Yves here. In our Links feature, we’ve been featuring only a small subset of the extreme weather events of the last year. Even though destructive storms like Helene and Milton have gotten headline status, there has been an almost endemic level of articles about enduring extreme heat (new daily and monthly highs, record highs for overnight temps, new high ocean readings) along with epic floods produced by sustained rain. Both parching and flooding are set to lower agricultural output, which in turn will increase prices, producing hardship and potentially in some areas, shortages. Yet economic forecasts are simply ignoring what ought to be “in your face” real world events.
Keep in mind that in the US, if voters do turf out Team Dem, one reason will be that they are still suffering the effect of a big jump in food prices, even if inflation has moderated. In the UK, the government is cutting winter fuel subsidies. Even though the poorest pensioners will still get the benefit, those right above it will not, and many experts have warned that their situation is precarious. How will they and others fare if (when) they are whacked by higher food costs too?
Richard Murphy point out how it is obvious that the UK will have serious agricultural production problems over the next year, potentially much longer, yet economic models are paying it no mind.
And let us also not forget that food shortages and scarcity generate political upheaval. Nomura back in the day created a model of household fuel and food costs as a percentage of average incomes across the Middle East. As it predicted, countries that had fallen into high levels of high basic survival costs relative to typical standards of living were more likely too, and in fact did, have Arab Spring revolts.
Having said that, macroeconomic models are not what they are cracked up to be.
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future
The Guardian reported yesterday:
England has suffered its second worst harvest on record – with fears growing for next year – after heavy rain last winter hit production of key crops including wheat and oats.
On staple crops, England’s wheat haul is estimated to be 10m tonnes, or 21%, down on 2023, according to analysis of the latest government data by the Energy and Climate Intelligence Unit (ECIU).
Whilst the Treasury obsesses about its spreadsheets and the City confuses economic activity with private equity exploitation, in the real world on which we all actually depend there is a crisis going on as a result of climate change.
The UK’s environment is in crisis. And it won’t be better next year. I can tell you, living as I do in a deeply agricultural area, that rainfall over the last weeks is playing havoc with planting for next year in waterlogged soils. The flood overflow systems are already very high around here: another metre or so and I will have never seen them higher, and this is October, not March.
I took this picture at Welney wildlife reserve in. the fens last weekend – that signpost should be three metres above water levels right now – and is not. No one is going to walk alongside that ‘drain’, as it is called, for some time:
For decades, the demand for financial returns has meant that we have ignored economic reality. We will not be able to do so f0r much longer: it is coming back to bite us very hard.
And, for the record, there is a real inflation risk in this – and changing the interest rate will do absolutely nothing to alter that fact, whatever Andrew Bailey might think. People need to be fed. They have to be fed. They cannot live off higher interest rates that will only make the lives of the most impacted harder still.
It really is time that economists started walking about and noticing that there is a world beyond their numbers, and that’s where the real issues are.
Oh, what short memories we have. In January 2022, the Hunga Tonga volcano sent shed loads of water into the upper atmosphere. This water is likely the reason for last year’s high temperatures, and since what goes up must come down this year’s floods.
I saw a joke on twitter that went something like this:
Climate scientist: “Global warming is going to destroy agriculture as we know it!”
Economist: “I don’t see the concern; according to our statistics agriculture is only around 2% of GDP.“