economic sense

Occupy Cargill. What?

2012-01-22T13:51:00.000-08:00

From:

http://understory.ran.org/2012/01/21/breaking-%E2%80%9Coccupy-cargill%E2%80%9D-activists-stage-citizen%E2%80%99s-arrest-on-cargill-inc/

"Multiple speakers at the rally railed against Cargill's corporate personhood and its extensive lobbying of governments for free trade policies that benefit its profits at the expense of people and planet."

We know that modern supply chains made possible by companies like Cargill actually help reduce our carbon footprint and in many cases outperform more energy intense 'local' supply chains. ( http://economicsprinciplesandapplications.blogspot.com/2011/05/food-miles-kowalskis-and-that-steak-on.html ) . One thing that Cargill excels at is making markets, matching U.S. agricultural products to overseas markets. This is incredibly valuable considering the importance of international trade to the 98% of all U.S. farms that are family farms. According to the USDA:

U.S. agriculture looks overseas to expand sales and boost incomes. Exports also generate additional economic activity that ripples through the domestic economy.
Expanding existing market access and opening new markets under future trade agreements will significantly boost U.S. agricultural export sales.
The President's FY2011 budget provides increased discretionary spending of $54 million to enhance USDA's export promotion activities.
Compared to the overall economy, U.S. agriculture is twice as reliant on overseas markets.
USDA estimates that anywhere from 26 to 30 percent of farm cash receipts in any one year comes from exports.
Every dollar of exports creates another $1.40 in supporting activities to process, package, finance and ship agricultural products.
U.S. agricultural exports, which in FY 2009 reached $96.6 billion, generated an additional$135 billion in supporting business activity in transportation, distribution, food processing and manufacturing.
These exports support approximately 1 million U.S. jobs both on and off the farm.
Some agricultural commodities benefit dramatically from sales in overseas markets. For example:

1.  64 percent of our almond crop is shipped overseas.
2.  74 percent of cotton is exported.
3.  49 percent of U.S. rice goes to international markets.
4. 50 percent of U.S. wheat   goes into the export market.
5.  34 percent of our soybeans are exported.
96 percent of the world's consumers live outside the United States.
U.S. agricultural export growth is led by the NAFTA countries of Canada and Mexico andnon-Japan Asia.

(source: http://www.fas.usda.gov/info/factsheets/tradevalue.asp )

Cargill's efforts to promote free trade should be applauded, as it opens up markets for the many commodities produced sustainably by U.S. family farmers employing the latest technologies. Of course this leads to profits, but contrary to the claims made in the article, true profits exist only at the BENEFIT of all people involved, and never at their expense (other wise trades would not take place and no profits would be realized). The economic definition of profit is the net contribution a firm makes to society.

Of course, if firms are accumulating cash at the EXPENSE of others, they are not making true profits, but are either committing fraud or theft or extracting rents through subsidies, special priviledges, or regulatory protections (like restrictions on trade). This behavior can be described in terms of game theory as a Nash Equilibrium, particularly a prisoner's dilemma. When government is permitted to engage in excessive regulation and is granted the power to use the regulatory apparatus to benefit special interests, it pays for (more like forces) everyone to play the game.

This is the sort of corporate abuse of power that the occupy people should be focused on. The lamenting over Citizens United would be a moot point if the occupiers would actually address the problem of excessive corporate power and abuse at its core- the out of control progessive policy agenda and regulatory apparatus of the federal government. I've yet to get the idea from any in the movement that this is their focus. A corporation is NOT a person. However, taxes and regulations on corporations are taxes and regulations on PEOPLE. Lots of PEOPLE, not just CEO's and shareholders, but the millions of consumers, workers, farmers, and small business owners that depend on the mutually beneficial exchanges for their livelihood and day to day life made possible by companies like Cargill. PEOPLE are most empowered, not by government or progressive policies, but by the ability to engage in socially cooperative exchanges and forming socially cooperative relationships. They have a right to organize and use speach to advance their views and causes through whatever corporate or non corporate vehicle they feel is most effective. However, there is nothing noble about PEOPLE using speach to advance an agenda to restrict the free trade and the social cooperation of others, through any vehicle corporate or noncorporate. As stated in the article, these occupiers actually seem to be (through their castigation of Cargill's pro trade efforts) supporting policies that enrich and empower corporate interests at the expense of family farmers and the 99% of PEOPLE they claim or think they are advocating for.

Occupy Wall Street: Farmers March

2012-01-02T16:29:00.000-08:00

At the following link, you will find an article and youtube video covering a farmer's march
as part of the Occupy Wall Street movement.

http://www.care2.com/causes/occupy-wall-street-farmers-march-celebrates-community-power.html

I'm not sure that 'corporate America' is the demise of the family farmer, given that today some 96% or more farms are actually family farms, practicing modern, sustainable agricultire (see: http://youtu.be/D4ZL7w9q9Jc )

In just this past year we've seen everything from trumped up lawsuits attacking biotech alfalfa, attempts by congress to tell farmers how to market their livestock, threats of requiring CDL liscenses, threats of dust regulation, and now threats of using child labor laws to prevent young people from getting valuable training in agriculture that could encourage their own entreprenuerial ventures in ag, or lead to high paying jobs in science and technology (as many find their way to the lab via the hayfield or corn crop). Regulatory threats and regulatory uncertainty certainly tax the American farmer (and future farmers and agriculturalsts) as much if not more than any other alleged source.

I've written before about how economies of scale in compliance have lead to increased market concentration in agriculture ( http://works.bepress.com/matt_bogard/13/ ) and I urge the OWS people to be careful that they not find themselves tools for more progressive policies that may threaten modern agriculture's ability to sustainably feed the world.

USDA Research: Food Miles & Local Beef

2011-12-22T10:48:00.000-08:00

Comparing the Structure, Size, and Performance of Local and Mainstream Food
Supply Chains

USDA Economic
Research
Report
Number 99
June 2010

"Transportation fuel use is more closely related to supply chain structure and size than to the distance food products travel. Products in local supply chains travel fewer miles from farms to consumers, but fuel use per unit of product in local chains can be greater than in the corresponding mainstream chains. In these cases, greater fuel efficiency per unit of product is achieved with larger loads and
logistical efficiencies that outweigh longer distances."

This research compared 3 beef supply chains, one that markets local sourced beef via farmer's markets and community supported agriculture (CSA), one that is intermediately sourced to restaurants, supermarkets, and food cooperatives, and one that has a traditional supply chain that utilizes beef finished in the feedlot, slaughtered, processed, shipped, and sourced to restaurants. In terms of food miles, the local supply chain averaged 75 miles, intermediate 300, and mainstream 1645. However due to efficency and economies of scale, it turns out that the most fossil fuel and energy intensive supply chain is local, averaging 2.18 gallons of fuel per cwt, vs. 1.92 for the mainstream feedlot finished supply chain. In terms of carbon footprint, we should note that both the intermediate and local supply chains utilize grass fed beef, which would add even more to their environmental foot print in terms of global warming potential.

The New Deal and Enterprising Americans

2011-11-28T21:03:00.000-08:00

One central theme behind Roosevelt's stimulus policies, like today, was that business was sitting on their hands and the government had to tax and spend to get things going and regulate to keep them going and prevent the next downturn. But as Chamberlain pointed out in his book Enterprising Americans: A Business History of the United States-

"the magnitude of the response of U.S. business to the war is in itself refutation of the thesis that in the thirties businessmen simply sat on thier hands…it simply would not have been able to produce the new type of goods when the war button was pressed"

While it was true that total investment was low, investment opportunities were proliferant. He points out the infinite number of industries ready to bust out with thier innovations, including such leaders as du Pont, Dow Chemical, American Cyanamid, and Monsanto that many in the ag industry would be familiar with. During this time GE was ready to go with flourescent lighting and Kodak with color photography and commercial air travel was in the making.

