“The current financial crisis in the U.S. is likely to be judged in
retrospect as the most wrenching since the end of the Second World
War.”
— Former Federal Reserve Chair Alan Greenspan, Financial Times, March 17, 2008

Drawing on past-life experience as a financial reporter, I have been
trying to make sense of the crisis now spreading through the U.S.
economy — a debacle brewed up on Wall Street that’s affecting us all.
These are critical issues for the environment, because economic crises
rarely lead to more ecologically benign policies.

Look, for example, at the biofuel boom — our government’s major
response to the recent surge in oil prices. Biofuels have not
significantly reduced oil prices or our carbon footprint, but they have
led to an ongoing surge in agrichemical use.
The biofuel policy has also ramped up food prices at a particularly
precarious time for consumers. In this column, I sketch out a plan that
would ease food prices while also lessening food’s impact on the
environment.

Why is such a plan necessary? Because while U.S. Federal Reserve
officials shuffle around Wall Street with suitcases full of cash trying
to assure finance execs that everything’s all right, things are turning
tense on Main Street. Grocery bills are climbing, gasoline prices set
record after record, and credit cards are maxed out. Meanwhile,
recession looms, signaling stagnant wages and job cuts. According to
BusinessWeek,
consumers carry a stunning $740 billion worth of credit card debt, up
15 percent from five years ago. One of the few engines of job growth,
The New York Times reports, is consumer-debt collection. Ouch.

So what is the federal government doing to ease the burden on
consumers? Beyond the Bush administration’s one-off tax rebate — equal
to less than most people’s monthly mortgage or rent payment — not
much. Recent spikes in food prices can be tied directly to the biofuel
boom engineered by the Bush administration (and supported, to be fair,
by Congressional Democrats, including the leading presidential
contenders). President Bush was recently heard muttering
that “we got to do something” about the spike in food prices caused by
the ethanol boom he engineered. But he has done … nothing.

The Poor Get Poorer … Nutrition

While ethanol producers suck in as much corn as they can, cheered on by
the politicians, consumers are getting squeezed at the grocery line.
Over the past year, we’re paying significantly more for staples like
eggs (up 25 percent), milk (17 percent), cheese (15 percent), bread (12
percent), and rice (13 percent),
The New York Times reports.

Meanwhile, Federal Reserve Chair Ben Bernanke has used his bully pulpit
to cajole banks to be kind to debt-distressed homeowners, but he’s
actually opened his checkbook to ease the plight of banks themselves.
Awash in debt and ravaged by its dubious mortgage investments, the
once-mighty investment bank Bear Stearns recently flirted with
ignominious collapse. But in a dramatic and unprecedented intervention,
the Fed nudged it into the waiting arms of megabank JP Morgan Chase at
a fire-sale price. The Federal Reserve had to agree to take on as much
as $30 billion of Bear’s debt if things sour. That means we taxpayers
take on most of the deal’s risks, while JP Morgan Chase shareholders
stand to rake in any gains.

Bernanke’s other high-profile activity has been to repeatedly slash
interest rates. Low rates ordinarily benefit consumers, but only if
they embolden banks to lend, businesses to invest, and the economy to
expand. As it is, banks remain way too skittish about the mortgage mess
to lend. The Fed’s rate cuts have merely inspired foreign investors to
dump U.S. assets, causing the dollar to plunge. For consumers, a weaker
dollar means higher prices for the imported goods on which we’ve come
to depend — including our biggest import of all, crude oil.

In green circles, rising gasoline prices sometimes cause celebration.
But absent public policies that give people alternatives to the car,
high oil prices do little to curb consumption. Instead, they merely act
as a regressive tax on people trying to get to work — taking money out
of the pockets of people who can afford it the least.

As I’ve written before, a similar logic holds true for industrial food.
Surging corn and soy prices aren’t likely inspiring cash-strapped
people to trade up and shop at the farmers’ market. Rather, food-price
hikes are likely sending most people down the food chain, looking for
the cheapest — and too often least healthy — food possible.

Meanwhile, Bernanke’s tortured quest to save Wall Street from itself is
likely far from over. Not only are untold tainted subprime mortgage
assets still festering on banks’ balance sheets, but that
above-mentioned $740 billion in credit card debt is also haunting the
Street. As with subprime mortgages, the banks spent much of the last
decade essentially bundling credit-card debt into packages and selling
it to each other and to hedge funds at great profit,
BusinessWeek
reports. If cash-strapped consumers start to default, expect more
shrieks from Wall Street — and more Rescue 911 acts from Bernanke.

But there are other ways to respond to these mounting crises than
merely bailing out the banks and letting consumers twist in the wind.

Beyond Bailouts

The first thing I’d do is end the government’s absurd, expensive, and
myriad biofuel subsidies, which are jacking up food prices while
providing little if any environmental benefit. According to one reckoning,
the federal government has committed $92 billion between 2006 and 2012
to prop up biofuel production. Attracted by this government-guaranteed
market, the very same investment banks and hedge funds that brought us
the mortgage debacle are now buying and selling corn and soy futures,
snatching profits while consumers gape at the price of grocery staples.

Pulling the plug would cause grain and soy prices to drop, bringing
down food prices but hurting farmers. To limit the latter effect, the
government could step in and buy excess grain and hold it, replenishing
stocks that have fallen to all-time lows. That would keep farmers in
business while also improving food security.

With the massive savings that would result, the government should
invest in local and regional food-production infrastructure, which has
been systematically dismantled
by agribusiness over the past half-century. Such a program would not
only provide consumers with a ready alternative to industrial food, but
would also re-establish food as an engine for building wealth within
communities — and lessen its ecological footprint.

Finally, the government has to figure out a feasible way to slash
demand for oil, to both shield consumers from rising prices and, well,
avoid climate disaster. The obvious way is to reinvest in an efficient,
functioning national and regional mass transit system. Common wisdom
holds that Americans are too in love with their cars to embrace trains
and buses. As gas prices gallop toward $4 per gallon, that idea looks
increasingly frayed. A recent poll
in North Carolina, a state marked by sprawl and heavy car reliance,
showed large majorities favor public investment in mass transit.

Meanwhile, an American Public Transportation Association study
[PDF] shows that Americans are increasingly using what little public
transportation they have access to. The problem, it seems, is not
consumer desire but rather political will. According to an
extraordinary recent article in
The Washington Post,
the Bush administration’s Department of Transportation has systemically
gutted federal funding for mass transit in favor of
highway-privatization schemes that favor business cronies.

“The number of major new rail and bus projects on track for federal
funding dropped from 48 in 2001 to 17 in 2007, even as transit
ridership hit a 50-year high last year and demand for new service is
soaring,” the
Post writes.

That’s imbecilic. In the context of early 21st century U.S. politics,
gutting harmful biofuel subsidies, reinvesting in local food, and
rebuilding the public-transit system count as radical ideas. They’re
almost completely iced out of the national debate, even during a highly
contested presidential election. Meanwhile, heroic and pricy efforts to
bail out Wall Street seem, for some reason, are perfectly natural.