Population Matters

Living on a Finite Planet

December 27th, 2010

2010 was a great year for commodity investors.   Not so good for the consumers of those commodities.  Prices for a broad range of commodities—everything from corn to copper to cotton—jumped sharply.   Critics of the Federal Reserve’s monetary policy blamed “quantitative easing” for the run up in prices.  Others were quick to blame speculators. 

But as New York Times columnist Paul Krugman, the Nobel Prize winning economist, wrote yesterday, “What the commodity markets are telling us is that we’re living in a finite world, in which the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices.”

Commodity prices are inherently volatile.  It’s easy to read too much into the daily, weekly or even monthly fluctuations.  Historically, a big surge in the price of wheat or copper would incentivize production, resulting in lower commodity prices.  As the old adage goes, “The best cure for high prices is high prices.”

But for some commodities that old adage may not apply any longer.   Big jumps in oil prices, for example, no longer generate big jumps in oil supply.   Indeed, as Krugman pointed out yesterday, conventional oil production has been essentially flat for four years, even though the price of oil is back to nearly $90 per barrel.  

Even more worrisome, however, is the trend in farm commodities.  Prices for wheat and corn this year jumped about 50 percent, while cotton prices have doubled in the past six months.  Soybeans are up about 40 percent this year. 

In times past, when the price of wheat has soared, farmers have planted more wheat, and cutback on corn, soybeans or other crops.  But when farm commodities are rising across the board, that kind of substitution doesn’t take place.   It’s yet another sign that we are living on a finite planet.

Krugman did not ring any alarm bells.  He was careful to say that the world was not descending into “a Mad-Max-style collapse.”  But if the recent surge in commodity prices is a reflection that we are living on a finite planet, what will commodity prices—and the world—look  like in 30 or 40 years when we could have close to 9 billion people on the planet?  What will happen to commodity prices in 2040 or 2050 if the world economy is several times larger than it is today, and the demand for cotton, corn, and copper all that much higher?  What will happen when the world’s demand for cotton and biofuels collides with the need to feed a hungry planet?  I guess we will find out what it’s like to live on a finite planet.

Posted by Robert J. Walker, Executive Vice President

One Response to “Living on a Finite Planet”

  1. Steven Earl Salmony Says:

    DEMOGRAPHIC TRANSITION: IS IT FACT OR FICTION?

    A note from a friend on the widely shared and consensually validated pseudoscience regarding human population dynamics and human overpopulation (in quotation marks), followed by my comment on the scientific finding regarding food supply and human population numbers from the research of two outstanding scientists, Russell Hopfenberg and David Pimentel.

    “I agree that the Theory of Demographic Transition is just that, a convenient theory that holds out the promise of lower fertility in nations in due time if they just hop on the capitalistic development bandwagon.

    It’s a non-threatening and positive theory and it’s potentially good for business for the developed world.

    All one need do is take a look at population growth statistics,

    http://en.wikipedia.org/wiki/List_of_countries_by_population_growth_rate
    (2009 CIA table)

    and per capita income statistics of countries,

    http://www.nationmaster.com/graph/eco_gro_nat_inc_percap-gross-national-income-per-capita

    and one can observe that a relatively wealthy country does not necessarily have a low population growth rate. Examples are US, United Arab Emirates, Saudi Arabia, Luxembourg, Ireland, New Zealand, Australia, Kuwait, Bahrain and more. It can also be observed that many of the more developed and thus more wealthy and educated countries, mostly in Europe, have below

    replacement fertility (Italy, Germany, Japan). Many countries with a predominant religion furthering large family size have larger population growth rates like the Arab countries.

    The following paper http://www.jstor.org/pss/2947709 concludes that

    “..that indicators of education, health, and family planning program effort have a significant independent effect on fertility” and that “No significant impact can be attributed to indicators of economic development once family planning efforts and social development indicators are held constant.”

    Yet the National Geographic January 2011 issue on “Population – 7 Billion” features the Demographic Transition Theory, though it does briefly admit that fertility in some countries has fallen dramatically without significant economic development. Bangladesh is a major example.

    As I see it, in the absence of religious or social pressures, most people would prefer smaller families as they can better provide for them. Given the education and means to control their fertility they will readily try to do so.

    In many developing countries, the ubiquitous radio is the major source of news and entertainment. The presence of only a few radio stations makes this an ideal medium for education and behavioral change. Organizations such as

    Population Media Center http://www.populationmedia.org/ and

    Population Communications International http://www.population.org/

    have been very effective on a per dollar basis in getting listeners to

    their culturally-sensitive soap operas educated on family planning

    advantages and seeking means to help them control their fertility.”

    The food availability-population growth finding from the research of Hopfenberg and Pimentel
    http://www.panearth.org/
    shows us that there is NO demographic transition, NO population stabilization, NO benign end to population growth a mere four decades from now. That is the problem with the theory, which is preternatural not scientific and descriptive not predictive. Scientific evidence directly contradicts the demographic transition theory and indicates that human population dynamics could be essentially similar to the population dynamics of other species. More food equals more human organisms; less food equals less human organisms; and no food equals no humans. Skyrocketing absolute global human population numbers in the past 65 years provide bold and unmistakeable evidence of this fact. I fear that when the explosive growth of the food supply for human consumption we have witnessed during my lifetime can no longer be sustained by a planet with the size, composition and ecology of Earth, and comes to an end much sooner than any one of us would want, I believe this relationship between food and population numbers will become much easier for the people to see. And at that future moment in space-time people are not, definitely not going to like what they are seeing, I suppose. I also believe that at that time those with responsibilities to assume and duties to perform will look back in anger and utter disbelief at what those in my not-so-great generation have overlooked and denied, for a variety of self-serving excuses.

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