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Food insecurity in turn can spark, intensify, or perpetuate violent conflicts. While food insecurity alone is not likely to cause violent conflicts, it can become a decisive factor in increasing social grievances, in combination with socio-economic and political inequalities. In consequence, certain social segments of the population (particularly youth) become excluded from economic activities and participation in political decision-making processes, which can ultimately fuel civil unrest or conflicts (Hendrix and Brinkman, 2013). Thus, in post-war reconstruction situations, the rapid achievement of food security for large parts of the population is essential to lay the basis for establishing sustainable peace and to prevent relapse into violence. Besides these structural conditions, rising food prices have been found to decisively exacerbate the risk of political unrest and conflicts, particularly in urban settings. Across Africa, there is a strong correlation between rising food prices, increasing unrest, and increasing political repression (Berazneva and Lee, 2013). For example, wheat price fluctuation became a root cause of conflict events in Sudan in 2011 (Chen et al., 2018). The dominant explanation for the vicious circle of food prices and violent conflict is consumer grievances. Higher food prices create or increase economic constraints and/or sentiments of (perceived) relative deprivation, which activate grievances that, in turn, can lead to riots and unrests, whereas—vice versa—the outbreak of violence entails the likelihood of increasing food prices again (Raleigh et al., 2015). These grievances can be directed against the government if it fails to secure food for the population in the face of rising global food prices.

Modern conflicts are almost never driven by a single cause. Food insecurity is often referred to as “the straw that breaks the camel’s back” or a “threat multiplier” in conflict events. It is true that food insecurity alone is often not enough to produce conflict; it must also be met with external motivators that cause people to resort to violence, and is strongly determined by the underlying social, political, and economic context. Those motivators can be captured in three interrelated concepts: desperation, grievance, and governance. Often, the strongest motivator for participation in conflict is economics. This is sometimes referred to as the opportunity cost thesis, which states that when incomes are low and expected returns from fighting outweigh the benefits of traditional economic activity, one’s motivation to join a militia or rebellion increases. Researchers refer to this motivator as greed, a reference to the material benefits—even extreme wealth—often anticipated by groups staging rebellion. In the case of recruitment of food insecure populations to extremist movements, though, it is not one’s desire for wealth but one’s inability to meet their basic needs that is exploited. This is not greed, but desperation. In interviews with former al Shabaab fighters in Somalia, socioeconomic conditions were the most common motivator for joining. The authors of that study, Anneli Botha and Mahdi Abdile, spoke to one fighter who explained that he and his friends were lured with promises of a mobile phone and $50 a month upon joining. Other terrorist organizations have employed similar recruitment tactics. The Islamic State, for example, offered refugees food and cash payments of up to $1,000 to join, and Boko Haram has been shown to provide meals and loans to prospective recruits. In many settings, violent extremist organizations are also known to capture the means of food production or agricultural resources in order to fuel their rebellion. Food insecurity can raise the cost of mounting an insurgency, leading to the victimization of people who produce and hold food. Violence against civilians, in other words, can be a resource mobilization strategy. The second category of motivation is grievance. One major criticism of the opportunity cost framework (i.e., individual greed or desperation) is its inattention to the collective action required for widespread rebellion. Although it is true that individuals are motivated to engage in violence due to unemployment, wage losses, and rising costs of living (including food costs), collective agency—or a force that brings people together—is also required for higher levels of violence. Food price riots are a good example of this grievance-based phenomenon, with high food prices (especially for foods of cultural importance) fueling frustration and mistrust that cuts across class and ethnic groups. Grievance, of course, can also be divisive. In grievance-motived instability involving food, food insecurity is often the straw that breaks the camel’s back and causes societies to cleave along preestablished lines over perceived or real inequalities or discrimination. Finally, food-related instability is made more likely through poor governance. The inability of a government to ensure an adequate food supply for its people can lead to questions over a government’s legitimacy and ability to fulfill its people’s most basic needs. In a 2017 report by the UN Development Program, the authors note that 71 percent of voluntary recruits (to extremist groups) identified government action as the final trigger that motivated them to join the organization. Limited government capacity to provide services or policing can create a “vacuum effect,” which is a dynamic that provides an opening for rebel groups to offer an alternative and suggest that they themselves could provide those basic services to people.