But these great ideas were suppressed and kept on the back burner under the massive interventions of Roosevelt's expanding government.

"Businessmen came to ask themseleves whether Roosevelt really understood a system where the hope of profit sparks expansion and investment. Or did he believe simply in centralizing decision and authority in boards and "planners" along the Potomac?"

Reference

The Enterprising Americans: A Business History of the United States
BY JOHN CHAMBERLAIN 1963

http://www.entrewave.com/freebooks/docs/a_pdfs/jcea.pdf

Occupy Wall Street: Fighting the Right Fight?

2011-11-26T08:46:00.001-08:00

Previously I had said “Time will tell if those occupying Wall Street calling for ending the Fed and crony capitalism are the true voice of the movement, or if they will ultimately find themselves tools for more interventionism through a progressive policy agenda.” With a recent article in the Washington Post, I think I’m starting to piece together an answer, at least from one protestor.

See: Why occupy wallstreet will keep up the fight

Take for instance the following quote:

"Only a soft regime change can end the pervasive corruption at the heart of our political system, in which corporate money wins elections, drafts laws and trumps citizen desires.”

How is it that corporate money wins elections, drafts laws, and trumps citizen desires? I've discussed previously the issue of disproportionate political power and abuse as it relates to extreme wealth and corporate influence. In short, its the nature of unrestrained democracy, not unrestrained capitalism. By granting government powers beyond those specifically enumerated in the constitution, progressive policies have represented bounty to be won by whoever can exert the most political muscle, as put by Public Choice Economist Dennis Mueller. If we are going to be concerned with the outlier that is the 1% of wealthiest Americans, our concern should be with those that achieved their wealth via progressive coercive political means as opposed to those that achieved it through socially cooperative means enriching the lives of multitudes. The ignorant short sighted prejudiced view of the 1% as being a homogenous group of thieves and manipulators is not enlightening.

The writer goes on:

" Only the plural voices of everyday Americans, the 99 percent, have the capacity to wake up the 1 percent to their greedy, self-serving ways, and to dismantle the global casino in which $1.3 trillion worth of derivatives, credit default swaps and other financial instruments slosh around every day without a hint of concern or regard for the millions of lives that such speculation can destroy."…And we will see clearly articulated demands emerging, among them … a move toward a “true cost” market regime in which the price of every product reflects the ecological cost of its production, distribution and use; and with a bit of luck, perhaps even the birth of a new, left-right hybrid political party that moves America beyond the Coke vs. Pepsi choices of the past."

While financial instruments may be difficult to understand, they are not bets made at the track or in a casino, they are tools for managing risk and directing capital to fill the most urgent needs of society based on the knowledge and preferences of multitudes of individuals, all giving their input via the price system. While not perfect, as the great economist Frederick Hayek put it, I would prefer imperfect prices over the pretense of knowledge. It was through the pretense of knowledge that the Federal Reserve’s actions in the social planning of money, interest, and housing ( ‘without a hint of concern or regard for the millions of lives that such speculation can destroy.’) that we got the financial crisis and the current recession. The idea of a ‘true cost market regime’ is an even more futile exercise in the pretense of knowledge. As I mentioned in a previous article, when we as a society fail to have the knowledge to determine the correct price and quantity of ice cream for our community or nation, how can we determine the correct price or quantity of carbon (or the ecological cost of any good for that matter)? Aren’t those sorts of calculations what would be necessary to implement a ‘true cost’ market regime? The command and control structure necessary to implement this (without a hint of concern or regard for the millions of lives that such speculation can destroy) would be demeaning to the millions in the 99% and empowering to the wealthiest and politically connected in the 1%. We’ve seen the effects of economics of scale in compliance in agriculture before. We saw how empowering the Markey-Waxman attempt to ecologically price carbon was to the worlds largest corporations.

I think through all of their rhetoric and their own model of direct democracy, many of the OWS crowd may confuse the virtues of the market with democracy. Unfortunately people think that there is something mystical and blessed about the end result of tallying votes. They fail to see how arbitrary this can be, and how poorly voting can work as a means to express and represent individual preferences about very specific issues that deal with the minute details of every day life and work. They confuse voting with the role and social function of the price system. What we need isn’t more democracy, or fascist price fixing regimes. What we actually need is more of the Coke vs. Pepsi choices of the past. I know the author was probably analogizing the little difference between political parties, but Coke vs. Pepsi is a great example of how empowering the price system is compared to the democratic decision making by two barely indistinguishable parties. Anyone recall how empowering markets were to the 99% with regards to New Coke? How about more recently Netflix’s change in pricing structure? Agvocates are well aware of how empowering markets and social media were when it came to the corporate policies of Yellowtail and Pilot Travel Centers. Could you imagine having to implement these types of changes and getting these responses through our political system or any number political parties? Of course not. Voting is too blunt an instrument to do this.When we try to democratize these types of choices, votes are not empowering tools of democracy for the masses, they are empowering instruments for the politically connected 1%. The answer isn't more voting or additional choices in political parties. The answer is as our founders put it, a republic if we can keep it, restrained from interfering with the minute details and choices of our every day lives.

So I conclude by asking, is the OWS movement really about empowering the masses, or will they ultimately find themselves tools for more interventionism through a progressive policy agenda? If the movement is more concerned about wealth redistribution and things like ‘true cost’ market regimes, they are fighting the wrong fight.

Occupy Wall Street: Hitching a Ride on the Tea Party Express?

2011-10-07T23:17:00.000-07:00

The #occupywallstreet movement seems to be a pretty diverse group. From ‘trolling’ the occupywallstreet forums , there seems to be a big concern with corporatism, what economists would consider rent seeking- which is using the political apparatus to gain special favors (in terms of taxes, subsidies, or regulations) . There are also many concerned about the role of the Federal Reserve, which through the social planning of money and interest played a significant role in the financial crisis . And of course, many are rightfully upset over the bailouts. On most of these issues, if they are serious about their concerns, they find themselves practically standing hand-to-hand with the Tea Party. Then, on occasion you will find some listing demands for things like living wages, tariffs, and increased regulation, a Buffet style tax and other progressive end policies. So, you’ve got people within the same movement coming from entirely polar extremes, all converging on Wall-Street with a beef. While nothing seems official, you can’t help but notice two major themes- 1) a call for getting the money out of politics and 2) class warfare between the top 1% (in income or wealth) and the other 99%.

Last week, I presented an exhaustive look at the facts related to the distribution of income and taxes paid by the highest income earners. The facts showed that that the wealthy actually do pay more in taxes than their ‘secretaries’ and that the income gains over the last few decades have not gone mostly to the rich. (I have actually added even more to the evidence on my principles of economics blog here). But what about the top 1%?

First off, the top concern should not be the disparity of income or wealth in any society, but the process that generates that outcome. As the data I presented last week indicates, the process in the U.S. allows lots of movement and economic mobility. We want to be careful not to destroy a process that improves the lives of the countless Americans to achieve some idealistic imaginary snapshot of the wealth or income distribution. Any coercive action by government to impose such a vision on society comes at great costs, borne most heavily by the very people we intend to help. (take for instance, the minimum wage). So based on the facts and evidence alone, wealth concentration in a free society is a moot point. In fact, a free society that produces unequal shares of income and wealth (including people like Bill Gates, the late Steve Jobs, and the numerous unspoken entrepreneurs) is the kind of society able to deliver a lifestyle and opportunities to the masses.

