Farming land degradation

A United Nations report published this week claims 25 percent of the world’s land is “highly degraded” and 44 percent is “moderately degraded,” while only 10 percent was classified as “improving”.

Even if these figures are an exaggeration we should take the report seriously.  No matter how many technical gadgets we have and no matter how much of our economy is based on services,  if we can’t produce enough food for everyone there will be serious economic and social problems.  The less we think about this report and how to deal with its implications the more human suffering there will be.

Almost certainly food prices will rise even more than they already have.

Some people argue there is lots of surplus food and we should have no trouble feeding everyone. But food is not always produced where it is most needed and not everyone has the resources to pay for its transportation.

With higher prices it may become feasible to try new and innovative ways to produce more food such as hydroponic growing in super tall buildings.

As price is equal to the marginal cost of the last items produced those people who can continue to grow food at less cost will find themselves with some windfall profits.

In order to purchase a copy of this report a person will need at least some disposable income. The paperback costs $49.95 and the hardcover costs $140.

where is the economy going?

Where is the economy going?

That is always an interesting question and even more so when we are clearly on a down trend although there have been one or two minor positive indicators.

The easy answer is that we can’t say.  A more complex answer is that we can’t say but through the fog we can sort of see an outline..

I like to think the economy follows patterns similar to the stock and financial markets.  Therefore technical analysis may offer some help. Technical analysis is easier in the markets because every transaction is recorded and we can see what is happening with some precision. We don’t have that option with the overall economy. Even if we could define all the economic transactions it’s not clear we would want everything we do recorded.

My favorite technical tool is the Elliott wave theory with its series of ups and downs and with another series within each ups and each downs.  As you can imagine it can be somewhat complex.  There’s a line that if you give three Elliott wave practitioners the same data they will come up with seven or eight  different forecasts.

The part of this theory that I question is that each series has five legs.

Applying this theory to the economy the important thing is that there are going to be ups and downs and that there will be major changes in direction as well as minor changes.

It would appear there has recently been a major change from an up trend to a down trend.  Even a lot of establishment economists are predicting the down trend will continue for some time.

So what will it take for there to be a major shift to another up turn?

My theory is that there are two things that causes the ups and downs.  One is the availability of resources.  As resources become scarcer or more difficult to extract this will have an impact on the overall economy until the new resources are found and become available.  Another source of ups and downs may be complications in how the financial system works.

There is some probability the current downturn is caused by a shortage of resources to maintain seven billion people.

One thing that might turn the economy around is the discovery of another source of cheap energy and one which would not require a great deal of capital to exploit.  Even then would the planet be able to support seven billion people?

Housing prices, marginal cost and an increasing income gap

The following post was written as a comment for the Huffington Post Canadian website for an article claiming that a widening income gap is forcing up housing costs for everyone.

Here’s an alternate explanation for high house prices.

Prices are determined by supply, demand and the marginal cost of producing the last item.  This means that in any segment of the housing market the price for all houses will be equal to the cost of manufacturing the last one built.  If  supply and demand brings the price below this figure no more houses will be built and if supply and demand takes the price higher more houses will be built until an equilibrium is reached.

In Canada the cost of building houses has clearly been increasing.  Marginal cost explains why many people have made large sums by selling their older homes.

The income gap explains why rich people can continue to buy expensive houses while those people whose income is shrinking can’t.

For people at lower-income levels to be able to resume buying homes one of three things would need to happen.  Their incomes in real terms could increase,  new building techniques or new cheaper sources of materials could be discovered so that houses could be built for less money or the lack of demand could result in a reduction in prices below marginal cost.

(The author of this comment has a web log on economics at

How to prevent investment fraud

The following was posted to The Economist website regarding an article in the November 17, 2011 issue on crowdfunding.  The U.S. government is going to allow people to invest up to $10,000 into companies not registered with the Securities and Exchange Commission – as if it is right for the government to tell people what they can and cannot do with their money.

I find it a little ironic when I read of securities officials worrying about fraudsters when it comes to fundraising for business because I think securities regulators work mostly to make it easier for people in the industry to make lots of money at the expense of small investors.

Maybe the best way to protect investors would be to encourage them to ask lots of questions and not to part with their money until they have satisfactory answers.  Governments could also require companies to make public lots of information.

One of the features of the economists’ perfect competition model is that all the participants in a market have all the information they need to make sound decisions.

Treating natives as scapegoats or with equality

The following is a comment posted to an article on The Economist about Canadian natives in the Nov. 17, 2011 issue. This may not be about economics but having lived on a reserve for four years it is something about which I have strong feelings.


The way in which us Canadians currently  treat our native population is mostly nasty and much worse than anything which happened in the past.

If we are to treat them humanely we must come to terms with two things.