If the U.S. economy were to collapse, you would likely lose access to credit. Banks would close. Demand would outstrip supply of food, gas, and other necessities. If the collapse affected local governments and utilities, then water and electricity might no longer be available. A U.S. economic collapse would create global panic. Demand for the dollar and U.S. Treasurys would plummet. Interest rates would skyrocket. Investors would rush to other currencies, such as the yuan, euro, or even gold. It would create not just inflation, but hyperinflation, as the dollar would lose value to other currencies. If you want to understand what life would look like during an economic collapse, think back to the Great Depression. The stock market crashed on Black Thursday.3 By the following Tuesday, it was down 25%. Many investors lost their life savings that weekend. By 1932, one out of four Americans was unemployed.4 Wages for those who still had jobs fell precipitously—manufacturing wages dropped 32% from 1929 to 1932.5 U.S. gross domestic product was cut nearly in half. Thousands of farmers and other unemployed workers moved to California and elsewhere in search of work. Two-and-a-half million people left the Midwestern Dust Bowl states.6

Mr. Cochrane believes that “we overstate the Fed’s power” to respond: “The Fed likes to say it has ‘the tools’ to contain inflation, but never dares to say just what those tools are.” In recent historical experience, “its tool is to replay 1980,” the year when inflation peaked at 14.8%. That means “20% interest rates, a bruising recession that hurts the disadvantaged, with the medicine applied for as long as it takes. Will our Fed really do that? Will our Congress let our Fed do that?”

In any case, Mr. Cochrane says, raising rates is a “crude tool to fight inflation, especially when the source is fiscal policy.” He likens the situation to a car going too fast. “Fiscal policy is the accelerator; monetary policy controls the oil. OK, if fiscal policy has floored it, you can slow the car down by draining oil, but that’s not a terribly good way to drive.” Fiscal policy sends checks, stoking inflation; monetary policy raises interest rates to discourage borrowing or encourage savers to hold the extra Treasury debt. To change the analogy slightly, the driver is accelerating and braking at the same time.

In Public Policy Brief No. 79, L. Randall Wray wrote about the Federal Reserve’s recent interest rate hikes that “the most charitable interpretation of the Fed’s policy change is that it appears to be premature.” Wray marshaled a convincing array of data on payrolls, employment-to-population ratios, and other labor market indicators to show “that the current recovery has not yet attained the degree of labor market tightness that was common in previous recoveries,” and therefore that the threat of inflation was minimal. Hence, the Fed, in raising rates, was unnecessarily jeopardizing the economy’s weak recovery. In this new brief, we learn about the flaws in the Fed’s thinking that have led to its frequent policy mistakes. Wray traces several strands of current central bank thinking back to their roots in the Fed’s internal discussions in the mid-1990s. Transcripts of these discussions have recently been released, a development that has yielded some disturbing and telling insights about the way in which monetary policy is formed. The situation of 1994 closely parallels that of current times. Unemployment was clearly above its lowest sustainable level, and inflation was low. Still, the Federal Open Market Committee (FOMC) and its chairman, Alan Greenspan, believed that interest rates had to be raised to keep prices in check. As it turned out, inflation stayed low, even as unemployment sank to levels previously believed to be inflationary. The Fed’s interest rate hikes proved to be unnecessary at best and counterproductive at worst. Not only is the current economic environment reminiscent of 1994, but so are contemporary justifications for recessionary policies. Wray lists six tenets of policy making common to both periods: transparency, gradualism, activism, low inflation as the only official goal, surreptitious targeting of distributional variables, and the neutral rate as the policy instrument to achieve these goals. The Fed would not be eager to espouse some of these principles publicly, but they were all discussed in committee meetings, as the recently released transcripts make clear—and there is no reason to think the Fed has changed its philosophy. Wray shows that this philosophy is convoluted. Fed officials claim that they are attempting to reach a neutral interest rate that neither provokes inflation nor causes recession. But they also say that they will not know the level of the neutral rate until they reach it. Little can be gained by pursuing such a chimerical goal. Moreover, even when the interest rate was far below its supposedly neutral level, the economy seemed to be free of inflation. Finally, the Fed seems to have painted itself into a corner by promising in advance a gradual series of interest rate increases. It is small wonder that the press finds the Fed’s public statements to be somewhat confusing and cryptic. The Fed transcripts shed light on the events of 1994 and those of the present day. I think that it is time for a new approach to monetary policy; this brief shows why.

