The world economy is actually in excellent health, notwithstanding occasional warts. The price of oil is near US$100 a barrel because the strongest economic growth I have seen in my lifetime is lifting all commodity prices. The high price constitutes a welcome market warning to consumers to slow consumption, and to producers to increase exploration. Credit markets are okay in most of Asia and Africa. They have been roiled in the U.S. and Europe by the sub-prime mortgage problem. An excellent market invention (securitization of loans) made it possible for poor people to get home loans earlier denied to them. The defaults arising from excessive adventurousness on the part of banks constitute a modest social price for increasing financial access to the poor. The penalty for excesses has been paid by those most culpable, who have the deepest pockets. The U.S. may indeed be slipping into a mild recession, but that is an overdue warning from markets that living beyond your means is not feasible forever, and that Americans need to curb their consumption.

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The Current Discussion: In the future, global prosperity will present more of a threat than poverty, according to a recent Post op-ed. Is this just rich-American rhetoric, or is the world really getting too prosperous for its own good?

Will prosperity be more of a threat than poverty in the future? If GDP keeps rising the world over as it has in recent years, poverty will virtually disappear by any absolute yardstick (like the World Bank’s benchmark of consumption per capita of $1 per day in PPP, or purchasing power parity, terms) in, say, 50 years. For most countries, however, poverty has become a relative concept, not an absolute one. Countries have a habit of constantly adjusting the poverty line upwards as they get richer. The U.S. poverty line is $10,400 per year for an individual, against just US$200 per year in India. So by Indian standards, the American “poor” are fabulously well off. Yet the concern of Americans about their “poor” is as genuine and strong as it is in India.

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The Current Discussion: If countries around the world are doing so well economically, why are they still catching a cold when the United States sneezes?

Countries around the world have been doing very well precisely because globalization has greatly strengthened economic opportunities and linkages across countries. Even African countries, which grew at no more than 2.4% (lower than population growth) in the 1980s and 1990s, have averaged almost 6% growth per year in the last four years. A rising global tide has lifted all boats. The U.S. has contributed much to that rising tide, but so have many others (notably China and India).

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George Bush and the greens, usually foes, have joined forces to create a food shortage that today threatens millions in poor countries with hunger and starvation.

Greens have long demonized the consumption of petroleum and genetically modified foods, and crusaded against carbon. To this fatal broth, Bush has added the notion of energy independence for the US, backed by enormous subsidies and mandatory targets for converting corn to alcohol. This policy aims at doubling use of corn-based alcohol in gasoline by 2008, and quintupling it by 2022. Europe has mandated 10% use of biofuels in transport by 2020.

The result is a rising diversion of agricultural land from food to fuels. This has happened just as fast economic growth has lifted the demand for meat in many developing countries, and it takes several tons of grain to produce one ton of meat. Combined with two successive droughts in Australia, this has caused a modest shortfall in food availability. But food demand is so inelastic that even a small shortfall sends prices shooting up. Other than Brazil, few countries can quickly bring additional arable land under cultivation -- all the best land has long been harnessed, and only marginal lands are uncultivated. And the green agitation against genetically modified foods, backed by many European governments, has discouraged developing countries from planting high-yielding modified varieties, for fear of economic sanctions.

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