First, they were and still are a conquered people. When the Europeans came to North American,  they conquered the natives with the help of smallpox. The royal decree that they had to negotiate treaties was a fiction to cover the reality.

The second is that the way we currently treat natives is working to make them into scapegoats.  By allowing them special privileges other  Canadians are developing a lot of resentment.  As the economy goes down it will be convenient to be able to blame natives rather than ourselves.  This is already happening with respect to parts of the West coast fishery where natives are being blamed by some people for a decline of the Fraser River salmon run.

The most important thing to do to for natives is to treat them with equality.  They should have the same rights and responsibilities as every other Canadian.

Initiating relationships and sexual harassment

The following was posted on The Economist website as a comment to an article on sexual harassment in issue of Nov.  12.


Maybe the initiation of relationships may not be the way some people would have us believe.

Some years ago some sociologists did a study on this topic.

The researchers found that generally women initiated relationships.   If a woman saw a guy in whom she figured she might be interested she placed herself in a position to be noticed and get into conversation.

An interesting point of this research was that the first touch was important and it had to be made by the women. If a man made the first touch that was usually the end.

Since reading about this I have been very sensitive to being touched by women and I have been surprised at how often it has happened.

It appears that generally women like to control relationships.  Perhaps sexual harassment should be defined as a man trying to initiate a relationship by touching.  The more touching, the greater the harassment.  In our patriarchal society only women are allowed to initiate relationships.

Credit crunch and the money supply

Mark Carney, the governor of the Bank of Canada, and recently appointed to the Financial Stability Board, to oversee international financial reform has made the news by pointing out there may be a new wave of credit tightening as a result of the European debt crisis.

When bankers and economist worry about a credit crisis they are talking about a decline in money supply.  This is because banks create money when they make loans.  If they don’t make loans there will be less money around.

In a declining economy there are two things to note.

First, as we feel the squeeze from an unsustainable use of resources, there will be need for less money in the economy. Otherwise there will be inflation.

Second, if the money supply declines more than is needed, then there will not be enough money for the exchange of the goods and services we are capable of producing.  This too could contribute to the recession.

System D, the underground economy and competition

Just read an article on the web about the underground economy, also known as system D, which is probably more the case in the developing world than it is in Canada.  This follows reading a book chapter about London when Karl Marx lived there.

It sounds as if both of these are closer to the perfect competition model than anything I have experienced.  The difference is that Marx lived at the beginning of an age unprecedented prosperity and we are probably going into an era of decline.

The author of the article appears optimistic about the potential for System D and I find it attractive.  It appears to have a lot of vitality.

However I see at least two problems.  One is that if you work outside the law then there is potential for exploitation and dishonesty.

Another problem with System D is that when it is hit with a recession a lot of people will be out of work.  There is no potential for economic safety  mechanisms such as unemployment insurance.

It could well be that System D is a way to get around excessive government regulation of the economy most of which works to restrict competition.

Therefore we should aim for the best of both worlds.  Keep legislation which tries to prevent exploitation and provide a safety net and get rid of legislation which restricts competition.

(The book is Grand Pursuit, the Story of Economic Genius by Sylvia Nasar and was published this year.)

Brazil’s offshore oil – a question

The following was posted on The Economist website as a comment on an article on the offshore oil fields in Brazil.  The article and an editorial appeared in the November 5, 2011 print edition.

A question to ask about this project is how many units of energy will it take to extract 100 units of energy from below the floor of the ocean.  Even if the answer were more than 100 there would probably be lots of people who would want to proceed with it because lots of money would find its way into their pockets.

Crises, referendums and impossible questions

Leaders don’t always speak for the people they claim to represent.  Therefore the Greek referendum may be a good idea.

The question is can the financial crisis which is threatening a number of countries around the world be resolved.  One doesn’t want to be defeatist but if we really are using resources at 150 per cent of the sustainable rate, then there is bound to be some serious economic problems.  Is it realistic to think we can beat the odds?

If we can’t beat the odds, should we then be looking at an orderly wind down in the hope we can minimize the human suffering?

Some times there are no answers.

Recession? Side by side headlines

I really enjoyed seeing these two headlines side by side on the Canadian business edition of the Huffington Post”

It May Get A Little Rough, But Canada Isn’t Heading For Recession: Flaherty

Canada’s Food Banks See Recession-Level Demand

May be how one sees the world depends upon one’s perspective and one’s wanting to be re-elected.

Regulations and The Economist

This item was posted on The Economist website as a comment on an article in regulations.

I have a theory that generally government legislation and regulations work mostly to restrict competition so that some people can make profits (which are not available with greater competition).

I don’t see how regulations are going to stimulate the economy.

Therefore regulations should be evaluated according to how they will make life better for us and how equally they are applied.

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