Food: Why We Have It Better

The price of food in the US rose 1.8% over past year which somewhat high as it may sound, is relatively little compared to the rising costs of food around the world. To offer a very basic explanation for this discrepancy, let’s look at where the cost of say bread comes from. In the developed world, very little (well under 10%) of the cost of bread comes from the wheat needed to make it. The rest of the price is a result of manufacturing and labor. In poorer or growing countries on the other hand, as much as 70% of the price of bread comes from wheat. So the real problem of skyrocketing wheat and corn prices, are the reason that countries like the United States face much lower price hikes than do less developed regions of the world.

Money Flying off Into the Skies... And Lots Of It

Today in AP US History we were discussing the post war $250 billion debts and of course today’s debt and the US debt clock came up. You’ve probably heard of comparisons to bring debt into perspective so here’s my go at it.

A treasury issue USD bill is 6.14 inches × 2.61 inches × 0.0043 inches for a volume of 0.06890922 cubic inches. So now at about 9:30 AM Thursday, February 24^th 2011, the debt clock puts us at $14,179,879,136,000 in the red. So if we were to translate all of this into 100 dollar bills, that’s 141798791360 bills each 0.06890922 cubic inches in volume. That puts us at a grand total of 9771244109.5603392 cubic inches or about 67855861.87 cubic feet. Now lets compare that to a Boeing 747-400… yup that massive jetliner with a small second story (Not the A380). A 747-400 has an interior cabin space of 31,285 cubic feet which means that the US debt could fill up 2169 of these planes!

           So there you got, just another comparison to solidify our $14+ trillion debt.

A New Perspective on the Great Depression (Part 1)

I’ve used NPR’s Planet Money previously for my blog including last week on the gold standard. Well it turns out that story was part of a mini-series on the Great Depression, which is undoubtedly one of the most interesting and well-studied times in economic history. They published the next podcast Tuesday and it covers the recently published diary of Benjamin Roth who wrote over the entire course of the Great Depression.

Roth was a lawyer during the depression and led a life that you typically don’t associate with the times; he didn’t stand in soup kitchen lines, or live in a Hooverville or migrate west out of desperation. Sure his profits dwindled to for less than prosperity but he offered the rare perspective of someone educated, analyzing the unfolding events.

As depression hit, Roth’s cases became increasingly entwined in foreclosures and bankruptcies and fees turned into items. One honest customer even paid with a passbook to an account he held at a bank that had closed, saying that if the bank ever reopened, Roth could have all his money. These events inspired Roth to begin analyzing the day’s local and national economic news whenever he found some spare time at his law office.

Before going over a few of the 14 notebooks worth of diary there are a couple of things we should note. Firstly, for as much of a hero as Roosevelt is always portrayed as, Roth did not vote for him nor did he support many of his policies. Second, the depression Roth illustrates for us is very different from the account we are accustomed to hearing from our teachers or historical books. As bad as the depression got, employment still remained at about 75%, well over the majority, and extremes like the dustbowl severely affected only select groups of individuals. This isn’t to undermine the severity of the depression but rather to say that many American’s were not affected in the ways we may think.

A New Perspective on the Great Depression (Part 2)

The most important and broadly impacting changes of the time were a general constriction on the average family’s budget and a growing mistrust in currency. The first is depicted by an entry on August 18^th, 1931 in which Roth’s dentist asks him and his family to come even if payments would have to be made later. Roth noted that people had simply stopped going to the dentists and if a tooth hurt, they would just get it extracted rather than incur the expenses of checking and healing it. In this way many American’s were avoiding any “unnecessary” expenses and adjusting for thriftier times. The latter point is best shown through the series of bank failures that hit the country. Roth, who begins researching extensively to understand events, details how bank deposits are often invested in mortgages that are usually safe and profitable but not easily liquidated. So as mortgage payments declined and people began scrambling to withdraw their savings, banks couldn’t pay back on accounts and were often forced to close. Hence, the circulating supply of cash shrunk even further with no room for expansion until the gold standard was dropped (because the government couldn’t print more money without backing it). As people saw their savings literally disappear and the money supply decreased, they simply couldn’t trust the dollar. The severity of this apprehension is best shown through a story Roth’s son tells of 1946, a time of post-war peace and prosperity. Roth’s son finds himself mediating a large trust investment for a very wealthy customer. As the customer is preparing to sign with the rather eager trust representative, he sharply and unwaveringly demands that the representative sign that the customer’s money would never be invested in anything other than government bonds. As shocked as Roth was, he saw the degree to which people saw risk in nearly every investment vehicle.

Interestingly enough, the challenges we see in Roth’s diaries, correspond closely to what many American’s can identify with in today’s recession. The problem of defaulting mortgages is perhaps the obvious one, but many of the entries also show us a sense of anxiety that today as well, makes many of us think twice about everything we do with our money.

I look forward to reading Roth’s published journals and hopefully to draw some unique insight. I cannot help but wonder about the true story of daily life in the depression and how our story will be portrayed a few decades from now.

As Good As Gold? Not Quite

In AP US we have recently been studying the Great Depression and one factor that we haven’t discussed much which is underplayed in most documented histories, is the role of the gold standard. I have previously discussed the gold standard as an intermediate in the creation of money with no intrinsic value. NPR’s Planet Money did an interesting report on the vital role the gold standard played in starting the Greatest Depression we have ever faced.

