TIME Economy

Beef Prices Soar To Highest Level Since 1987

The price of beef has reached its highest level in almost three decades, $5.28 per pound in February, and is expected to stay that way for some time amid growing demand in some Asian countries and droughts that have plagued some U.S. farmers

The price of beef has reached its highest level in almost three decades and is expected to stay high in the near future.

Declining cattle supply and increased demand from China and Japan caused the average retail cost of beef to jump to $5.28 a pound in February, the Associated Press reports. That’s almost 25 cents higher than the average cost in January and the highest price since 1987.

Jim Robb, director of the Livestock Marketing Information Center, told the AP that economists expected consumers to look for substitutes for beef as ranchers in Texas and other parts of the country battled droughts while prices rose.

Beef isn’t the only meat getting more expensive. A virus that has killed millions of pigs has caused the price of pork to rise. The average retail cost of chicken has also increased to $1.95 per pound, the highest price since October.

“I think these higher food prices are here to stay, including beef,” Dale Spencer, a rancher and former president of the Nebraska Cattle Association, told the AP.

[AP]

TIME Environment

Wal-Mart Could Make Organic Food Cheap—and Eventually, Plentiful

Customers enter a Wal-Mart store on Feb. 20, 2014 in San Lorenzo, Calif.
Customers enter a Wal-Mart store on Feb. 20, 2014 in San Lorenzo, Calif. Justin Sullivan—Getty Images

The retail giant says it will sell some organic products at 25% below what its competitors cost. That's good for the organic market

If you still think organic food is something for hippies and vegans—and best of all, hippie vegans, though that might be redundant—it’s time to update your cultural stereotypes. This morning Wal-Mart announced that it would begin carrying products from the Wild Oats organic line—and that it would offer the goods at prices that are at least 25% cheaper than their organic competitors. Wal-Mart, the Bentonville behemoth that became the biggest retailer in the world by ruthlessly lowering prices, wants to make organic food cheap. And that could make the organic food market go supernova. “If we can make the price premium disappear, we think it will grow much, much faster,” Jack Sinclair, executive vice president of grocery at Wal-Mart U.S., told reporters.

Organic has already been growing rapidly. Though the category still accounted for just 4% of total U.S. food sales at the beginning of 2012, organic sales rose to 10.2% that year, or $29 billion. A decade earlier, organic sales were just $8 billion. And this rapid growth is occurring even as sales at traditional supermarkets have been slumping. A wide swath of customers are switching to organic food when they can, and chances are even more would make the move if they could afford it: internal research at Wal-Mart found that 91% of its customers would buy “affordable” organic products if they were available. Over at Fortune magazine—another Time Inc. title—the editors are hailing the organic star Whole Foods on the cover of their latest edition:

The Austin-based chain is one of the country’s most successful retailers — its revenue has doubled and profits have tripled since 2007 — defying dismal grocery industry trends by offering consumers a mix of organics, truly delicious prepared foods, and an expanding array of staples under its 365 house brand. Now, having conquered affluent suburbs and trendy urban areas, Whole Foods is out to win over the rest of America.

In the short term, Wal-Mart’s move—which for now will be confined to staples like olive oil and tomato paste—could actually raise prices for some organic foods. That’s because the demand for organics has been outpacing the supply —this year there’s been a shortage of organic milk in many places, and organic egg production has dropped even as demand has increased because the price of the organic feed needed for the hens that lay the eggs has skyrocketed. (The example of milk is instructive: sales of whole organic milk nationwide increased 17% from January through October 2011, compared with the same period in 2010—even as sales of conventional milk over those months fell by 2%.) Under U.S. Agricultural Department rules, it also takes at least three years for farmers to switch from conventional crops to organic ones, so there will likely be a lag.