But, if class warfare is the end in itself, it is interesting to ask, just how much wealth do the top 1% of wealthiest Americans control? Depending on your source you can get different results. According to one source, the top 1 % of Americans (in terms of wealth) ‘control’ about 20-25% of the nation’s wealth. Another source indicates that they ‘control’ closer to 40%. But, again, when we look back over the last century, we don’t observe any drastic increase in the concentration of wealth. Whatever the correct number, the idea that the wealthiest Americans control any proportion of the nations wealth is a bit elusive. It might be better to state that the top 1% of wealthiest Americans are connected to 40% of the nations wealth.

Of course, if we were talking about King Henry the VIII, or Adolph Hitler, or Joseph Stalin, we might correctly say that these people controlled vast amounts of resources vital to the well being of millions of their citizens. However, if you are a wealthy individual that owns as part of your vast wealth a large amount of Netfilix’ stock, what would you say you are in control of? Given the recent drastic plunge in its value, wouldn’t you say that although you were connected to that vast wealth, it is subject to the individual decisions of multitudes of consumers and other investors? The simple fact is, no matter what the asset, owning an asset (be it stocks, collectible sports cars, beach homes, yachts, or Scrooge McDuck’s Money Bin) entails opportunity costs. Those opportunity costs arise as a direct result of other people’s desires and interest in owning or having access to those resources. Maybe you own a ton of real estate in shopping centers. That is meaningful only as long as the rest of society values shopping centers. (Again, just ask Coca Cola when they changed their formula, Netflix when they changed their pricing structure, or Blockbuster before them). This is in fact why we have so much mobility in the income and wealth distribution as shown in the data! As my economics professor taught long ago, we the poor college students, were able to outbid wealthy people every day in the ordinary transactions of buying and selling. One of the most basic principles of economics is that prices force you to consider the impacts of your choices on others. When it comes to allocating resources in society, the market is the great equalizer. Appealing to class warfare by dividing society into fractions of 1 & 99 really gets us nowhere.

Of course, we may agree that when the top 1% (along with corporations and special interests) use their wealth to influence politics the free society paradigm breaks down. In fact, many of the protestors on Wall Street agree with the idea that ‘a democratic government derives its just power from the people… and that no true democracy is attainable when the process is determined by economic power. ‘

As public choice economist Dennis Mueller is quoted in the article Public Choice Revolution:

"Interest groups will engage in what public choice theorists call “rent seeking,” i.e., the search for redistributive benefits at the expense of others. The larger the state and the more benefits it can confer, the more rent-seeking will occur. The entire federal budget...can be viewed as a gigantic rent up for grabs for those who can exert the most political muscle.”

Our founders were well aware of these issues as stated in Federalist #10:

"From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties."

-like the 1% and the 99%?

In Federalist #10 they also warned us about the populist appeals and uprisings that may result, but proposed a solution:

“A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project…we behold a republican remedy for the diseases most incident to republican government.”

But the solution is not more government control through regulation of redistributive Buffet taxes. The problem of money in politics is excessive democracy, not lack of democracy. The remedy proposed by the founders is embodied in a constitution, with specifically enumerated powers, not true democracy as quoted by the occupiers on Wall Street. If we look at the many powers of government today, how many were transfers of power away from the people by avoiding the amendment process or via crazy court decisions (like Helvering vs. Davis or Wickard v. Filburn) The purpose of the constitution was to ensure that the government did very little without the consent of the governed. For the most part, that was achieved through legislation held in the strict bounds of enumerated powers, with expanded powers of government coming through the amendment process. This strict adherence to constitutional principles was the foundation for a workable democratic constitutional republic, as stated by Economist Thomas Sowell in Judicial Activism Reconsidered,

“The federal Constitution is "the supreme law of the land," not because it is more moral than state constitutions or state or federal legislative enactments, but because it represents a larger and more enduring majority. Minorities receive their constitutional rights from that enduring majority to which transient majorities bow, not from whatever abstract moral rights are imagined to exist as a brooding omnipresence in the sky.”

Democracy, limited by strict adherence to constitutional principles meant that government would have few powers and resources to spend on corporate interests, or progressive objects of benevolence. As Thomas Jefferson stated:

“in questions of power then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the constitution”

If the occupiers are seriously concerned about money in politics, then, once again, they should find themselves in lockstep with the Tea Party in calling for a return to constitutional principles and limited government. Time will tell if those occupying Wall Street calling for ending the Fed and crony capitalism are the true voice of the movement, or if they will ultimately find themselves tools for more interventionism through a progressive policy agenda.

The CPI Couldn't Keep Up With Steve Jobs

2011-10-06T18:14:00.001-07:00

From basic principles of economics, we know that measures of inflation based on the CPI are biased because of substitution effects, the introduction of new goods and services, and unmeasured quality changes.

Here is some related insight from Russ Roberts post Stagnation or Mismeasurement at Cafe Hayek: (this was in 2007)

It is not just a question of the number of new goods and services–it is the pace of innovation within product categories and how much each of these makes it hard to measure prices with any accuracy....The iPod will be six years old next month. The newly released iPod Classic with 160 GB of memory is $50 cheaper than the original iPod, holds 40 TIMES more songs and also plays color videos and displays photos. It is smaller, lighter and has a better battery.

What You Mean By Big Ag

2011-10-02T06:39:00.001-07:00

Are you confusing 'big ag', 'factory farming' or 'industrial agriculture' with the complex network of modern family farms, biotechnology companies, food processors, and retailers that cooperate to bring healthy and sustainable food to your table?

The Buffet Tax Deception

2011-09-24T21:48:00.000-07:00

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance." - Murray Rothbard Making Economic Sense (1995)

Should we really be talking about national tax policies based on the random, anecdotal observations of a celebrity businessman? Recently there has been a lot of talk from the media, politicians, and other commentators about a ‘Buffet Tax’ to ensure that billionaires pay their fair share of taxes. The battle cry comes from comments by very successful businessman and investor Warren Buffet, who claims that his secretary pays more in taxes (as a percent of income) than he does. There are also claims that income for middle Americans has stagnated, while the wealthiest Americans have enjoyed most of the gains in income growth over the last decade. This is a long post, but the short of it is that these claims may sound good politically, and make great headlines for the media, but they don’t stand squarely with the facts.

Let’s look at the first claim. Do billionaires really pay less in taxes as a percent of income than their secretaries?

Source: http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml Historical Effective Federal Tax Rates: 1979 to 2005 Congressional Budget Office

Since these rates have not changed in the last 5 years, these numbers are still relevant, and show that historically the rich (like Warren Buffet) have always paid more. In fact, when it comes to ‘fairness’, the U.S. has one of the most progressive (meaning the rich pay more) tax systems in the world (see the data here at the Tax Foundation). Sure it is possible that with the correct shelters/loopholes/wealth management, a wealthy person like Buffet could actually end up paying lower overall rates than their secretary. However, what the data shows is that overall, on average, the rich do pay more, with only a few rare and random cases like Buffet paying rates similar to or less than working class Americans. This brings up many questions. Why make major changes in the tax code that will affect millions to address the very few Warren Buffets of the world? Some would say to be ‘fair’ but as noted above, we already lead the world in terms of tax fairness based on income and the rich are already paying more. In terms of all income taxes collected by government, the wealthiest Americans pay most of the taxes.

