Nugget: Jeremy Grantham Quarterly Letter – Resource Limitations 2

Read the complete letter (Grantham July 2011-1)

“The Devil and the Farmer
The Devil, disguised as an innocent agent of a large agricultural company, arrives at a typical Midwestern farm. He has come to suggest to the farmer that he engage in more aggressive farming, and he comes, as usual, with a contract. The contract, if signed, pledges the farmer to farm aggressively and pledges the Devil to guarantee that the farmer’s profits will be multiplied five-fold. But, as always, there is a catch: Footnote 23 is a clause that informs the farmer that squeezing out maximum short-term output will result in the loss of just 1% per year of his soil. The Devil’s deal is dangerously reasonable, and therefore I would guess that 90% of farmers would feel that their families’ well-being requires that they accept it. The Devil has included a spreadsheet that accurately lays out the profi ts and also lays out the steady decline in the soil’s productivity and, fiendishly, does it honestly. By the end of the 40-year contract, the farm’s productivity is down by barely 5%, and the farmer’s net fi nancial gains are enormous. So successful has this period been that the farmer re-ups for another 40 years. Once again, the Devil does not cheat.
By the 80-year mark, the soil depth after some natural replacement is almost precisely half of its year 1 level (and, remember, it also lost one-third to one-half of its soil on average in the fi rst 150 years of farming), but the farm has prospered enormously. And, even after the soil loss, it is still by no means particularly sub-average because it turns out that all of the local farmers have made the same deal. All of their productivities have dropped by 20% to 25% but, because of global pressures on grain prices, the deal still looks attractive. The spreadsheets, which have not lied in the past, still accurately and honestly show how profi table it will be for great-grandson and all of his neighbors to re-up yet again. In this way, by always adopting the plan with the optimal present value and by following strict capitalist principles, the Midwest and the planet marches off the edge of the cliff, as farmers, prosperous almost to the very end, are finally So overwhelmed by armies of starving city dwellers!”

Read also “Loosing Ground” by the Environmental Working Group of Iowa State University

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