Still Wal-Mart’s unique, um, talent for getting suppliers to do what it wants will likely ensure that organic supply will rise to meet that growing demand over time, at prices that are less than what consumers have been accustomed to paying. The cognitive dissonance is inevitable—for the hardest-core of organic shoppers, the ones who long ago turned away from conventional groceries because of health and environmental fears, Wal-Mart is up there with Monsanto as a symbol of all that is is evil in the food world. But Wal-Mart has actually been selling organic products for years with a lot of success. And just as the company’s adoption of energy efficiency and renewable energy—while not without problems—has helped push those technologies towards the mainstream, Wal-Mart’s embrace of cheap organic could have a major impact on the American diet and farming. Scale is a hell of a thing.

TIME Economy

Jobless Claims Drop to Lowest Level Since 2007

Construction worker installs storm water drain pipes at a hydrolysis wastewater treatment project in Washington, D.C., March 18, 2014.
Construction worker installs storm water drain pipes at a hydrolysis wastewater treatment project in Washington, D.C., March 18, 2014. Evelyn Hockstein—Polaris

Newly released figures show 300,000 people filed for unemployment claims last week, the lowest level since before the recession, suggesting employers are dismissing fewer workers. But if the job market is going to continue bouncing back, they'll have to start hiring more

The number of people filing for unemployment claims dropped to the lowest level in nearly 7 years last week, as the job market shows signs of rebounding after the recession.

Jobless claims last week fell to 300,000, down 32,000 from a week earlier and the lowest since May 12, 2007, before the onset of the recession, the Labor Department said Friday. The four-week average—a more stable indicator of labor market conditions—was down to 316,250, a drop from 321,00 the week before.

The drop in jobless claims, which surpassed estimates from all 52 economists surveyed by Bloomberg, indicates companies dismissed fewer people and suggests employers that are expecting growth are holding onto workers.

The Labor Department said last week that employers added 192,000 jobs in March, and the unemployment rate remained unchanged at 6.7%.

TIME China

China’s Growing Debt Problem

A new hurdle for the world’s second largest economy

One of the most telling economic events since the financial crisis has gone almost entirely unnoticed. A few weeks ago, China had its first corporate-bond default. The company in question, a solar-energy-equipment firm called Shanghai Chaori, was small, private, highly leveraged and not very important. But the default speaks volumes about the state of the world’s second largest economy. China is in the middle of a debt crisis the likes of which we haven’t seen since the fall of Lehman Brothers. Chaori’s default was tiny by comparison. It couldn’t make a payment on a $163 million bond; Lehman owed $613 billion when it folded. But it’s the tip of an iceberg that is now nearly double the size of China’s GDP. By allowing Chaori to go bust, the Chinese signaled they’re no longer in denial about the problem.

That matters in a country in which statistics are precooked and every economic move, even the run-up in debt itself, is planned. Back in December 2008, I met in Beijing with Jiang Jianqing, the head of ICBC, China’s largest financial institution. He acknowledged that the massive government stimulus program that was put in place to cope with the global slowdown would result in a higher percentage of bad Chinese loans. After all, when Beijing says, “Lend,” state-owned banks ask, “How much?” even if borrowers aren’t creditworthy. China’s biggest banks wrote off more than twice the level of bad loans last year as they did in 2012.

That’s no surprise given the size of China’s debt bubble. Over a year ago, Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management, pointed out that China was pumping out credit faster than any other country. The problem: much of it went into dubious public-sector investment (unneeded rail lines and housing projects) rather than productive private enterprises. Five years ago it took just over a dollar of debt to create a dollar of economic growth in China. Today it takes four dollars of debt to create a dollar of growth. Those are crisis numbers by any standard.

A financial crisis in China isn’t the same as one in the U.S. For one, Chinese debt is almost completely Chinese-owned. A large chunk of it is in the public sector, and the central government, which holds some $4 trillion in reserves, can bail out firms at will. Indeed, as the Conference Board’s China economist Andrew Polk points out, they’ve done that more than 20 times in the past two years, a measure of how long the crisis has been brewing. “It will be difficult for China to have a Lehman moment,” he says, “because China can always find a buyer of last resort somewhere in the state system.”