Many experts predict the Fed's aggressive rate hikes will send us into a recession: a shrinking rather than a growing economy. The Fed acknowledges the adverse effects and potential risks of this restrictive monetary policy. And at this point, a recession seems unavoidable.

"I see the likelihood of a recession at 70% right now," said Derek Delaney, certified financial planner and founder of PharmD Financial Planning, in March. If unemployment goes up, a recession could come sooner -- but what happens next with inflation will play a key role in the likelihood and magnitude of a recession.

Higher market interest rates can have a negative impact on the stock market. When Fed rate hikes make borrowing money more expensive, the cost of doing business rises for public (and private) companies. Over time, higher costs and less business could mean lower revenues and earnings for public firms, potentially impacting their growth rate and their stock values.

“If the cost of borrowing money from a bank increases, the opportunity to expand investment in capital goods by a corporation stalls,” says Dan Chan, a Silicon Valley investor and a former pre-IPO employee of PayPal. “The interest rate may be so high that many companies will not be able to afford to grow.”

If rising prices for essentials is eating into your budget more than normal, you probably aren’t putting as much money into a savings account. A June 2022 Forbes Advisor-Ipsos survey found that 42% of respondents were saving less money than usual.

“Inflation makes all of our income and savings less valuable,” says Todd Steen, professor of economics at Hope College in Holland, Michigan.

The most obvious impact of inflation is that it hurts your purchasing power. If you can’t buy as many goods and services as you did before inflation, your quality of living will eventually diminish.

“Essentials will take precedence over non-essentials as everyone tries to stretch the purchase side of their budget,” says Angelo DeCandia, a professor of business at Touro University. “Think more money spent on groceries and gasoline, and less spent on travel and entertainment.”

Cleveland Federal Reserve, "Why Does the Fed Care Start," Federal Reserve, xx-xx-2023, https://www.clevelandfed.org/en/center-for-inflation-research/inflation-101/why-does-the-fed-care-start-- 嘉玮

Some countries have experienced such high inflation rates that their money became worthless. Imagine going to the store with boxes full of money and not being able to buy anything with it because prices have gotten so high! At such high inflation rates, the economy tends to break down.

Brian Swint, "The Inflation Report Brought Good News. Why It May Not Last.," Barron’s, 7-13-2023, https://www.barrons.com/articles/what-to-know-today-fc7ede-- 嘉玮

The slowest inflation in more than two years is undoubtedly good news.

Ann Saphir and Michael S. Derby, "Fed closing in on end of rate hiking cycle, central bank officials say," Reuters, 07-10-2023, https://www.reuters.com/markets/rates-bonds/fed-is-close-end-rate-hiking-cycle-central-bank-officials-say-2023-07-10/-- 嘉玮

July 10 (Reuters) - The Federal Reserve will likely need to raise interest rates further to bring down inflation that is still too high, but the end to its current monetary policy tightening cycle is getting close, several U.S. central bank officials said on Monday.

Reade Pickert and Augusta Saraiva, "Inflation at 3% Flags End of Emergency, Turning Point for Fed," Bloomberg, 7-12-2023, https://webcache.googleusercontent.com/search?q=cache:https://www.bloomberg.com/news/articles/2023-07-12/inflation-at-3-flags-end-of-emergency-turning-point-for-fed-- 嘉玮

The US inflation rate slid to a more than two-year low, a major step toward ending the cost-of-living emergency — and possibly the Federal Reserve’s historic monetary tightening, too.

Seher Dareen, "Gold hits 4-week peak as Fed seen nearing end of rate hikes," Reuters, 7-13-2023, https://www.reuters.com/markets/commodities/gold-holds-steady-hopes-fed-nearing-end-rate-hikes-2023-07-13/-- 嘉玮

With two weeks left before the Fed's next meeting, and data showing fewer jobs being added and inflation slowing in June, there are expectations that the next rate hike could be the last, Carlo Alberto De Casa, external analyst at Kinesis Money, said.

