Literally - The Economic Food Chain

There is a food chain in the economics of purchasing patterns of consumers just as there is a food chain from plankton to the fish that feed on plankton to the predator fish that eat the plankton eating fish.

As each day brings another drumbeat of this United States march toward recession, one of the latest bangs of the drum has been about retail chains, which sell everything from sheets to jewelry, shuttering large numbers of stores across the nation as a reverberation of the rising cost of one of the most basic needs in life for all human beings… the cost of food.

Here food would be the plankton and the less plankton there is sends shock waves right up the food chain to the jewelry eating predator rich fish. If you do not think the ‘jewelry’ fish are affected, just ask yourselves what happens to the price of the stock of Apple (AAPL) when they sell fewer IPods. ‘Jewelry’ fish own stock – lots of it.

A recent article posted on the website of The New York Times sums up the collateral damage of an eco-policy decision gone awry. This article was about the retail chain stores of all types that were closing branches, about more employees losing their jobs and another step towards a slower economy and poorer people.

As the price of oil has skyrocketed and concerns about carbon-based global warming have become a hot button issue, central planning by the government eliminated the use of MBTE’s (methyl tertiary-butyl ether) and mandated a massive move into ethanol production by using governmental production subsidies as the carrot hanging from the stick as the supply side incentive.

Dropping MBTEs was a good move as it became apparent that this nasty chemical compound would find its way into the water system after being burned by cars, released into the atmosphere and returned to our soil via the rain. One of the great natural resources this country has is our clean and available water. MBTE usage was slowly poisoning this resource so you have to chalk one up for the eco-warriors here. Well done.

Where the eco-warriors went too far was the bold step into the mandating of massive ethanol usage without fully understanding the way that, in economics, everything is connected to everything else. In trying to save our water supply from MBTE usage we are now jeopardizing that same water supply with the production of ethanol while furthermore stuffing food into our gas tanks and raising the price of food.

An ethanol plant that produces 50 million gallons of ethanol a year requires 500 gallons of water per minute. Assuming that these plants are kept running continuously for a year, the water usage to produce 50 million gallons of ethanol a year is 262.8 million gallons of water, which is over 5 gallons of water used for every gallon of ethanol produced. Of course a lot of this water is reused, but that’s still a lot of water which is one very important type of life sustaining plankton.

Getting back to how retail stores get shut down as a result of food, all one has to consider is the discretionary income a family has after buying food. The rise in the price of food, as a result of the rise in the price of corn, as a result of corn being stuffed into our gas tanks, leaves the common family with less money to buy sheets, clothing, furniture, sporting equipment, vacations, etc. The retail stores close as a result of lower demand, and those working there get laid off. These new people without a job now have to conserve money in order to buy our more expensive food, and spend less, and another store may close. This is the retail downward spiral that can slowly grind a national economy to a halt.

I am not saying that all our current problems are a result of jamming our nation's most widely produced foodstuff, corn, into our gas tanks. What I am saying is that this skyrocketing in the price of all our basic grains and food stocks has contributed greatly to the slowdown in consumer spending across the board. The smaller, more immediate move up the food chain of corn is that we feed it to cows to produce beef, chickens for eggs and Buffalo Wing,s and pigs for tasty spare ribs. This jacking up of the cost of food slows the demand for items such as a Cisco (CSCO) home wireless router or an IPod, which then impacts those companies' bottom lines.

The massive push in ethanol production and use, and even worse the use of E85, to power our automobiles has been a major mistake. This policy decision may even go down as one of the most short-sighted responses to any problem ever dictated by central planning in history.

Just think about it – first you need food and water and then a place to sleep and be safe. After that you need gas/fuel to get to work, etc. Trying to solve a problem of not enough fish eating fish by using up all the plankton only to decrease the fish that the predatory fish feed on, thereby destroying the ecology that produced the food for the predatory fish in the first place, has to be one of the dumbest ideas ever. So – you just tried to increase the number of predatory fish and ended up crippling the very eco-structure that produces them in the first place.

It is all an eco-economy, ladies and gentlemen. This is but one example of a decision, pushed by politics, eco-warriors and other players into creating a Frankenstein Monster which if left unchecked will become even worse than the original problem.

Maybe the next time some kneejerk reaction to a problem, that sounds all cozy and perfect, is put into action, someone will actually think ahead as to what the ramifications would/could actually be.

Personally, I find the taste of a juicy steak, an ear of corn and a glass of water preferable to drinking ethanol when I have to fill my stomach. I don’t need ethanol to live but I do need to eat.

Disclosure: No positions.

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[Robert NYC]

This is the Author - my original title was "Literally - The Economic Food Chain" Which do you all think is better - their title or mine?