“The current financial crisis in the U.S. is likely to be judged in retrospect as the most wrenching since the end of the Second World War.” — Former Federal Reserve Chair Alan Greenspan, Financial Times, March 17, 2008
Drawing on past-life experience as a financial reporter, I have been trying to make sense of the crisis now spreading through the U.S. economy — a debacle brewed up on Wall Street that’s affecting us all. These are critical issues for the environment, because economic crises rarely lead to more ecologically benign policies.
Look, for example, at the biofuel boom — our government’s major response to the recent surge in oil prices. Biofuels have not significantly reduced oil prices or our carbon footprint, but they have led to an ongoing surge in agrichemical use. The biofuel policy has also ramped up food prices at a particularly precarious time for consumers. In this column, I sketch out a plan that would ease food prices while also lessening food’s impact on the environment.
Why is such a plan necessary? Because while U.S. Federal Reserve officials shuffle around Wall Street with suitcases full of cash trying to assure finance execs that everything’s all right, things are turning tense on Main Street. Grocery bills are climbing, gasoline prices set record after record, and credit cards are maxed out. Meanwhile, recession looms, signaling stagnant wages and job cuts. According to BusinessWeek, consumers carry a stunning $740 billion worth of credit card debt, up 15 percent from five years ago. One of the few engines of job growth, The New York Times reports, is consumer-debt collection. Ouch.
So what is the federal government doing to ease the burden on consumers? Beyond the Bush administration’s one-off tax rebate — equal to less than most people’s monthly mortgage or rent payment — not much. Recent spikes in food prices can be tied directly to the biofuel boom engineered by the Bush administration (and supported, to be fair, by Congressional Democrats, including the leading presidential contenders). President Bush was recently heard muttering that “we got to do something” about the spike in food prices caused by the ethanol boom he engineered. But he has done … nothing.
The Poor Get Poorer … Nutrition
While ethanol producers suck in as much corn as they can, cheered on by the politicians, consumers are getting squeezed at the grocery line. Over the past year, we’re paying significantly more for staples like eggs (up 25 percent), milk (17 percent), cheese (15 percent), bread (12 percent), and rice (13 percent), The New York Times reports.
Meanwhile, Federal Reserve Chair Ben Bernanke has used his bully pulpit to cajole banks to be kind to debt-distressed homeowners, but he’s actually opened his checkbook to ease the plight of banks themselves. Awash in debt and ravaged by its dubious mortgage investments, the once-mighty investment bank Bear Stearns recently flirted with ignominious collapse. But in a dramatic and unprecedented intervention, the Fed nudged it into the waiting arms of megabank JP Morgan Chase at a fire-sale price. The Federal Reserve had to agree to take on as much as $30 billion of Bear’s debt if things sour. That means we taxpayers take on most of the deal’s risks, while JP Morgan Chase shareholders stand to rake in any gains.
Bernanke’s other high-profile activity has been to repeatedly slash interest rates. Low rates ordinarily benefit consumers, but only if they embolden banks to lend, businesses to invest, and the economy to expand. As it is, banks remain way too skittish about the mortgage mess to lend. The Fed’s rate cuts have merely inspired foreign investors to dump U.S. assets, causing the dollar to plunge. For consumers, a weaker dollar means higher prices for the imported goods on which we’ve come to depend — including our biggest import of all, crude oil.
In green circles, rising gasoline prices sometimes cause celebration. But absent public policies that give people alternatives to the car, high oil prices do little to curb consumption. Instead, they merely act as a regressive tax on people trying to get to work — taking money out of the pockets of people who can afford it the least.
As I’ve written before, a similar logic holds true for industrial food. Surging corn and soy prices aren’t likely inspiring cash-strapped people to trade up and shop at the farmers’ market. Rather, food-price hikes are likely sending most people down the food chain, looking for the cheapest — and too often least healthy — food possible.
Meanwhile, Bernanke’s tortured quest to save Wall Street from itself is likely far from over. Not only are untold tainted subprime mortgage assets still festering on banks’ balance sheets, but that above-mentioned $740 billion in credit card debt is also haunting the Street. As with subprime mortgages, the banks spent much of the last decade essentially bundling credit-card debt into packages and selling it to each other and to hedge funds at great profit, BusinessWeek reports. If cash-strapped consumers start to default, expect more shrieks from Wall Street — and more Rescue 911 acts from Bernanke.
But there are other ways to respond to these mounting crises than merely bailing out the banks and letting consumers twist in the wind.
The first thing I’d do is end the government’s absurd, expensive, and myriad biofuel subsidies, which are jacking up food prices while providing little if any environmental benefit. According to one reckoning, the federal government has committed $92 billion between 2006 and 2012 to prop up biofuel production. Attracted by this government-guaranteed market, the very same investment banks and hedge funds that brought us the mortgage debacle are now buying and selling corn and soy futures, snatching profits while consumers gape at the price of grocery staples.
Pulling the plug would cause grain and soy prices to drop, bringing down food prices but hurting farmers. To limit the latter effect, the government could step in and buy excess grain and hold it, replenishing stocks that have fallen to all-time lows. That would keep farmers in business while also improving food security.
With the massive savings that would result, the government should invest in local and regional food-production infrastructure, which has been systematically dismantled by agribusiness over the past half-century. Such a program would not only provide consumers with a ready alternative to industrial food, but would also re-establish food as an engine for building wealth within communities — and lessen its ecological footprint.
Finally, the government has to figure out a feasible way to slash demand for oil, to both shield consumers from rising prices and, well, avoid climate disaster. The obvious way is to reinvest in an efficient, functioning national and regional mass transit system. Common wisdom holds that Americans are too in love with their cars to embrace trains and buses. As gas prices gallop toward $4 per gallon, that idea looks increasingly frayed. A recent poll in North Carolina, a state marked by sprawl and heavy car reliance, showed large majorities favor public investment in mass transit.
Meanwhile, an American Public Transportation Association study [PDF] shows that Americans are increasingly using what little public transportation they have access to. The problem, it seems, is not consumer desire but rather political will. According to an extraordinary recent article in The Washington Post, the Bush administration’s Department of Transportation has systemically gutted federal funding for mass transit in favor of highway-privatization schemes that favor business cronies.
“The number of major new rail and bus projects on track for federal funding dropped from 48 in 2001 to 17 in 2007, even as transit ridership hit a 50-year high last year and demand for new service is soaring,” the Post writes.
That’s imbecilic. In the context of early 21st century U.S. politics, gutting harmful biofuel subsidies, reinvesting in local food, and rebuilding the public-transit system count as radical ideas. They’re almost completely iced out of the national debate, even during a highly contested presidential election. Meanwhile, heroic and pricy efforts to bail out Wall Street seem, for some reason, are perfectly natural.