Max Zahn, "Inflation cooled significantly in June, bringing price hikes close to normal levels," ABC News, 7-12-2023, https://abcnews.go.com/US/inflation-data-expected-show-significant-slowdown-price-increases/story?id=101005809-- 嘉玮

Consumer prices rose 3% last month compared to a year ago, marking a significant slowdown and raising hopes that a prolonged bout of heightened inflation is nearing its end.

Jeff Cox, “Fed sees more rate hikes ahead, but at a slower pace, meeting minutes show,” CNBC, 07-05-2023, https://www.cnbc.com/2023/07/05/fed-minutes-july-2023-.html-- 嘉玮

Almost all Federal Reserve officials at their June meeting indicated further tightening is likely, if at a slower pace than the rapid-fire rate increases that had characterized monetary policy since early 2022, according to minutes released Wednesday.

But our growing national debt threatens America’s leadership  —  our ability to adequately achieve our global objectives and protect our national interest. Unsustainable fiscal deficits restrict and weaken our hand when dealing with virtually every one of the serious global challenges we face.

The fact is, our nation’s fiscal health and our national security are inextricably intertwined, and we cannot wait to take action against this growing threat. We need to act now.

The next U.S. administration will likely face a global debt crisis that could dwarf what the world experienced in 2008-2009. To prevent the worst, it will need to address the burdensome debt plaguing both the United States and the global economy.

Even before the COVID-19 pandemic paralyzed economies around the world, economists were warning about unsustainable debt in many countries. Take the United States: A surge in spending to mitigate the health and economic impacts of the pandemic has brought the total public debt in the United States to over 100 percent of GDP—its highest level since 1946 and a hurdle that will create a considerable drag on future economic growth. Other types of debt—household, auto, and student loans, as well as credit card debt—have seen similar surges. Almost 20 percent of U.S. corporations have become zombie companies that are unable to generate enough cash flow to service even the interest on their debt, and only survive thanks to continued loans and bailouts.

The conclusions drawn by MMT are overstated: Even a temporary monetised fiscal stimulus could trigger expectations, especially from the government, that a one-time use could easily become permanent. In turn, a permanent recourse to monetary issuance would lead to a flight from currency and to hyperinflation. MMT’s claim that government spending is only constrained by the “inflationary” ceiling, which binds when all productive resources are fully employed (Mitchell, 2020), is incomplete. MMT does not address the opportunity costs and distributional consequences of the monetisation of deficits by the central bank, e.g. its impact on asset prices, that may affect both the demand and the supply side of the economy and therefore the inflation constraint, even before full employment is reached. MMT argues that the normal interest rate for government debt should be very low or even zero. This assumption begs the question of the plausibility of interest rates permanently below the growth rate of the economy. A government deficit may lead to an increase in longer-term interest rates (Lavoie, 2019; Palley, 2019b) if financial markets expect high future inflation well before full employment has been reached. If the debt is not willingly absorbed by the market, the recourse by the government to financial repression would not prevent interest rates rising in private credit markets with adverse consequences in terms of monetary and financial stability. The assumption that a sovereign currency issuer will not default on a debt issued in its currency because the central bank can always print the money needed to service and repay this debt is overstated (Buiter and Mann, 2019; Ocampo, 2020; Palley, 2019b). MMTers believe that fiscal policy is much more effective than monetary policy at managing aggregate demand. Therefore, fiscal policy should be adjusted when necessary to maintain full employment and moderate inflation while monetary policy should passively support the financing of the fiscal deficit by printing money and keeping interest rates at very low, near-zero levels. A major criticism that can be addressed to MMT is that its proponents are unable to prove their claims given the lack of formal modelling. In line with this criticism, the following appraisal reviews MMT’s key assumptions on inflation, monetary policy, fiscal policy and their (lack of) feedback. According to Palley (2019b), MMT is especially dismissive of the problem of inflation and lacks a doctrine. For instance, Wray (2019) writes: “Fortunately – or unfortunately depending on one’s view – modern economies usually operate with sufficient slack that even large boosts to aggregate demand are not likely to put much pressure on wages and prices. Our critics continue to fight an inflation battle that was won almost two generations ago”