The top 10% of earners make up about 10% of all households earn about 40% of all income, but pay 55% of all taxes (way more than their proportional share of income). The top 1% of earners make up only about 1% of households, earn about 18% of all income, but pay almost 30% of all taxes, again more than their share of national income.

Source: http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml Historical Effective Federal Tax Rates: 1979 to 2005 Congressional Budget Office

No matter how you slice the data, there is no way you can claim that the rich are not paying ‘their fair share’ of taxes. (Note this is even after the tax cuts in the early this decade)

Another myth related to this, is that income for middle Americans has stagnated, while the wealthiest Americans have enjoyed most of the gains in income growth over the last decade. Again, this is not supported by the data. The first problem is that commentators and politicians with axes to grind typically refer to the ‘median household income’ to represent ‘middle class.’ While using the median is statistically more robust (less biased) than just the average when it comes to skewed income data, using median household income is still inappropriate. As economists Thomas Sowell and Russ Roberts explain clearly here (video) and here, households have changed tremendously over time, and really aren’t comparable over time. But there are even more reasons why median household income can be misleading. Researcher Steve Conover points out in a recent article at the American Enterprise Institute’s American magazine, just looking at the median to define middle class is a very restrictive definition. After assembling data on income over the last decade based on data from the US Census Bureau and the Bureau of Labor Statistics, Conover developed several definitions of ‘middle class.’ No matter how many different ways we could define ‘middle class’ when we actually look at data on income gains over the last few years, we find in fact that the middle class income gained much more than the top 20% of earners, while the top 5% actually lost.

Source: The Myth of Middle-Class Stagnation, Steve Conover

Of course, if we are concerned about the distribution of income in society, the important thing isn’t so much who’s gaining in which category, but instead its how often people move up and improve their standard of living. After all, the American dream is not based on how much the rich pay in taxes vs the poor, or who gets the biggest piece of the pie. The American dream is about going out and getting your own piece of pie, or in other words, income mobility. As economist Steve Horowitz explains in this video, even if you insist on looking at ‘median’ income earned by ‘households’ vs. individuals, when we look at the data, and follow these people over time, we see lots of income mobility as they move from one part of the income distribution to another. The data shows that income mobility in the U.S. has been very robust. As reported in the U.S. Treasury report Income Mobility in the U.S. from 1996 to 2005:

"Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups. The degree of mobility in the overall population and movement out of the bottom quintile in this study are similar to the findings of prior research on income mobility."

So, we’ve debunked the myth that the wealthiest Americans aren’t paying there fair share, we’ve shown that middle class Americans have received significant gains in income over the last decade, and that income mobility in the U.S. is a reality. What other excuses can we/they come up with to raise taxes? One might claim that this is necessary to increase revenues, or reduce the budget deficit. In a previous post I’ve already shown how revenues actually increased while the budget deficit drastically dropped after the Bush tax cuts. Quite a bit of additional research actually shows that higher income individuals are extremely sensitive to tax increases, and that tax increases can contribute to decreased job creation and investment.

Were it not for the recession, the data shows that the middle class and the American dream was thriving. Instead of focusing on class warfare inspired non-issues (at least when it comes to real data), the media, commentators and our law makers should focus on the real issues at hand, chiefly the regulatory climate and the uncertainty (as mentioned last month) that it is creating. Besides being based on bad evidence and false perceptions, a ‘Buffet’ tax could also be detrimental to the economy and such talk only adds to the cloud of uncertainty preventing us from getting out of the current economic rut.

Homeland Security, The Knowledge Problem & Constitution Week

2011-09-05T19:41:00.000-07:00

Below are excerpts from two economists (David Henderson and Sam Clovis) on faculty at the Naval Post Graduate School. Note, Henderson will be speakingat WKU this year during Constitution Week. (special thanks to the BB&T Center For the Study of Capitalism at WKU).

"Central economic planning can't work, explained Hayek, because no small number of people at the top, however brilliant or informed, can aggregate all the trillions of pieces of data needed to plan an economy well. The main information that matters in real time is what Hayek called "knowledge of particular circumstances of time and place" and this information is necessarily decentralized: it exists only fleetingly in the minds of millions of people.....Hayek's argument applies whether the good being produced is food, steel, or internal security. In fact, in her testimony before the 9/11Commission, Dr. Rice explained the problems with centralization eloquently;

You have thousands of pieces of information . . . and you have to depend to a certain degree on the intelligence agencies to tell you what is actually relevant,

what is actually based on sound sources, what is speculative.

The lesson of September 11 is not that government should plan better and not that a Republican president plans better or worse than a Democrat president. The lesson of 9/11 is that central planning doesn't work and that government should not get in the way of our planning. " LINK

In addition to the 'knowledge problem' discussed above, Sobel and Leeson have identified several other issues with the top down approaches in homeland security regarding incentives, the tragedy of the anticommons, and type II error policy bias. Absent market prices, how do we deal with these issues? Attempts to address these problems, to some extent, can be found in scholarship related to homeland security and federalism:

"an agency that forms partnerships with state and local governments instead of coercive top-down regulation-heavy regimes is an appropriate response on the part of the national government to deal with the particular needs of all the other governments in this country. Further, this agency should work at giving state and local governments as much flexibility as possible in dealing with own-source challenges. By facilitating cooperative networks of communities/jurisdictions a far more realistic and pragmatic approach to all hazards preparedness is a logical outcome. The national government should provide the organization around which such networking might take place." –Homeland Security Affairs VI, no. 2 (May 2010) – Sam Clovis

Efficient Markets and Prices

2011-09-05T19:10:00.000-07:00

‎"I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge" - F.A. Hayek

"The financial crisis invalidated a naïve notion of "efficient markets," but the most sophisticated version is still viable. Whereas the invalidated version holds that markets never err and always adjust instantaneously, the sophisticated version, associated with the ideas of Adam Smith and F. A. Hayek, holds that markets mobilize individuals to realize gains from trade and to innovate and thereby produce generalized prosperity."

"In the 1940s, Hayek warned his fellow economists of the misleading standards of perfect competition and static efficiency in assessing the market economy. As he wrote in Individualism and Economic Order, "[T]hese adjustments are probably never 'perfect' in the sense which the economist conceives them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency" (1948, 87)"

http://www.independent.org/publications/tir/article.asp?a=762

"The great free market economic thinkers from Adam Smith to F. A. Hayek never argued that individuals were hyper-rational actors possessed with full and complete information, operating in perfectly competitive markets.... Efficient markets are an outcome of a process of discovery, learning, and adjustment, not an assumption going into the analysis."

http://theeuropean-magazine.com/348-boettke-peter/349-the-legacy-of-smith-and-hayek

Taxes, Elasticity, Revenue, and Economic Activity

2011-09-02T22:25:00.000-07:00

Romer, Christina and David Romer, (2010). "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, vol. 100(3), pages 763-801.

tax increases to be highly contractionary with a negative effect on investment

Alesina, Alberto and Silvia Ardagna (2010) "Large Changes in Fiscal Policy: Taxes versus Spending" In Jeffrey Brown, 2010. "Tax Policy and the Economy, Volume 24," NBER Books, National Bureau of Economic Research.

Fiscal stimulis based on tax cuts increases the probability of future economic growth greater than spending

Carroll, Robert, Douglas Holtz-Eakin, Mark Rider, and Harvey Rosen (2000) "Income Taxes and Entrepreneurs Use of Labor," Journal of Labor Economics, 18 (2), April pp. 324-55

Increases in marginal tax rates reduce the probability of future increased hiring and are associaed with reduced growth in wages.

