GEOPOLITICAL OUTLOOK: THE AMERICAN DROUGHT

It is often said that when America sneezes the rest of the world catches a cold. Even though the American Century is over, and American power and influence is declining, what happens in the United States still affects the world as a whole.  This has never been more apparent than it is right now: a drought in the United States is going to cause millions to die around the world.

Allow me to explain.

In the last century – especially after World War II – the United States used the lure of its comparative prosperity to seduce the world into remaking itself into America’s economical image. When China finally embraced the Western economic model, it became the 2nd largest economy on Earth in only a few decades.

We now know, however, that the American model was and remains deeply flawed. American-style capitalism, embraced by Europe, Asia, South America, and increasingly embraced by Africa, is essentially a shell game governments play to create the illusion of prosperity which in turn fuels consumption, leading to ultimate breaking points.

Prior to the Bretton Woods Accord, the cycle of boom and bust inherent in American-style capitalism was not much of a problem. The United States’ economy was just one economic system in a world composed of multiple economic systems typified by multiple currencies. It is well understood and accepted that the interplay of these separate economic systems was inefficient, typified by the chaos of international currency exchange rates. However, although inefficient, independent economies insulated the world from global economic crises.

That all changed after World War II. On July 22, 1944, the world’s major industrial states signed an agreement setting up the current world economic order more commonly known as the Bretton Woods Accord. That agreement established the  International Monetary Fund, the World Bank and what ultimately became the World Trade Organization (WTO).

The Bretton Woods Accord, combined with the United States’ unlateral decision in 1971 to terminate the gold standard (i.e., the convertibility of the American dollar to gold), resulted in the U. S. Dollar becoming the reserve currency for the world – which meant that all major international transactions took place in U. S. Dollars, and this essentially transformed the U. S. Dollar into the de facto world currency.

And this is why, even now when America sneezes the rest of the world catches a cold. Even though the American Century is over, and American political power and influence is declining, the entire world is still inextricably tied to the American economic system.

One of the consequences of the American economic model becoming the dominant economic model for all the world is the fungibility of agricultural products. Before the Bretton Woods Accord and the advent of the WTO nations zealously protected their food production capability. Prior to Bretton Woods, the foundation of a country’s national interest was domestic food production capability: wars were won by destroying your opponent’s ability to feed their armed forces.

However, after Bretton Woods such protectionism slowly ended and all nations aspiring to become part of the new, prosperous, economic system were required to place their agricultural production onto the world market. Prior to Brenton Woods the price of a bushel of corn depended on where it was grown and where was sold. After Bretton Woods corn production globally sets the price and a bushel of corn purchased in India costs virtually the same as a bushel of corn purchased in the United States.

Demand and the ability to purchase food dictates food availability.  For example, Dixon California is famous for its lamb production.  However, due to international demand for lamb fueled by growing middle classes in India and China, for short periods of time in 2011 people in Davis – which is a few miles from Dixon – could not purchase lamb; Dixon lamb producers were selling their entire production to Chinese and Indian meat distributors.

Nations can still play games with commodity prices and can engage in acts of quasi-protectionism, such as the recent decision of the United States government to aid American pork producers by buying their products at a higher price than the price the worldwide market imposes in order to ameliorate the effects of the American drought on American pork production. But these  protectionist manipulations only drive the price of agricultural products higher on the international market by reducing the supply.

And that is why millions of people around the world are now facing inevitable hunger and death. Millions of people around the world depend for their lives on surplus American agricultural production that keeps the price of food low enough for them to be able to buy it. The American Heartland –the breadbasket of the world –is experiencing a terrible drought causing a dramatic drop in American agricultural production. This shortage will cause the price of basic staples like rice, corn and soybeans to increase beyond the point where millions of people can afford to purchase them. And this means they are going to starve.

The international economic system dictates where this starvation will occur.  Despite the WTO rules against protectionism, nations that produce food surpluses will manipulate their agricultural systems to make sure that food supplies for their national populations remain affordable. For example, when the United States government purchases pork products from American farmers at prices higher than those dictated by international markets, the United States government supports the ability of those farmers to buy food with prices set internationally.

