CommunityFDL Main Blog

Economics Of Increasing Poverty: The Rising Cost of Everything Meets Diminishing Supply

Anyone who has been to the grocery store in the last few months knows that prices are up. Sharply.

The cost of food has become a headline story the world over, from food-related riots in Haiti and Egypt to some Asian governments mulling whether to restrict rice exports. In the U.S., grocery bills are surging: Nearly every food staple has seen a double-digit percentage increase over the past year, including a 38% hike for a dozen eggs, to $2.16, and a 19% jump, to $1.78, for a loaf of white bread, according to American Farm Bureau data. With Americans spending 15% of their household income on food and drinks, rising prices in the grocery aisles have spurred consumers to hunt savings. Of that spending, only half goes to grocery stores, with restaurants collecting the rest….

The price tally in the latest American Farm Bureau market basket survey of 16 basic groceries was $45.03 in the first quarter, up 9% from the same period last year. Many of the price increases are eye-popping—a five-pound bag of flour cost $2.69, 26% more than last year. Volunteers in 32 states participated in the survey, with the 76 shoppers paying 23% more for fryer chicken at $1.37 per pound, while the average price for a gallon of whole milk was $3.81, up 10% from last year. Cheddar cheese was 27% higher, to $4.71 per pound, and corn oil rose 9%, to $3.01, for a 32-ounce bottle.

There are a host of interconnected causes, including rising energy prices due to increasing demand worldwide and diminishing supply of grains and other crops which ripples out to higher prices for products made or raised on them. Which means that as healthier foods become more expensive, school lunches start to resemble the Velveeta Cookbook Challenge. This isn’t just happening in the US and other industrialized nations, either — this is a worldwide crisis in food shortage and economic instability. And it is already sparking riots and violence in some places, with no end to the shortages in sight.

Calculated Risk highlights reports that the housing woes that so many here have been experiencing have spun out globally — and that "negative equity" may be the phrase of the year if this keeps going. And it sure looks like the Energizer Bunny of economic crises, doesn’t it?

But the end result is an increase in volatility around the world as the rising costs of food meet diminished income — and poverty and fear come to a head as increasingly violent desperation. The cost of not tackling poverty is high, but despite proven solutions, we keep on trying to ignore the growing problems. Which means that if this goes forward unchecked and unaided, governments may topple in response to that desperate hunger and increasing anger fueled by starvation and the increasing gap between the haves and the have nothings. And that desperation fuels more violence in the form of terrorism and war, spilling over borders and into all the places we can least afford to stoke old hatreds and jealousies. And the increased competition for diminishing supplies of resources is only going to keep the turmoil churning:

Indeed, the spread of capitalism, and its accelerated industrialization and wealth-creation, may have fomented the food-inflation crisis — by dramatically accelerating competition for scarce resources. The rapid industrialization of China and India over the past two decades — and the resultant growth of a new middle class fast approaching the size of America’s — has driven demand for oil toward the limits of global supply capacity. That has pushed oil prices to levels five times what they were in the mid 1990s, which has also raised pressure on food prices by driving up agricultural costs and by prompting the substitution of biofuel crops for edible ones on scarce farmland. Moreover, those new middle class people are eating a lot better than their parents did — particularly more meat. Producing a single calorie of beef can, by some estimates, require eight or more calories of grain feed, and expanded meat consumption therefore has a multiplier effect on demand for grains. Throw in climate disasters such as the Australian drought and recent rice crop failures, and you have food inflation spiraling so fast that even the U.N. agency created to feed people in emergencies is warning that it lacks the funds to fulfill its mandate….

What we need is a discussion of the long-term implications of our short-sighted, "all for me and none for you" policies. But with several more months of George Bush at the helm of the U.S., I’m not exactly betting the farm that we’ll get one. And every day we wait, these problems grow … and our ability to intervene and make any real difference diminishes.

My confidence that this will get better any time soon isn’t exactly high — and, as Krugman points out, that’s true for most folks. So, if you’ll excuse me, I’ll be square foot gardening and brushing up on my frugal cooking skills.

Previous post

Tale of Two Headlines

Next post

Chery Sabel for Congress AL-2

Christy Hardin Smith

Christy Hardin Smith

Christy is a "recovering" attorney, who earned her undergraduate degree at Smith College, in American Studies and Government, concentrating in American Foreign Policy. She then went on to graduate studies at the University of Pennsylvania in the field of political science and international relations/security studies, before attending law school at the College of Law at West Virginia University, where she was Associate Editor of the Law Review. Christy was a partner in her own firm for several years, where she practiced in a number of areas including criminal defense, child abuse and neglect representation, domestic law, civil litigation, and she was an attorney for a small municipality, before switching hats to become a state prosecutor. Christy has extensive trial experience, and has worked for years both in and out of the court system to improve the lives of at risk children.

Email: reddhedd AT firedoglake DOT com