Gruber, Jon and Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, vol. 84(1), pages 1-32.

Finds a very elastic response for incomes over $100k, (.57) with an elasticity of about .17 for incomes < $100k.

Gentry, William and Glenn Hubbard (2000) "Tax Policy and Entrepreneurial Entry" American Economic Review, vol. 90, pp. 283-287.

Finds a significant increase in entrepreneurial activity when tax rates are less progressive.

Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho, and Andrei Shleifer, (2010). "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, vol. 2(3), pages 31-64, July.American Economic Association.

"our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity"

The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act Martin Feldstein Journal of Political Economy
Vol. 103, No. 3 (Jun., 1995), pp. 551-572

Estimates the elasticity of taxable income to range from about 1.0 -3.

Lindsey, Lawrence B. 1987. "Individual Taxpayer Response to Taxcuts, 1982-1984." J. of Public Economics 33 (July) 173-206

Found elasticity of taxable income by income category to be .728 for income > $50k, 1.023 for >$100k, 1.413 for >$250k, and 2.0 for > $1 million. Also derived the tax revenue responses to reductions in marginal taxes for those earning more than $200k / yr. Revenues increased by 19% in 1982, 35% in 1983, 56% in 1984.

WHY DO EUROPEANS WORK (MUCH) LESS? IT IS TAXES AND GOVERNMENT SPENDING
Economic Inquiry, 2008, vol. 46, issue 2, pages 197-207

And

Why Do Americans Work So Much More Than Europeans?
Federal Reserve Bank of Minneapolis Quarterly Review
Vol. 28, No. 1, July 2004, pp. 2–13

Finds that taxes, and particularly higher marginal tax rates have a negative effect on labor hours.

Rent Seeking and Biotechnology

2011-08-20T19:48:00.000-07:00

"Yet today we have only a handful of genetically modified crops, primarily soybeans, corn, canola and cotton. All are commodity crops mainly used for feed or fiber and all were developed by big biotech companies. Only big companies can muster the money necessary to navigate the regulatory thicket woven by the government's three oversight agencies: the E.P.A., the Department of Agriculture and the Food and Drug Administration."

http://www.nytimes.com/2011/08/19/opinion/genetically-engineered-food-for-all.html?_r=3

AgBiotech combating climate change « The Berkeley Blog

2011-08-15T18:50:00.000-07:00

http://blogs.berkeley.edu/2011/08/14/agbiotech-and-combating-climate-change/

Some teasers:

"GMOs in the US and in other countries, reduce significantly the use of rather toxic pesticide chemicals and there is evidence that they actually save significant amount of lives in India and China. "

"It is easy to show that if restrictions on the adoption of GMOs would have been removed and adoption rates of GM varieties in Europe would have been similar to the observed patterns of adoption, then much of the recent increase in commodity food prices would have been diminished. Introduction of GM varieties to wheat and rice would have further reduced commodity prices whereby helping the poor and would have released resources for other uses."

"The land use saving effect of GM varieties is estimated to have the equivalent effect of taking between 800,000-9 million passenger cars off of the road....The use of herbicide-tolerant varieties enable large scale adoption of low-tillage practices that sequester carbon and greenhouse gas sequestering effect is estimated to be equal to that of taking 6.4 million cars off the road."

"The heavy regulation of GMOs are unsound not only because of the loss of benefits from existing varieties, but because of the loss of potential benefits from newer applications of GMOs"

Greg Mankiw's Blog: What nation has the most progressive tax system?

2011-08-14T06:17:00.000-07:00

Based on these numbers, the U.S. has the most progressive tax system in the world by far.

The top 10% of earners earn about 33.5% of all income on the U.S. but pay 45.1% of taxes. They in essence pay 35% more in taxes than what they earn as a share of income.

There is also an interesting discussion on how these numbers are used and interpreted.

http://gregmankiw.blogspot.com/2011/03/what-nation-has-most-progressive-tax.html

The Economics of the S&P Downgrade

2011-08-13T12:16:00.000-07:00

From the report: http://www.ft.com/cms/af2c4fac-bfc2-11e0-90d5-00144feabdc0.pdf

“the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011”

One of the main reasons that the ‘multiplier’ effects of the stimulus have not taken hold, and the reason that the economy is recovering so sluggishly is the uncertainty in the regulatory environment. Last fall, NCBA president Steve Fogelsong put this quite well in an interview on Agritalk where he discusses the regulatory zeal including cap and trade, the takeover of the financial and auto industry, the student loan industry, dust regulation, inheritance taxes, failure of pending free trade agreements, as well as livestock marketing regulations to name a few (at 9:23 on the clip you can find here)

A very similar argument is also well put in a post on the economics blog Café Hayek:

"But if the decline in GDP growth and in the rate of employment are caused, not by a taste-driven increase in the demand for money but, instead, by a large enough disruption in what Arnold Kling calls "patterns of sustainable specialization and trade," then kicking up aggregate demand won't solve the problem. Neither kicking it up, or trying to, through monetary policy or through fiscal policy will work. The problem is not originally one of widespread inadequate demand…. it is clearly the result of distorting government policies, regulatory and monetary, leading up to 2008 as well as of the symptom-treating policies since then that only worsen matters. (And not to mention yet other actual and threatened policies)”

The issue of regulatory uncertainty is not unique to our current economic challenges, we had a very similar situation following the Great Depression, which lasted for over a decade. According to Robert Higgs, this was largely the result of New Deal Policies that created regulatory uncertainty prolonging the depression. You can find his paper here. You can also find a good discussion of this work on the EconTalk podcast here.

I’ve shared a lot of the following research in the past discussing the prediction that the stimulus probably would not work, but given the recent downgrade in the U.S. credit rating, it seems like it is worth a review:

"The Keynesians had it all wrong. In the Great Depression, employment was not low because investment was low. Employment and investment were low because labor market institutions and industrial policies changed in a way that lowered normal employment." --Edward C. Prescott Federal Reserve Bank of Minneapolis Quarterly Review Winter 1999, vol. 23, no. 1, pp. 25–31

"We find that New Deal cartelization policies are an important factor in accounting for the failure of the economy to recover back to trend." -Journal of Political Economy, 2004, vol. 112, no. 4 New Deal Policies and the Persistance of the Great Depression : A General Equilibrium Analysis. Harold L. Cole and Lee E. Ohanion.

"We conclude that a new shock is needed to account for the Depression’s weak recovery. A likely culprit is New Deal policies toward monopoly and the distribution of income." ---The Great Depression in the United States From A Neoclassical Perspective Federal Reserve Bank of Minneapolis Quarterly Review Winter 1999, vol. 23, no. 1, pp. 2–24

"Businessmen came to ask themseleves whether Roosevelt really understood a system where the hope of profit sparks expansion and investment. Or did he believe simply in centralizing decision and authority in boards and "planners" along the Patomac?" ---The Enterprising Americans: A Business History of the United States BY JOHN CHAMBERLAIN INSTITUTE FOR CHRISTIAN ECONOMICS TYLER, TEXAS

Until we can start thinking outside the box of Keynesian economic policies as well as get a handle on the uncertain regulatory environment, we won’t likely see a strong recovery. That means higher budget deficits and downward pressure on future credit ratings.