In a recent post for the Slow Boring blog, Simon Bazelon and Milan Singh argue that raising taxes can be an effective way to reduce inflation. Unlike their criticisms of using interest rate policy to lower inflation (which are broadly correct), their proposal to raise taxes is unlikely to work in the manner they describe. In fact, it may even have the opposite of its intended effect. To begin with, economists generally consider monetary policy to be more effective at fighting inflation than fiscal policy, which includes tax policy. Fiscal policy tends to be slow and inefficient, and too often it just redistributes money from one sector of the economy to another without greatly affecting aggregate demand. This explains why economists such as Valerie Ramie have found that government spending multipliers tend to be less than one in normal times (which means that one dollar of government spending increases GDP by less than one dollar). Monetary policy works much better for fighting inflation, but the mechanism by which it works is often misunderstood. Bazelon and Singh are correct when they argue that interest rate policy, which is one aspect of monetary policy, is an inefficient way to reduce inflation. They point to a chart that claims to explain how interest rate hikes lead to tighter credit conditions, to lower spending for borrowers, and—ultimately—to lower prices. The authors claim that the mechanisms outlined in the chart are too complicated to work cleanly. The problems with using interest rates to curb inflation are more serious than this, however. While it is true that higher interest rates are bad for borrowers and that they often curb borrowers’ spending, higher rates also increase income and spending for savers. As with taxes, changes in interest rates in and of themselves do little to affect aggregate demand. Instead, they redistribute wealth and income from one group of people to another—in this case, between borrowers and savers. As the economist Scott Sumner has pointed out, interest rates are not a good reflection of the stance of monetary policy. In fact, the Federal Reserve is largely a follower—rather than a setter—of interest rates. It responds to market signals by helping guide interest rates closer to where the market determines they should be based on the supply and demand for credit. This does not mean that monetary policy is ineffective at fighting inflation. Instead, monetary policy affects aggregate demand by influencing the quantity of money in the economy. Total spending falls temporarily in response to a drop in the money supply. Output decreases as well, since prices adjust only after a lag. (Ideally, this process is carefully managed so that output growth merely slows and there is no full-blown recession.) Bazelon and Singh propose tax policy as an alternative to interest rate policy, but tax policy is unlikely to be very effective in this role. Tax policy primarily affects the supply side of the economy. A substantial tax increase reduces firms’ incentive to produce, thereby reducing the supply of goods and services in the economy relative to the quantity of money. In such a situation, prices would naturally go up—exactly the opposite of Bazelon and Singh’s desired outcome. Strangely, the authors recognize the productivity-enhancing benefits of other supply-side measures, such as zoning and permitting reforms. But they don’t recognize the productivity benefits of tax cuts. If policymakers want prices to fall, cutting taxes is the natural policy response, not raising them. However, even if the government implemented large tax cuts, we shouldn’t expect a very long-lasting effect on inflation. Inflation is the rate of change in prices. Changes in taxes, meanwhile, affect the level of taxation. It follows that tax changes are more likely to have level effects on prices than rate of change effects. By contrast, changes in the money growth rate in the economy are much more likely to affect the growth rate of prices (i.e., the inflation rate). The variable to target to bring down inflation is the rate of change in money growth. Interestingly, money growth has been falling in recent months and has even turned negative. Don’t be surprised if inflation starts to fall with it. Bazelon and Singh seem to be attracted to the Modern Monetary Theory idea that revenue from higher taxes can be “sucked” out of the economy, thereby reducing the money supply and lowering inflation. While such a situation is conceivable, it is most likely to occur if new revenue is used to reduce the federal debt. Since Treasurys are close substitutes for money, reducing the supply of Treasury bills is similar to (though not exactly the same as) reducing the money supply. It is unclear whether earmarking new revenues toward paying down the debt is what the authors have in mind. They do mention a possible grand bargain that involves reducing the deficit, which could be a good idea. If this is not the goal, however, and if the new revenue is instead intended to be spent by Congress with no change to borrowing, there is no reason to believe that raising taxes would reduce inflation. All told, hiking tax rates to fight inflation doesn’t make much sense from an economic point of view. It would be far better for policymakers to rein in excess aggregate demand through sensible monetary policy. That’s a much more direct and simple approach. Such macroeconomic management is not without its challenges, to be sure, but at least it’s based on sound economic thinking.