That sounds good, but it also means China can let its debt crisis fester. That will only make things worse in the long run, increasing moral hazard and slowing economic growth, which may be as low as 5% this year. (That’s down from double digits a few years back.) Worse, the government is already using those figures as a reason to backtrack on its recent promises to reform the economy. Beijing is now talking about more stimulus to keep the country’s growth rate up around the 7% it says is needed to keep unemployment from reaching dangerous levels. China’s leaders fear unemployed masses taking to the streets: historically in the Middle Kingdom, those sorts of events tend to end with people being paraded around and then shot.

Trouble is, the argument that more debt is needed to keep unemployment down no longer holds water. As Sharma points out, every percentage point of GDP growth now creates around 1.7 million new jobs–up from 1.2 million a decade ago. Also, fewer young people are coming into the workforce as the population ages. That means even 5% growth would likely keep the Chinese economy stable. So why isn’t the country doing more to deflate its debt bubble and change its economic model? Because as in the U.S., the political and economic elite have little impetus to change a system that has made them fantastically wealthy.

That’s the real economic risk factor in China right now. While Beijing may allow firms like Chaori, which are not systemically important, to go under in order to convince people that it’s grappling with the debt issues, provincial governments and state-owned companies are still too big to fail. That might not result in a Lehman Brothers moment. But it will make it harder and harder for the country to move to its next stage of economic development, which, given that China has represented about a third of global growth since the 2008 financial crisis, has implications for us all. Will China be a drag or a boon to the global economy? Perhaps more than at any other time since the country began its transition to capitalism some 30 years ago, the answer is as blurry as the air in Beijing.

TIME climate change

Climate Change Is a Game of Risk

Hurricane Sandy flooding effects
Climate change could increase the risk of catastrophic events like Hurricane Sandy Scott Eells/Bloomberg via Getty Images

Climate change is uncertain, which is why the best way to understand how warming will change the world is through the language of risk

Every new chapter of the U.N. Intergovernmental Panel on Climate Change assessment is boiled down into what is known as a policymaker’s summary—a 40-page or so document that is meant to contain the essential conclusions of the panel’s work and be used to guide politicians and the business community as they respond to global warming. Or at least that’s the idea.

Though chapter 2 of the fifth assessment—which was released on Mar. 31 in Yokohama—had no shortage of dire warnings about global warming, including projections that food could become scarcer as temperatures increased, it doesn’t seem as if many policymakers read the policymaker’s summary—let alone the full report, which runs over 1,000 pages. Kate Gordon, the director of the think tank Next Generation’s energy and climate program, noted that no speaker at the Wall Street Journal‘s ECO:nomics conference—a conference devoted to the intersection between the environment and business—actually brought up the issue of global warming until well into the afternoon of the summit’s second day. “Energy prices, energy volatility, future of utilities? Yes,” she wrote. “Climate change? No.”

If climate change is going to matter as a political and economic issue, it needs to be translated into political and economic terms. Out in San Francisco the hedge fund billionaire Tom Steyer is trying to make climate matter for politics, promising to spend tens of millions of dollars in 2014 on attack ads targeting politicians who oppose action on global warming. And Steyer is also involved in an effort to make climate change matter for the business community, teaming up with former New York City Mayor Michael Bloomberg and former Treasury Secretary Hank Paulson on the Risky Business initiative, a wide-ranging project that will eventually produce a major report about the likely economic impact of climate change on U.S. business. “We came to this thinking how do we get to a place and a way of talking about climate change that is comfortable for the business community,” says Gordon, who also serves as the executive director of Risky Business. “And that’s the language of risk.”

Risk—you’ll be hearing that word a lot in the context of climate change. That’s because the best way of thinking about the impact of global warming—and especially the economic impact—is as a risk factor. As the climate warms, sea level will rise, which puts coastal communities—from tens of millions of poor people in Bangladesh to ultra-wealthy Manhattanites—at greater risk of flooding. Warming may also intensify tropical weather, potentially increasing the risk of catastrophic storms like Katrina. If climate change cuts into the yield of crops like wheat or corn—as the latest IPCC report predicts—that could raise the risk of violent conflict in already impoverished countries. Climate change is a risk multiplier.