For a more entertaining look at policy alternatives, I highly recommend the following youtube videos:

Fear the Boom and Bust

New Research On Fair Trade Coffee

2011-08-13T11:28:00.000-07:00

The Problem with Fair Trade Coffee
By Colleen Haight. Stanford Social Innovation Review Summer 2011 link

My field and analytical research has found that there are distinct limitations to the Fair Trade model.7 Perhaps the most serious challenge is the extraordinarily high price of coffee. “The market today is five times higher than when FLO entered the United States. The market’s at $2.50 (per pound for commodity coffee) today vs. the 40 cents or 50 cents (per pound) it was at in 2001,” says Dennis Macray, former director of global sustainability at Starbucks Coffee Co. This price shift dampens farmers’ desire to sell their high-quality coffee at the Fair Trade price. Many co-ops, according to Macray, are choosing to default on the Fair Trade contracts, so that they can do better for their members by selling on the open market.

(HT to Knowledge Problem )

ScienceDirect - Ecological Economics : Impact of Bt cotton on pesticide poisoning in

2011-08-08T03:55:00.000-07:00

http://www.sciencedirect.com/science/article/pii/S0921800911002400

A case of the internalization of negative externalities via technological change and market forces w/o taxes or new regulations.

Abstract

While substantial research on the productivity and profit effects of Bt cotton has been carried out recently, the economic evaluation of positive and negative externalities has received much less attention. Here, we focus on farmer health impacts resulting from Bt-related changes in chemical pesticide use. Previous studies have documented that Bt cotton has reduced the problem of pesticide poisoning in developing countries, but they have failed to account for unobserved heterogeneity between technology adopters and non-adopters. We use unique panel survey data from India to estimate unbiased effects and their developments over time. Bt cotton has reduced pesticide applications by 50%, with the largest reductions of 70% occurring in the most toxic types of chemicals. Results of fixed-effects Poisson models confirm that Bt has notably reduced the incidence of acute pesticide poisoning among cotton growers. These effects have become more pronounced with increasing technology adoption rates. Bt cotton now helps to avoid several million cases of pesticide poisoning in India every year, which also entails sizeable health cost savings.

Overpopulation? Not

2011-07-23T06:39:00.000-07:00

HT to Cafe Hayek, I've been looking for thus data a while.

http://persquaremile.files.wordpress.com/2011/01/the-worlds-population-concentrated.png

Overpopulation? Not

2011-07-23T06:36:00.000-07:00

HT to Cafe Hayek, I've been looking for this data some time now, and I finally found it. The ramifications in terms of recycling, landfill space etc in relation to this are interesting to think about.

http://persquaremile.files.wordpress.com/2011/01/the-worlds-population-concentrated.png

Jobs for Data Scientists Explode Across The Market - NYTimes.com

2011-07-21T16:18:00.000-07:00

Data scientist positions are outpacing demand growth for statisticians- 'data scientists' are typically more well rounded in terms of theoretical and applied statistical knowledge, programming & data hacking skills, and industry subject matter as opposed to traditional statisticians.

http://www.nytimes.com/external/readwriteweb/2011/07/20/20readwriteweb-jobs-for-data-scientists-explode-across-the-91949.html

PSST- Regime Uncertainty?

2011-07-15T17:48:00.001-07:00

From Cafe Hayek- a framework for discussing the debt ceiling, the deficit, the financial crisis, recession, & what to do about it:

"But if the decline in GDP growth and in the rate of employment are caused, not by a taste-driven increase in the demand for money but, instead, by a large enough disruption in what Arnold Kling calls "patterns of sustainable specialization and trade," then kicking up aggregate demand won't solve the problem. Neither kicking it up, or trying to, through monetary policy or through fiscal policy will work. The problem is not originally one of widespread inadequate demand. In thiscase, inadequate aggregate demand is a symptom; treating the symptom will not cure the disease and, indeed, will only worsen it.

Without venturing here an opinion on the underlying source of each and every recession throughout American history, I will express an opinion about the current recession: it is clearly the result of distorting government policies, regulatory and monetary, leading up to 2008 as well as of the symptom-treating policies since then that only worsen matters. (And not to mention yet other actual and threatened policies"

http://cafehayek.com/2011/07/its-the-psst-stupid.html

Walmart Express and Food Deserts

2011-07-13T18:48:00.000-07:00

From the Knowledge Problem blog:

"If Walmart can leverage their supply chain logistics to bring their low-price model to these markets, this could expand the market while increasing competition, all of which benefits consumers. And, in a city like Chicago with low-income neighborhoods that qualify as "food deserts", a store like Walmart Express could provide retail access to fresh food in such areas."

http://knowledgeproblem.com/2011/07/05/walmart-express-market-definition-and-local-politics/

I think some people would like to blame 'food deserts' on profit oriented retailors and 'industrial agriculture'. But here we have an example where a big box retailer is being presented as a possible solution to the 'food desert' dilemma. It make sense that given the extensive hurdles to bringing healthy food to some markets (forgetting for a moment those barriers associated with production agriculture) such as minimum wages, risk,liability, the war on drugs, taxes, and the regulatory environment, that a company like Wal-Mart could leverage their supply chain and possibly make a profit where no one else can.

Of course, Wal-Mart is no clear capitalist hero. Many of these progressive policies that have contributed to 'food deserts' likely found their way on corporate lobbyists' to do list. The essence of rent seeking is to expend resources to carve out a secure niche in the tax and regulatory environment.

Drovers CattleNetwork - Agsight: No speculators? No thanks! - Cattle News - Editorial, Grain & Cattle Markets, Current Stories

2011-07-10T07:45:00.000-07:00

A great article on commodity market speculation

http://www.cattlenetwork.com/cattle-news/Agsight-No-speculators-No-thanks.html

Sent from my iPod touch

Top #Obama Aid Calls For Deregulation of #GMO #Food

2011-07-09T17:51:00.001-07:00

"Dr. Beachy asked the subcommittee to consider the unintended consequences of overly stringent regulations of biotech crops. These include creating the perception that the technology is unsafe and causing many developing countries to be reluctant to adopt the technology. He noted, "It (the regulatory process) has adapted poorly in response to the proven safety record and absence of adverse affect on the environment or on animal and human health of GE crops. It has not adapted to changes that have further enhanced the safety of the technologies; and it has not adapted to the needs of the market. The system needs attention, modification, and improvement if the U.S. and global agriculture communities and its consumers are to benefit from the investment in past and current science and technology that can impact agriculture and agriforestry."

Rethinking Regulations for Biotech Crops - http://www.truthabouttrade.org/news/editorials/trade-policy-analysis/18078-rethinking-regulations-for-biotech-crops

Review & Outlook: The Jobless Summer - WSJ.com

2011-07-07T03:15:00.000-07:00

A very good piece on the minimum wage and the negative impacts on future income earning opportunities.

http://online.wsj.com/article/SB10001424052702304447804576411903821123330.html?mod=WSJ_hpp_sections_opinion

A Picture of The Minimum Wage

2011-07-02T05:02:00.001-07:00

Image Source: Mark Perry
http://mjperry.blogspot.com/2011/06/but-at-least-politicians-care-in-theory.html

Below is a summary of most of the research in this area. (this is a direct copy/paste from the U.S. Congress Joint Economic Committee Report '50 Years of Research on the Minimum Wage, 1995). Note, very few studies [Card (1992b), Card and Krueger (1994), and Katz and Krueger (1992)] empirically challenge the consensus that minimum wages make it harder for individuals to find jobs or that they suffer loss of employment as a result.

