A Hungry World - EconVue Spotlight August 2020

Back to work after COVID, China is experiencing widespread food shortages. Post-pandemic, a combination of historic flooding and drought has caused China's leadership to worry about food supplies, and take action. Limitations on banquets and requests from local cadres to skip a patriotic meal have been widely reported. This past winter, the world watched China struggle with COVID before it literally went viral. Could China be the vanguard of a global food shortage caused not by aggregate supply, but by distribution bottlenecks? I believe that this new crisis is the reason that China is coming back to the negotiating table with the US for the Phase I trade talks, a partial retrenchment of its new dual circulation economic model aimed at lessening China's dependence on the outside world.  

Oxfam and the United Nations Committee on World Food Security say risks to food supplies are growing worldwide. According to CSIS, at the beginning of 2020, 135 million people faced acute food insecurity; by the end of this year the number will be more than 265 million. Conflict zones such as Yemen, Syria, Lebanon, and of course North Korea are already experiencing starvation conditions, Africa has the highest rate of malnutrition in the world, almost 20%.  The UN report forecasts that malnutrition will double as a direct result of the pandemic, and eventually more people will have died of hunger than from the disease itself. Similarly to the WHO, existing international organizations do not have the scope or authority to avoid this disaster. 

It's not only war-torn or failed states such as Venezuela that are facing a hunger epidemic. Depressed economic conditions as a result of COVID have clearly resulted in food insecurity in rich nations such as the US, where 29 million Americans report not having enough to eat. Food bank lines have stretched for miles in cities across America, and school closures have meant that children who depend on school for at least one meal a day have nowhere to go to replace those meals.

Here in Chicago, school kitchens stayed open even as classrooms were closed. Last year, schools in the US served 20 million free lunches each day. As school reopening dates change food distributors, especially of fresh food, don't know how to estimate and satisfy demand. Children are being deprived not just of education, but of the basic nourishment required for their brains to grow.  We have decried the lack of Internet broadband or a laptop for 30% of the country's students; it is probably these same students who also face food insecurity. All of this will lead to worsening inequality over time.

The linkage between hunger and political unrest throughout history is obvious, and unless we address these issues soon, the world will not be a place of have and have nots, but of the hungry and the fed (no pun intended). The economic consequences of food shortages are also clear. Rising food prices could be the lever that pushes up inflation in a debt-fueled world where even the slightest uptick in interest rates could break the recovery before it takes hold.

Higher food costs might seem counterintuitive in a world where energy prices, closely related to food prices, remain low. Record crops are forecast for the US this year. Food production hotspots are already seeing permanent cost-saving changes: the meat and poultry industry has rapidly automated post-Covid. Global rice and wheat production is also robust, but as Covid crisscrossed the globe countries such as Russia and Thailand curbed exports while food-importing countries stockpiled. 

The problem that is that it is not the overall volume of food that matters, but how it is distributed: normal trade flows have been disrupted by COVID. Economist Amartya Sen's famous study of the Bengal famine concluded that it was lack of information, not availability of food that resulted in distribution chaos and mass starvation in India in 1943. Creating greater efficiency through information technology could be a worthy, attainable goal for the many non-profits dedicated to global nutrition as well as their technology company sponsors. Otherwise, the hunger games could begin, with lethal consequences for the world and the hoped-for economic recovery. 

. (Lyric Hughes Hale discusses the outlook for US-China relations, 7/30/2020 Bay Area Council)

Research from EconVue Friends & Experts

Venezuela: Pandemic and Foreign Intervention in a Collapsing Narcostate
R. Evan Ellis 

As the prospects for democracy fade, COVID-19 has accelerated Venezuela's descent into chaos. Economic implications for the region and beyond, given the intervention of Cuba, Russia, Iran, Turkey and China, are grave.

Aug 22, 2020 / CitywireUK
Wrangling the Grey Rhinos of ESG
Michele Wucker

The risks posed by the climate crisis have been obvious for years.Financial advisers need to help clients get out of the way before it becomes a financial crisis.

Aug 25, 2020 / EconVue
New Home Sales Bounce Up to 14-Year High in July
Michael Lewis

Another day, another upside surprise in housing. Sales of new single-family homes soared nearly +14% in July to 901K units (seasonally-adjusted at annual rate). This was the highest level since the bubble days in 2007 and well above the consensus’ 780K estimate. 