Putting climate change in the context of risk also gets around the uncertainty inherent in trying to predict the effects of something as fiendishly complex as global warming. Read the IPCC report closely, and you’ll see that there’s a lot of hedging, especially when it comes to the impact that warming temperatures will have on extreme weather. That’s not evidence that global warming doesn’t exists; rather, it’s evidence that climate scientists are honest about what they know and what they don’t know. And it doesn’t give us a free pass—it’s possible that hurricanes might not be responsive to warming, and it’s also possible that warming could supercharge storms. “The very fact of uncertainty—that’s what we mean by risk,” says Hemant Shah, the CEO of Risk Management Solutions (RMS), a catastrophe risk modeling firm that is taking part in the Risky Business initiative.

And this is what’s really important: businesses already know how to deal with risk. They’re accustomed to operating in an uncertain world, and hedging that risk appropriately, whether it’s the threat of natural disaster, war or regulation. By making CEOs see that climate change is just another form of risk—albeit one that’s potentially on a scale larger than any we’ve faced before—the Risky Business initiative will hopefully nudge them towards taking some steps to mitigate that risk. “The question is, what decisions can we make to manage that risk appropriately,” says Shah. “We think this is incredibly important work.”

RMS, which uses complex analytics to model natural catastrophe risk in real time, will provide much of the science behind Risky Business. The company’s analysts will use climate data and models to map out how rising seas, warming temperatures and changing atmospheric patterns could alter the natural disasters that already cost the global economy tens of billions of dollars each year. The result won’t be a single figure—a dollar cost that we can hang on climate change—but it will help us understand the danger we face. The question then is whether we’ll finally listen.

TIME

The Rise of Finance and the Fall of Business

Two of the biggest business news events of the moment—GM’s ignition switch scandal and the hoopla over Michael Lewis’ new book about high frequency traders—actually have roots in the same issue: the financialization of America. This is a topic I’ve been fascinated with for some time. As finance and financial thinking have grown more and more dominant in our business landscape over the last several decades, you are seeing all sort of systemic problems, from the triumph of the bean counters over the engineers at GM to the rise of trading that enriches only the trader, rather than society. I feel strongly that the financialization of American business is leading to short term thinking and a huge variety of problems—everything from the focus on share-buybacks over R & D spending in so many Fortune 500 companies, to the fact that we have a tax code that treats gains from short term trading the same way it does those from long term holdings. I can only conclude that this is a trend that will continue. The latest Bureau of Economic Analysis numbers out earlier this year show that finance as a percentage of our economy is once again creeping back up. NYT columnist Joe Nocera and I discussed this and more on this week’s episode of WNYC’s Money Talking, here:

TIME

Republicans Want Us To Be Europe

Rep. Paul Ryan, chairman of the House Budget Committee, walks with his staff following a meeting on the newest Republican budget for 2015 on Capitol Hill.
Rep. Paul Ryan, chairman of the House Budget Committee, walks with his staff following a meeting on the newest Republican budget for 2015 on Capitol Hill, in Washington, April 2, 2014. Doug Mills—The New York Times/Redux

The party that talks the most about the dangers of America going Continental is the one dead set on making it happen. When it comes to economics, the GOP is the party of croissants and lederhosen

The basic Republican critique of President Obama is that he’s Europeanizing America. In the last campaign, Mitt Romney claimed Obama “takes his inspiration from the capitals of Europe.” Paul Ryan warned “we will turn out just like Europe if we stick with European policies.” Europe’s continuing economic stagnation—12 percent unemployment, near deflation, tepid growth—is certainly an unattractive model for the United States. You can see why conservative cartoonists like to draw Obama in a beret.

But the policies that created the mess in Europe are not Obama’s policies. They are the policies—especially tight money and fiscal austerity—that Republicans have pushed for America. And where economics is concerned, the GOP is still the party of croissants and lederhosen.

