Saturday, December 06, 2008

They've Even Coined a Word for It - "Ecoflation"

The premise behind this is that you - yes I mean you - and the six and a half billion other humans, have been running the world on an ecological deficit.

In other words, we're consuming our planet's renewable resources faster than they can be, well, renewed and we've been deluding ourselves by relying on the stockpiles of these resources, in effect eating our seed corn.

We're all, collectively, a bit like Mike Tyson. The guy made a lot of money, oodles of money, and he lived like a king. He even had lions on his estate. Mike's problem is that he became accustomed to spending enormous amounts of money as though he could always just refill the vaults by the purse from the next fight and the one after that and so on. Mike developed a lifestyle that could only be maintained if he could hold on to his boxing world championship until he died. The day arrived when Mike suddenly wasn't winning any more and had all those other problems and the cash dried up but the expenses kept on mounting and, suddenly, he was broke and all his toys were taken away.

Even here in affluent North America we've been playing this very same game. Take my favourite object lesson, groundwater. Especially in the corn belt and wheat belt of the US, agriculture took hold and grew enormously. But growing stuff takes water, a lot of it, for irrigation. There was never enough surface water so the growers came to rely on subsurface water, aquifers.

Aquifers are like underground lakes that have been filled up by surface water trickling down for centuries, even millenia. Some of the water that gets pumped up to irrigate the fields may have fallen well before Columbus supposedly discovered America. So agriculture takes hold and along come highways and towns and, before you know it, WalMart and a lot of businesses and people and they all need water.

Now Mike Tyson would be doing just fine today if he'd taken his winnings, put the money in a bank of government bonds, and simply lived off the interest. Those people in the grain belt would be in the same position if they had figured out that they needed to limit their dependence on the aquifers to the recharge rates. But we didn't and so, instead of relying on the interest, we've been voraciously eating into the capital, unknowingly emptying the water vaults deep underground.

So just as Mike Tyson found himself put out on the sidewalk, people living in areas that find themselves dependent on water supplies that disappear are going to have a real problem. They'll either have to find water somewhere else or leave, simple as that. And that is where "Ecoflation" sets in.

A lot of these agribusinesses and communities have been built around an abundant supply of cheap water. For them to function, water has to be both abundant and cheap. When you can lay claim to the stuff beneath your feet that's a doable proposition but it goes all to hell when you have to rely on someone else's water from some other place.

Even if you've never studied economics you probably understand the basic theory of supply and demand. The notionally ideal price of a product is where the supply and demand lines intersect. A decrease in supply or an increase in demand sends prices up and there you have the theory of Ecoflation. A dependence created on the over-consumption of renewable resources results in a sudden decline in supply which sends the value of that resource steadily upward.

A recent World Resources Institute report ( notes the Ecoflation factor behind the increase, between 2006 and 2008, of 136% in wheat and 217% in rice prices. Now, if we use the Economics 101 model, this skyrocketing price should sharply depress demand but that's where the wild card, dependency, kicks in. We can't stop eating and, apparently, we can't stop breeding more mouths to feed either. This throws freshman economics right out the window because you have dwindling supply, increasing prices and steadily increasing demand.

So, what's the answer? The report comes up with recommendations for corporations in the resource "value chain." That's good, as far as it goes, but there isn't all that much business can do address the larger problems that are societal, national and global.

The larger question, as I see it, is how do we - all six and a half billion of us - deal with our dependence on resources that our planet simply cannot supply? Where are we to find the enormous trust and willingness to sacrifice that will be the foundation of any serious global effort to address what is in every respect a global threat of an existential dimension? How do we overcome human nature and societal attitudes that have evolved in a bubble of delusion?

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