The minimum wage reduces employment.Currie and Fallick (1993), Gallasch (1975), Gardner (1981), Peterson (1957), Peterson and Stewart (1969).
The minimum wage reduces employment more among teenagers than adults.Adie (1973); Brown, Gilroy and Kohen (1981a, 1981b); Fleisher (1981); Hammermesh (1982); Meyer and Wise (1981, 1983a); Minimum Wage Study Commission (1981); Neumark and Wascher (1992); Ragan (1977); Vandenbrink (1987); Welch (1974, 1978); Welch and Cunningham (1978).
The minimum wage reduces employment most among black teenage males.Al-Salam, Quester, and Welch (1981), Iden (1980), Mincer (1976), Moore (1971), Ragan (1977), Williams (1977a, 1977b).
The minimum wage helped South African whites at the expense of blacks.Bauer (1959).
The minimum wage hurts blacks generally.Behrman, Sickles and Taubman (1983); Linneman (1982).
The minimum wage hurts the unskilled.Krumm (1981).
The minimum wage hurts low wage workers.Brozen (1962), Cox and Oaxaca (1986), Gordon (1981).
The minimum wage hurts low wage workers particularly during cyclical downturns.Kosters and Welch (1972), Welch (1974).
The minimum wage increases job turnover.Hall (1982).
The minimum wage reduces average earnings of young workers.Meyer and Wise (1983b).
The minimum wage drives workers into uncovered jobs, thus lowering wages in those sectors.Brozen (1962), Tauchen (1981), Welch (1974).
The minimum wage reduces employment in low-wage industries, such as retailing.Cotterman (1981), Douty (1960), Fleisher (1981), Hammermesh (1981), Peterson (1981).
The minimum wage hurts small businesses generally.Kaun (1965).
The minimum wage causes employers to cut back on training.Hashimoto (1981, 1982), Leighton and Mincer (1981), Ragan (1981).
The minimum wage has long-term effects on skills and lifetime earnings.Brozen (1969), Feldstein (1973).
The minimum wage leads employers to cut back on fringe benefits.McKenzie (1980), Wessels (1980).
The minimum wage encourages employers to install labor-saving devices.Trapani and Moroney (1981).
The minimum wage hurts low-wage regions, such as the South and rural areas.Colberg (1960, 1981), Krumm (1981).
The minimum wage increases the number of people on welfare.Brandon (1995), Leffler (1978).
The minimum wage hurts the poor generally.Stigler (1946).
The minimum wage does little to reduce poverty.Bonilla (1992), Brown (1988), Johnson and Browning (1983), Kohen and Gilroy (1981), Parsons (1980), Smith and Vavrichek (1987).
The minimum wage helps upper income families.Bell (1981), Datcher and Loury (1981), Johnson and Browning (1981), Kohen and Gilroy (1981).
The minimum wage helps unions.Linneman (1982), Cox and Oaxaca (1982).
The minimum wage lowers the capital stock.McCulloch (1981).
The minimum wage increases inflationary pressure.Adams (1987), Brozen (1966), Gramlich (1976), Grossman (1983).
The minimum wage increases teenage crime rates.Hashimoto (1987), Phillips (1981).
The minimum wage encourages employers to hire illegal aliens.Beranek (1982).
Few workers are permanently stuck at the minimum wage.Brozen (1969), Smith and Vavrichek (1992).
The minimum wage has had a massive impact on unemployment in Puerto Rico.Freeman and Freeman (1991), Rottenberg (1981b).
The minimum wage has reduced employment in foreign countries.Canada: Forrest (1982); Chile: Corbo (1981); Costa Rica: Gregory (1981); France: Rosa (1981).
Characteristics of minimum wage workersEmployment Policies Institute (1994), Haugen and Mellor (1990), Kniesner (1981), Mellor (1987), Mellor and Haugen (1986), Smith and Vavrichek (1987), Van Giezen (1994).

References

Adams, F. Gerard. 1987. Increasing the Minimum Wage: The Macroeconomic Impacts.Briefing Paper, Economic Policy Institute (July).

Finds that an increase in the minimum wage from $3.35 to $4.65 over three years would increase the unemployment rate by less than 0.1% and the inflation rate by 0.2%.