The big news in Europe this week was inflation dropping to 0.5 percent, which might sound like good news but isn’t. Yes, too much inflation can be bad, shaking confidence in currencies, hurting the purchasing power of workers and seniors with fixed incomes. But the European Central Bank has an inflation target of nearly 2 percent, and persistent “lowflation,” with a nagging risk of deflation, is exactly what the continent doesn’t need after a severe financial crisis and a brutal recession. It’s terrible for families (and governments) with debts. And it’s increasing the value of the euro, which hurts European exporters and discourages investment. As I’ve tried to explain, in tough times, a little inflation can be a good thing.

The problem is that the ECB—under pressure from the inflation-phobic Germans on its board—has kept its monetary policy much too tight. The Federal Reserve lowered its key interest rate to zero in December 2008 and has kept it there ever since; more than five years later, the ECB still hasn’t quite gotten to zero. The Fed has also engaged in three rounds of “quantitative easing,” buying bonds to try to juice the economy; the ECB has not yet tried monetary stimulus. Inflation in the U.S. is only 1.1 percent, below the Fed’s target, but at least former Fed chair Ben Bernanke and current chair Janet Yellen have tried to do something about it.

Republicans have fought them every step of the way. They have accused the Fed of “debasing the currency,” of fueling the next bubble by printing money, of trying to turn the U.S. into Zimbabwe. In 2011, the top four congressional Republicans wrote Bernanke to demand an end to quantitative easing. Most Senate Republicans opposed Yellen’s nomination, arguing that the Fed has kept monetary policy too much, that it has focused too much on creating jobs and not enough on squelching inflation. The Fed has a statutory “dual mandate” to maximize employment and stabilize prices, but congressional Republicans, led by Paul Ryan, have called for the elimination of the employment requirement, so it would focus solely on inflation.

In other words, they want the Fed to be like the ECB.

Fortunately, they have been mostly unsuccessful. The Fed has begun to “taper” its monetary stimulus, but the inflation hawks on the Fed board have been consistently outvoted. That’s one reason our inflation rate is more than twice as high as Europe’s, although it’s still too low, and our unemployment rate is nearly half as low as Europe’s, although it’s still too high.

The other main drag on European growth has been overly tight fiscal policy. After a short burst of countercyclical stimulus following the financial meltdown in 2008, Europe has embraced fiscal austerity, pushing spending cuts and balanced budgets throughout the continent. This has inspired riots, killed jobs, and depressed growth in countries like Greece and Spain, which now have jobless rates over 25 percent. The United Kingdom’s austerity after David Cameron became prime minister in 2010 turned a promising recovery into a double-dip recession.

Again, the contrast with the United States is instructive. President Obama’s $800 billion Recovery Act—sorry, I’m a stimulus bore—was the largest fiscal stimulus in history, a big reason the Great Recession ended just four months later. Obama passed more than $1 trillion in additional stimulus in 2009 and 2010, a big reason U.S. economic output is now 6 percent above its pre-crisis level, while most European countries have yet to return to their pre-crisis GDP. When private demand disappears, government needs to fill the gap.

And again, Republicans have been pushing for us to be more like Europe, railing against stimulus, demanding draconian budget cuts that suck money out of the economy. Only three Republicans in Congress voted for the Recovery Act. Republicans have bitterly fought unemployment benefits, small business tax cuts, and other stimulus measures they used to support. They even threatened to force the U.S. government into default if Obama didn’t agree to massive spending cuts; overall, cutbacks in local, state, and federal spending have reduced GDP by about 1 percent a year since the Republicans took back the House of Representatives. President Obama has pushed for the American Jobs Act, new research and infrastructure spending, and other stimulus measures, but Republicans have insisted on austerity. That’s why U.S. growth has been mediocre instead of strong.

Still, it’s been better than Europe’s growth, mainly because the U.S. has done more monetary stimulus and more fiscal stimulus. We also had a more aggressive response to our financial crisis, recapitalizing our financial system through government interventions like the $700 billion TARP; the Europeans never did a TARP, one reason its banking system is in much worse shape than ours, providing much less support to the broader economy. It almost goes without saying that most Republicans voted against TARP. And Ryan’s latest budget would make it even harder for government officials to intervene in future financial crises.

