of oil out there for all of us. But now, new supply news is going to disappoint our president and shock out markets. $4 gasoline is just the beginning. We could be just half way there. Click here for more… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Karl Marx, the founder of socialist theory, paid attention to manufactures, and to population, seen particularly as labor. The leading 20th-century economists, such as Maynard Keynes, Irving Fisher and Milton Friedman, have been derivatives of the Ricardian or monetarist school, though Keynes was a rebel against classical Ricardian orthodoxy. Unfortunately, it is impossible to think of all these factors simultaneously. Perhaps there will be a time in the future when some supercomputer will be able to calculate the interreaction of the global economy holistically. We are still far away from that day. At present, the limitation of the human intelligence means that we can concentrate effectively on only one of these factors at a time. The selection of any one of these factors or interreactions for study draws attention away from other, equally important factors. One can be both a Ricardian or a Malthusian, but one cannot concentrate on both aspects of economic analysis simultaneously without a loss of focus. However, one can simplify economics by using the different physical factors as a checklist to detect signs of difficulty. That does make economics the gloomy science. At present, the world is suffering from a crisis of overpopulation, with the human population stretching the food supply beyond its limits. Population is continuing to grow, although there is already an inadequate food supply for 6 billion people and famine is growing in Africa. It is possible that the 21st century will replace the 19th as the century of famine. Food is very closely linked to energy. Food production is dependent on the oil industry, in cultivation, in transport, and in protection against pests. The food price has followed the oil price, to the point at which millions of people cannot afford a minimum food supply. That is already a catastrophe, and the trends are unfavorable. There is also a significant shortage of water. ~~~~~~~~~~~~Special~~~~~~~~~~~ A Hushed and Private Invitation FOR YOUR EYES ONLY. . . The Agora Financial Reserve is the most intimate, elite inner circle out of our 97,000 paid subscribers. The Reserve is simple: You get almost every single newsletter and options research service Agora Financial currently publishes for as long as we publish them. You also get almost every single product we launch in the future. You get almost every single special research report we write. For as long as we publish them — or for as long as you want. And you get all of that — for life — for less than the cost of one year of all of those services. Check it out now… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Markets have flagged food and energy as danger areas for the world economy, by raising their prices. Property and manufactures are secondary to food and energy, in that their prices can change without immediately affecting the price of food and energy. In fact, there has been a worldwide fall in housing prices, particularly notable in Britain and the United States, at a time of steep increases in food and oil prices. The price of manufactures has been held down by the growth of low-cost Asian manufactures. There is much discussion of the scale of the global economic crisis. Some people expect it to cause a crisis comparable to the Great Depression, a wiping out of capital values, a liquidation of global debt. We cannot yet be sure, but we can see that the main factors of global economic development are all in difficulty. On the one hand, there is oil at $130 per barrel -- on the other, there are banks writing off billions of dollars of assets. I do not see any basis for economic analysis that would not throw up really alarming signals. These adjustments of the fundamental factors in any analysis put huge pressures on every government. In the 1930s, most governments were destroyed by the slump. In Britain, Labor lost office in 1931; in Germany, Hitler came to power in 1933, as did Franklin Roosevelt in the U.S. I fear that process will be repeated, even if only by democratic defeats. The storm of the world is still rising. Regards,
Lord William Rees-Mogg Endnote: While inflation and a weak dollar are much to blame for our current food and energy crisis, often times the simple factors of supply and demand carry just as much weight. Peak Oil is effecting our global supplies, while flooding in the Midwest is robbing us of corn and other grains. Commodities are going through a large and long-lasting boom period. Click here for information on how you can participate in this lucrative market… | 
