Bubble in babies busts baby boomer bubble
By
Bill Bonner Jun 06, 2008
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Being in the right place at the right time is far more important than brains. Luck provides better investment returns than talent. Too bad. Because our luck is running out. George Soros says the great credit expansion that was born with the baby boomers – and has lasted as long as we have – is now over.
And this week comes word that the “end of abundance” is here too. That’s what it said on page nine of Monday’s Financial Times. And then, Bo Diddley died. All the balmy trends of the boomer generation seem to be coming to an end. Food riots, inflation, Gordon Brown, high-priced gas, rap music – people are getting hungry, witless, and surly.
Naturally, the world’s leaders are worried. They gathered in Rome this week for the customary monkeyshines. Even Robert Mugabe put on a false moustache so he could dine out on the Via Veneto, leaving his lieutenants in Harare to beat and starve Zimbabwean voters.
At 84, Mr. Mugabe is almost living proof of Haeckel’s biogenetic law. It maintains that the history of the individual rehearses the history of the species. In Mugabe’s long life, from prison cell to presidential palace, he is the history of revolution… a Kerensky and a Stalin… the liberation struggle’s saint and its monster, too… all in one.
To some he is a big disappointment. To others he is a great satisfaction; proof that Ian Smith was right all along. When Ian Smith left the top-man role in Rhodesia, the country was the ‘bread basket of Africa’ with a currency as strong as the pound. Now it is a basket case whose peoples’ bones stick out and whose dollars are already as worthless as a campaign promise.
But everything follows the same laws – from embryo to corpse… from boom to bust… from seed to fruit to rot… nothing escapes, neither an individual, an empire, a species, nor a market. This is not the first time in our lifetimes that the world has seen this kind of show. In the 1970s, Paul Ehrlich, like Malthus before him, foresaw a crowded, hungry world. In his popular book, The Population Bomb
, he said hundreds of millions of people would starve to death. This was a world in which England couldn’t even exist; he said it would disappear by the year 2000.
He was wrong about that. He was wrong about a lot of things. Julian Simon challenged him, arguing that a free economy always reduces real prices. On 29 September 1980, the two made a famous bet on whether the prices for five basic metals – chromium, copper, nickel, tin and tungsten – would actually go down, inflation adjusted, in the following ten years, despite population growth. What happened? Simon won. On 29 September 1990, the prices of all five were lower. Ehrlich settled up with a cheque for $576.07.
In theory, Simon will always win a bet like that; competition and technology always force prices down. But Ehrlich wasn’t wrong about everything. And Simon wasn’t right about everything. While one believed the weight of numbers would send the world to hell, the other had a god-like faith that the market would always save it.
But while Simon is right in theory, the invisible hand is not always the gentle paw that he imagines; it does not necessarily call out for more booze just because the crowd gets thirsty. In fact, it would just as soon allow a Mugabe to ruin a country, as permit the free market to build it up. Simon had the good luck to make his bet at the beginning of a major decline in commodity prices.
Oil, for example, hit an all-time high over $100 a barrel, in current dollars, in December 1979. Ten years later, it was trading near $30. And by 1998, the price had fallen to $10. Had he made his bet ten years earlier or ten years later, he probably would have lost.
Back to the raw facts facing the Roman holidaymakers. Over their plates of crespelle all fiorentina, delegates will learn that high food prices are putting millions of people on the verge of starvation. Then, as they wash down their peposo with a tide of Barolo or Chianti Classico, they will reflect on how this came to be. The “green revolution”, someone will mention, seems to have run its course. (Out of politeness or stupidity, no one will mention the Fed’s easy money policies.) Ehrlich’s population bomb never exploded, they might come to believe, because irrigation, selective breeding, and the use of petroleum-based products greatly improved farm productivity.
But now, the green revolution is as mature as the credit cycle – or Robert Mugabe himself. The water is running out. Opposition to bio-engineering is growing. And petro-chemical inputs are both less effective and much more expensive than they used to be. Result? In 1961, crop yields grew by 10% per year. Lately, they’ve risen less than 1% per year.
Meanwhile, in 1970, there was about one acre of arable land on the surface of the planet for every pair of feet. But the feet have multiplied – just like Erhlich said they would – from a bit over three billion people to more than six billion; and now the species is expanding like sub-prime debt. Just look at a chart. Human population looks just like the Nasdaq in ’99 or oil in ’08. This bubble-like population explosion, along with urbanisation, highways, pollution, desertification and so forth, has cut the amount of farmland per person in half. Meanwhile, the number of people bellying up to the bar continues to grow by 11% per year – more than 10 times faster than crop yields. Everyone wants a drink; but there’s only so much beer on tap. Who knows? This may be a good time to short the human race.
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