The same is true for nations with strong natural resource exports, such as Australia, United States, and Russia. Natural resource sales provide the liquid Capital necessary to buy food at inflated world prices.  However, this is true only for nations with robust economies.

For example, Venesuela imports food but exports oil and gas. However, Venesuela’s economy is collapsing; their oil and gas production is dropping due decaying infrastructure that is too expensive to repair.  The government of Venesuela is already bound by long-term contracts with other nations exchanging oil for food at prices set before the American drought. Consequently, Venesuela’s energy exports to not generate liquid capital that can be used to buy food at increasingly expensive international prices.

The nations that will be hardest hit by the consequences of the American drought will be nations that neither produce food surpluses nor export natural resources. Those nations will face food riots and eventual mass starvation.  These nations include Niger, Mali, Chad, Mauritania and Senegal.

We are already seeing signs of this happening. Farmers in Niger are selling their cows, goats and sheep to obtain currency sufficient to buy food.  Nomads dependent on their camels are selling them for the same reason. This is a desperate move and the positive effects are temporary. When the money runs out, they will starve.

China – despite its seeming economic strength and the flexibility of its capitalist dictatorship – is one of the nations that will be hardest hit by the American drought. Although Chinese coastal regions have experienced the benefits of unbridled capitalism in the world economic order, the rest of China is poverty-stricken. Even if this were not true, the Chinese economy is dependent on food and natural resource imports.  Egypt is also vulnerable.

So it is fairly certain that the poorest populations of our world will experience famine, food riots, and starvation. So the question is: how will the world respond?

The answer is fairly clear: the world community will do nothing substantial to prevent the humanitarian disaster that is rapidly approaching. The existing world economic order does not provide mechanisms for any meaningful response to the consequences of the Great American drought. The world’s industrialized powers that are best capable of shifting resources to alleviate world hunger are busy dealing with their own economic crisis. They simple cannot afford to respond to the pending crisis in any meaningful way.

This is not to say there won’t be a lot of activity. Certainly there will be at least one telethon where celebrities from around the world join hands and sing in the spirit of peace and harmony and ask the viewing audience to send money. Nations around the world will contribute millions of dollars toward aid relief. But, beyond the “feel-good” result of such efforts, millions will still die.

This crisis will not be remedied; it will be managed. Food will be distributed as it always is – to those with sufficient political capital to assure their survival. Those without sufficient political capital will die.

There are those who will argue that we should let them die, that all of this is for the best, that this is a result of the earth exceeding its carrying capacity, that there are just too many unproductive people and that their population must be reduced, that if we feed them now, all they will do is reproduce so that even more will die tomorrow.

So it seems quite certain that a lot of people are going to die. But before they die, they will fight. And the authorities controlling food distribution will attempt to suppress any unrest with force.

So the ultimate question is whether or not suppression efforts will succeed. If they succeed, the result is likely to be more repressive governments consequently better able to manage the next round of food riots that are sure to come.

If governmental suppression efforts do not succeed, however, it could lead Revolution.  The French Revolution was caused by food shortage. The Arab spring movement was likely started by a food shortage in Tunisia.

There is really no way to predict what will happen because American corn and soybean farmers did not meet their expected production goals. But it is fairly certain that the world is in for a bumpy ride.

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4 Responses to “GEOPOLITICAL OUTLOOK: THE AMERICAN DROUGHT”

  1. Ethiopia is currently experiencing its worst drought in 50 years. People are already dying. Please, America, stop sneezing.

    Like

  2. No Norman Borlaugesque rescue in sight? He is another reason when folk bad mouth the US and its citizen I feel justified in saying they are full of frak. You are of course another example I use, just not in the same sentence as Mr Borlaug.

    Like

  3. paulboylan Says:

    By god, I haven’t heard that name mentioned in many, many years.

    Let me put it this way:

    Since Norman Borlaug died, he has been wrestling with Reverend Malthus, and the ghost of Reverend Malthus is winning.

    As it always will.

    Like

  4. They all gonna die anyway. Now, later, whats the difference.

    Like

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