None of this seems to infiltrate media coverage. Republicans don’t like universal health insurance or welfare, so they’re seen as “anti-European.” When Republicans like Senator Orrin Hatch say that “President Obama basically would like us to be Europe,” nobody questions them. But the Europeanization of the GOP continues. The Europeanization of America, on the other hand, hasn’t happened, because the party that always talks about it is still in the minority.

TIME Syria

Syria’s Economy Will Take At Least 30 Years to Recover, Says the U.N.

An elderly Syrian man and a child walk amidst debris in a residential block reportedly hit by an explosives-filled barrel dropped by a government forces helicopter on March 18, 2014 in Aleppo.
An elderly Syrian man and a child walk amidst debris in a residential block reportedly hit by an explosives-filled barrel dropped by a government forces helicopter on March 18, 2014 in Aleppo. Baraa Al-Halabi—AFP/Getty Images

Even if the Syrian conflict were to end today, it would take decades to rebuild the economy to pre-war standards, according to a new report. Some experts say the devastation has reached World War II levels

To many, the cost of war is immeasurable. How is it possible to assess the value of lives lost, of broken health, of destroyed and dislocated families? Assessing the economic impact, however, is an easier undertaking. It is quantified in lost productivity, declining GDP, and, in the case of Syria, a bitter prognosis about the amount of time it will take to recover from a three-year war that has already claimed 150,000 lives. A recent report from the United Nations Relief and Works Agency estimates that it will take decades for Syria to recoup the cost of war. “Even if the conflict ceased now and GDP grew at an average rate of five per cent each year, it is estimated that it would take the Syrian economy 30 years to return to the economic level of 2010,” says the report, calling the situation an “economic catastrophe.” The survey, conducted by UNRWA’s microfinance department, focused mostly on the impact the war has had on the organization’s 8000 client borrowers in Syria, so it tends to skew towards the lower rungs of the country’s economic spectrum. Still, as a window into the financial status of small businesses in a country where accurate polling is hard to come by, it offers a bleak assessment of Syria’s future.

More than two-thirds of UNRWA’s clients had fled their homes by June 2013, according to the survey, and only 13% of their businesses were still functioning. Overall, notes the report, citing the most recent economic data available, Syria’s economy lost a total of $84.4 billion during the first two years of the war alone, and 2.33 million jobs. As a result, half the workforce is unemployed and more than half the population is living in poverty. “The current crisis in Syria is the deepest and most destructive of people’s lives and livelihoods that the program has encountered over the past two decades,” says the report. UNRWA’s micro-finance agency should know: previous projects were based in the economic swamps of Gaza and the West Bank.

Capital flight, de-industrialization, looting and destruction of Syrian factories and businesses both large and small has seen GDP contract more than 30% each quarter of the last fiscal year, an unprecedented economic chute, says Jihad Yazigi, editor the online economic digest The Syria Report. “You can’t even compare the destruction in Syria to Lebanon’s civil war, or Bosnia. This is on the level of World War II. We are seeing a reversal of decades of economic development, and I don’t know how, if ever, Syria will recover.” He says that the UNRWA assessment is optimistic. “It could take 40 to 50 years to recover.”

Either way, the economic toll will not be limited to Syria alone. There are more than 2.5 million Syrian refugees in neighboring Lebanon, Jordan, Iraq and Turkey, and even though international aid agencies help host countries, it is rarely enough to make up for the infrastructural burdens. And the refugees are likely to remain in place until they have something worthwhile to go back to, which could take years. “How are we going to get these people back to their villages in Syria, to rebuild what has been destroyed?” asks Sami Nader, an economist and professor at Lebanon’s St. Joseph University. “All the factories are destroyed; where will they work?” According to the United Nations, there are now more than one million Syrian refugees registered in Lebanon, making up a quarter of the country’s population. Lebanon’s own economy, beset by insecurity and political volatility, was already on the verge of bankruptcy, says Nader. “This Syria situation could just push us over the edge.” The cost of war isn’t just immeasurable. It doesn’t know borders, either.

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