Links

Aug 3, 2020 / Financial Times
We must not wait idly for an elusive Covid-19 vaccine
Richard Feachem

This is what policymakers should be doing: hope for the best, but plan for the worst, learning to live with COVID.

Aug 12, 2020 / Project Syndicate
Dollar Sensationalism
Barry Eichengreen

Even if this really is Europe’s ‘Hamiltonian moment’ ramping up EU issuance by a factor of 20 will take decades. That’s how long Europe will need to create a benchmark asset with the liquidity of US Treasuries.

Aug 14, 2020 / Center for Disease Control and Prevention
Mental Health, Substance Use, and Suicidal Ideation During the COVID-19 Pandemic — United States, June 24–30, 2020
Morbidity and Mortality Weekly Report

The emotional costs of the pandemic: one in four young people in the US (ages 18-24) strongly considered suicide in the past 30 days, according to CDC.

2020 / AEA Journal
The Effects of DNA Databases on the Deterrence and Detection of Offenders
Anne Sofie Tegner Anker, Jennifer L. Doleac,  Rasmus Landersø

Preview: this economic study found that DNA registration reduces recidivism within the following year by up to 42% and increases the likelihood that offenders find employment, enroll in education, and live in a more stable family environment. Registration increased perceived likelihood of crime detection.

Aug 14, 2020 / Bureau of Labor Statistics
Nonfarm business sector labor productivity increased by 7.3 percent in the second quarter of 2020

The biggest gain in US productivity since 2009 - with increasing labor costs. How much of this will stick in the post-COVID environment? Manufacturing productivity on the other hand is down, as companies reduce output but keep workers employed.

Aug 15, 2020 / Medium
Stop Panicking About the Post Office
Nick Harper

Lots of talk but few facts on offer about USPS. This fact-checker article is worth reading. Short take: many of the changes at the Post Office are necessary and were in the works for a while, but timing is everything.

Jul 23, 2020 / The Economist
America’s divided middle

Could Illinois become the Wisconsin of 2020 this November? Events in Chicago this summer could shift “immovable” voters—surely 2016 taught us to never say never. Economics matters, and there can be no job recovery absent basic public security.

Aug 2020 / Federal Reserve Bank of Chicago
Will the Covid-19 Pandemic Lead to Job Reallocation and Persistent Unemployment?
Joel David

Chicago Fed says three years before we’re back to pre-pandemic employment levels.

Aug 18, 2020 / AEI
AEI Housing Market Nowcast Aug 1-14, 2020
Tobias Peter & Edward J. Pinto

Is the US housing boom sustainable? When will inflation kick in? Rising home prices were definitely not a feature of the last recession. New housing numbers today were historically high.

Aug 25, 2020 / South China Morning Post
China Keen to Work with 'US states, local councils and businesses' despite Washington's hostility says Xi Jinping
Frank Tang

Breadbasket diplomacy aimed at critical farming states in the Midwest.

Aug 3, 2020 / Foreign Affairs
Beware the Guns of August - in Asia
Kevin Rudd

August 1914 and Barbara Tuchman's breakthrough book influenced JFK's Cuban Missile Crisis response.  This article by former prime minister of Australia (and Chinese speaker) Kevin Rudd skillfully addresses the question I am asked most often: Are we going to war with China?

Aug 17, 2020 / Financial Times
Why China’s economic recovery from coronavirus is widening the wealth gap
Sun Yu and Yuan Yang

We are living through the greatest natural experiment in economic history. In the US COVID stimulus payments fueled consumption at lower income levels, but in China the wealthy have splurged.

Aug 25, 2020 / The Guardian
Can anyone stop China's vast armada of fishing boats?
Dan Collyns

Ecuador stood up for the Galapagos, but other countries don't stand a chance against the 17,000-strong distant-water fleet.

Crypto

Aug 23, 2020 / IMF News
What Are Cryptocurrencies?

Very good crypto backgrounder video from the IMF.

Aug 13, 2020 / Speech to the Federal Reserve Bank of San Francisco 
An Update on Digital Currencies
Fed Gov. Lael Brainard

Your regular reminder that central bank digital currencies are not equivalent to decentralized cryptocurrencies such as bitcoin, which has appreciated approximately 400% over the past 12 months. 

As the summer draws to a close, we wish rest and repose to sustain you through the balance of 2020. Next month I'll be speaking about the current state of US-China relations at the Asian Studies Program at Georgetown's School of Foreign Service, on September 18th. Register here for this free event, with many thanks to EconVue contributor Eleanor Hughes.