Prior to the 1930s, nearly every economics power in the world and even the small-scale trade nations was on the gold standard. The story of the turnaround begins in 1931 with Montagu Norman who was central banker at the Bank of England and in effect was one of if not the most powerful economic figures in the world. As stock markets crashed, banks collapsed and the world slipped into depression much of the public withdrew their money and many sought to exchange it for gold. England like most other countries didn’t have nearly enough gold for everyone to reclaim their notes and so to deter these citizens, Norman had to resort to raising interest rates. In doing so, people had an incentive to keep their money in their accounts rather than have gold sit idly in their homes. But this ran wholly counter to depression policy; raising interest rates meant that now less money would be circulated preventing consumer spending, and lending became more expensive which prevented inhibited new entrepreneurs and existing businesses. Just look at today’s world; when recession hit, we regularly heard of the Fed lowering interest rates, not raising them.

And so the depression worsened. In fact you could say that though economies were suffering from a visible downturn, these interest rate hikes caused the actual start of depression.  And all thanks to the gold standard. So obviously, why don’t we just end it? To Norman, the gold standard was the foundation of the British economy and he simply felt that removing it would cause complete fiscal collapse and chaos. So Norman who now finds himself between a rock and a hard place with the fate of England and, to some degree, the whole world in his hands, cracks. He began having nervous breakdowns, severe headaches and was essentially breaking down. And so on recommendation from his doctor, England’s Central Banker goes on vacation to Canada right as the world economies begin collapsing. As Norman is on the ship returning to England, his advisors who are in charge without him, decide to leave the gold standard. They send a cable to Montagu saying they “were going off tomorrow” and of course he thinks they mean they’re taking a day of vacation… He does not object and bam England is off the gold standard. The pound immediately loses value and fear sweeps the world as people everywhere begin turning their money to gold. Roosevelt, who must react quickly, acts against his advisors, doesn’t tell the public and sneaks this amendment onto the Agricultural Adjustment Act which is unsuspectingly passed. And so the cabinet, treasury and public get a pleasant surprise when they find out that Roosevelt had conveniently removed the gold standard.

Now FDR is free to act as is necessary and so he begins taking counter measures to the deflationary spiral. He did so by raising the price of gold by having the government buy out gold. Slowly the United States began climbing out of depression and countries around the world parted with the gold standard. Soon money was back in circulation and confidence returned to money for what it was; paper.

           And so we only transitioned into the final stage of creating money over the Great Depression. And this final step was absolutely vital to progress. To this day, economists consider the gold standard as one of the most dangerous and counterproductive means of conferring currency its value.

Egypt: Progress, Hope and Uncertainty (Part 2)

I don’t meant o sound melodramatic but the events that unfolded between then and February 11^th, 2011 were undoubtedly one of the greatest demonstrations I have witnessed in my life and have altogether altered my perspective and opinion on the prospects of the Middle East. Success in Egypt can be attributed to three primary factors, each imperative to end success. The most important to sowing the seeds of revolution was the sheer will power of the Egyptian people who day-after-day flooded the streets protesting and standing up for their beliefs. The second factor and most important to preventing a break-down was the neutrality of the army. Unlike the past, in our world today, the idea of the public utilizing available weapons to fight the brute and technological strength of modern armies is nearly absurd to say the very least. It was vital and admirable that the army righteously served as a mediator, intervening primarily to hold the peace and not protect any one side in particular. The final key as I mentioned before was the pioneering use of the internet. This mode of communication via facebook, youtube etc. added an unprecedented dimension to this activity and drew global attention to the situation rapidly. These favorable aspects allowed the Egyptians victory against a stubborn Mubarak, who would take over two weeks to step down despite pressure to do so from around the world and domestically itself.

The implications of the success of this protest reach far beyond the boundaries of Egypt. The Middle East, which I had resigned to infighting and ceaseless conflict, may apparently have a chance at standing up against disorder and unjust governments. You have probably heard of the last few days’ attempts by other countries to emulate Egypt only to have resulted in further chaos and/or violent police reactions. Nonetheless, the revolt has inspired the Middle East and the entire world to reconsider and revaluate their governments and the job they are doing.

As for Egypt, the future remains highly uncertain as the complete infrastructure of a government has yet to be arranged and even the smallest decisions can alter life in the country for decades to come. But this is a much needed fresh start and we can only watch and see where it takes us.

Egypt: Progress, Hope and Uncertainty (Part 1)

The recent revolution in Egypt came out of the blue for most of the world as most of us remained completely unaware of injustices that have plagued the country over the past century or so of “independence”.

Though it would be a lie to say that fiscal conditions were the sole instigator of violence, economic factors undoubtedly helped aggravate the sentiments cumulating to uprising. Perhaps the biggest problem has been President Hosni Mubarak’s effecting isolation of Egypt from the world despite its strategic location for trade alongside the Suez Canal and near the center of Eurasian trade markets. Instead, the government has left aside or failed to utilize about $17 billion in US aid, Suez Canal dues and tourism which has continued to flourish without any basic national infrastructure. In these ways and others, extra income flow has been stifled especially at a time when recession has severely crippled agriculture and the foundation of the economy in the region.

Furthermore, the odd sort of socialism employed in Egypt worsens the problem. Little has been done to combat rising food prices, which have caused nourishment to require about 40% of the average family’s income; the US in comparison only uses under 20%. Large public ownership and government review of investment projects have made obtaining funding for any entrepreneurial venture extremely difficult. To make matters worse, corruption occurs regularly, almost as an accepted part of life. All of these practices have gone unchecked for decades, with no end in sight. That is, until the so called “Days of Rage”.

I don’t want to go into the details of the revolution itself as much as I want to share my reaction to it and its definite significance. When I first heard of revolts in Egypt I automatically shrugged it off as yet another conflict in the Middle East, where support would soon crumble to the government. The only Interesting part was that the news first reached me via a YouTube video. But the next day as I picked up my iTouch and went to YouTube to catch up on the day’s featured and top viewed, sure enough, the screen was literally dominated by videos of protests. Pages and pages of them and as I watched them, I couldn’t help but question my earlier assumptions.