Adie, Douglas K. 1973. Teen-Age Unemployment and Real Federal Minimum Wages. Journal of Political Economy, vol. 81 (March/April): 435-441.
Finds that the minimum wage is responsible for a considerable amount of teenage unemployment.Al-Salam, Nabeel; Quester, Aline; and Welch, Finis. 1981. Some Determinants of the Level and Racial Composition of Teenage Employment. In Rottenberg (1981a): 124-154.Notes that in 1954, black teenage males were more likely to be employed than white teenage males. Since that time, the proportion of black teenage males employed has fallen sharply, while employment for white teenage males has risen. Expansion of coverage of the minimum wage appears to be a major factor in this trend. Further notes that more than half of all teenagers would earn more in the absence of a minimum wage.Bauer, P.T. 1959. Regulated Wages in Under-developed Countries. In The Public Stake in Union Power, ed. Philip D. Bradley. Charlottesville, VA: University of Virginia Press, 324-349.Argues that the negative effects of minimum wage laws in LDCs is even greater than in industrialized countries, because there is greater diversity of supply and demand for labor in LDCs. Also points out that in South Africa minimum wages helped whites at the expense of blacks.Behrman, Jere R.; Sickles, Robin C.; and Taubman, Paul. 1983. The Impact of Minimum Wages on the Distributions of Earnings for Major Race-Sex Groups: A Dynamic Analysis.American Economic Review, vol. 73 (September): 766-778.Finds that the minimum wage has helped white males and females while hurting black males and females.Bell, Carolyn Shaw. 1981. Minimum Wages and Personal Income. In Rottenberg (1981a): 429-458.Finds that increases in the minimum wage would benefit few families with incomes below the poverty level. Much of the benefit would accrue to upper income families with secondary earners, such as wives and children.Beranek, William. 1982. The Illegal Alien Work Force, Demand for Unskilled Labor, and the Minimum Wage. Journal of Labor Research, vol. 3 (Winter): 89-99.Finds that the minimum wage increases the employment demand for illegal aliens, who are less likely than legal residents to report violations of the labor laws.Betsey, Charles L., and Dunson, Bruce H. 1981. Federal Minimum Wage Laws and the Employment of Minority Youth. American Economic Review, vol. 71 (May): 379-384.Argues that employment losses from higher minimum wages have been overstated and that much of the higher unemployment among minority youth has been due to cyclical factors.Bonilla, Carlos E. 1992. Higher Wages, Greater Poverty. Washington: Employment Policies Institute.Finds that the 1991 increase in the federal minimum wage actually reduced the income of some single parents, after welfare and taxes are taken into account.Brandon, Peter D. 1995. Jobs Taken by Mothers Moving from Welfare to Work and the Effects of Minimum Wages on this Transition. Washington: Employment Policies Institute Foundation.Finds a decrease in work by women on welfare in states raising their minimum wages and an increase in time on welfare in such states.Brown, Charles. 1988. Minimum Wage Laws: Are They Overrated? Journal of Economic Perspectives, vol. 2 (Summer): 133-145.Finds that they employment impact of the minimum wage and its impact on reducing poverty are both less than generally believed.Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1981a. Effects of the Minimum Wage on Youth Employment and Unemployment. In Minimum Wage Study Commission (1981), vol. 5, pp. 1-26.Finds that a 10% increase in the minimum wage will reduce teenage employment by 1% to 3%.Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1981b. Time-Series Evidence of the Effect of the Minimum Wage on Teenage Employment and Unemployment. In Minimum Wage Study Commission (1981), vol. 5, pp. 103-127.Finds that a 10% increase in the minimum wage will reduce teenage employment by 1%.Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1982. The Effect of the Minimum Wage on Employment and Unemployment. Journal of Economic Literature, vol. 20 (June): 487-528.Summarizes a large volume of research on the minimum wage.Brozen, Yale. 1962. Minimum Wage Rates and Household Workers. Journal of Law and Economics, vol. 5 (October): 103-109.Found that increases in the minimum wage drove low-wage workers into uncovered occupations, such as household work. Predicts that broadening of coverage to such occupations will increase structural unemployment.Brozen, Yale. 1966. Wage Rates, Minimum Wage Laws, and Unemploy-ment. New Individualist Re- view, vol. 4 (Spring): 24-33.Points out a contradiction between the Johnson Administration's desire to hold wage increases to the rate of productivity growth, in order to reduce inflationary pressures, and its support for a higher minimum wage.Brozen, Yale. 1969. The Effect of Statutory Minimum Wage Increases on Teen-age Employment. Journal of Law and Economics, vol. 12 (April): 109-122.Finds that increases in the minimum wage only speed up wage increases that would have occurred over time. However, in the interval between an increase and the time when productivity catches up to it results in higher unemployment and business failures. In the case of teenagers, many who are barred from jobs suffer long-term effects from the failure to gain job skills, thus injuring them permanently.Card, David. 1992a. Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage. Industrial and Labor Relations Review, vol. 46 (October): 22-37.Finds no evidence that the April, 1990 increase in the minimum wage reduced teenage employment, but does find evidence that it led to higher wages.Card, David. 1992b. Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89. Industrial and Labor Relations Review, vol. 46 (October): 38-54.Finds no evidence that an increase in the California state minimum wage in July, 1988 led to any loss in teenage employment, but does find evidence of higher wages.Card, David, and Krueger, Alan B. 1994. Minimum Wages and Employ-ment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. American Economic Review, vol. 84 (September): 772-793.Finds no evidence of reduced employment from an increase in the New Jersey state minimum wage in April, 1992.Colberg, Marshall R. 1960. Minimum Wage Effects on Florida's Economic Development.Journal of Law and Economics, vol. 3 (October): 106-117.Finds that after an increase in the minimum wage unemployment increased most in the areas where wages were lowest and least in areas where wages were highest beforehand.Colberg, Marshall. 1981. Minimum Wages and the Distribution of Economic Activity. In Rottenberg (1981a): 247-263.Examines votes on the minimum wage and finds heavy support for it in high wage states of the North and opposition from low wage states in the South. This suggests that the North was attempting to reduce the South's competitive advantage in wages.Corbo, Vittorio. 1981. The Impact of Minimum Wages on Industrial Employment in Chile. In Rottenberg (1981a): 340-356.Finds substantial job losses from the minimum wage in Chile.Cotterill, Philip. 1981. Differential Legal Minimum Wages. In Rottenberg (1981a): 296-316.Favors differential minimum wages to reduce the impact of the minimum wage.Cotterman, Robert F. 1981. The Effects of Federal Minimum Wages on the Industrial Distribution of Teenage Employment. In Rottenberg (1981a): 42-60.Finds that minimum wages have altered the distribution of teenage employment. Teenagers are less likely to be employed in low wage industries, such as retailing, and increase employment in high wage industries, such as manufacturing.Cox, James C., and Oaxaca, Ronald L. 1981. The Determinants of Minimum Wage Levels and Coverage in State Minimum Wage Laws. In Rottenberg (1981a): 403-428.Finds that union support for the minimum wage is significant politically.Cox, James C., and Oaxaca, Ronald L. 1982. The Political Economy of Minimum Wage Legislation. Economic Inquiry, vol. 20 (October): 533-555.Explains why unions support minimum wages.Cox, James C., and Oaxaca, Ronald L. 1986. Minimum Wage Effects With Output Stabilization. Economic Inquiry, vol. 24 (July): 443-453.Finds that the minimum wage causes unskilled wages to be 15.7% higher than they otherwise would be, and that this causes employment to be 11.2% lower than it otherwise would be.Cunningham, James. 1981. The Impact of Minimum Wages on Youth Employment, Hours of Work, and School Attendance: Cross-sectional Evidence from the 1960 and 1970 Censuses. In Rottenberg (1981a): 88-123.Finds that minimum wages discourage part-time work and lowers school attendance.Currie, Janet, and Fallick, Bruce. 1993. A Note on the New Minimum Wage Research. National Bureau of Economic Research Working Paper No. 4348 (April).Finds that employed individuals affected by the increases in the minimum wage in 1979 and 1980 were 3% to 4% less likely to be employed a year later. Since the methodology employed is similar to that in Card (1992a and 1992b), it casts doubt on any generalization of his conclusions.Datcher, Linda P., and Loury, Glenn C. 1981. The Effect of Minimum Wage Legislation on the Distribution of Family Earnings Among Blacks and Whites. In Minimum Wage Study Commission (1981), vol. 7, pp. 125-146.Finds that an increase in the minimum wage increases white family incomes more than black family incomes. Also, middle- and high-income families benefit more than low-income families.Douty, H.M. 1960. Some Effects of the $1.00 Minimum Wage in the United States.Economica, vol. 27 (May): 137-147.Finds that the increase in the minimum wage from 75 cents to $1.00 in 1956 did lead to an increase in pay for many workers, but at the cost of jobs. Long-term employment losses by industry ranged from 3.2% to 15%.Ehrenberg, Ronald G., and Schumann, Paul L. 1981. The Overtime Pay Provisions of the Fair Labor Standards Act. In Rottenberg (1981a): 264-295.Opposes restrictions on mandatory overtime.Employment Policies Institute. 1994. The Low-Wage Workforce. Washington: Employment Policies Institute.Presents data on characteristics of workers earning the minimum wage.Feldstein, Martin. 1973. The Economics of the New Unemployment. The Public Interest (Fall): 14-15.Argues that the minimum wage prevents many young people from accepting jobs that would provide them with on-the-job training, thus contributing to long-term unemploy- ment.Fleisher, Belton M. 1981. Minimum Wage Regulation in Retail Trade. Washington: American Enterprise Institute.Extension of the minimum wage to retail trade lowered employment in that industry by as much as 500,000, with the main impact on teenagers. Also finds that higher minimum wages led to a scale-back of fringe benefits and training.Forrest, David. 1982. Minimum Wages and Youth Unemployment: Will Britain Learn from Canada? Journal of Economic Affairs, vol. 2 (July): 247-250.Estimates that 40% of the increase in teenage unemployment in Canada since the 1950s is due to higher minimum wages.Freeman, Alida Castillo, and Freeman, Richard B. 1991. Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor? National Bureau of Economic Research Working Paper No. 3759 (June).Finds that the minimum wage has had a massive impact on the labor market in Puerto Rico.Gallasch, H.F., Jr. 1975. Minimum Wages and the Farm Labor Market. Southern Economic Journal, vol. 41 (January): 480-491.Finds that the 1967 extension of the minimum wage to the farm labor market, which had previously been uncovered, led to an increase in wages and a reduction in employment.Gardner, Bruce. 1981. What Have Minimum Wages Done in Agriculture? In Rottenberg (1981a): 210-232.Finds that extension of the minimum wage to farm workers has increased wages but reduced employment.Gordon, Kenneth. 1981. The Impact of Minimum Wages on Private Household Workers. In Rottenberg (1981a): 191-209.Finds that the minimum wage has led to a dramatic reduction in household workers. Also notes that the policy of enforcement of labor laws by complaint converts the minimum wage from an instrument of public policy to a tool of private disputes.Gramlich, Edward M. 1976. Impact of Minimum Wages on Other Wages, Employment, and Family Incomes. Brookings Papers on Economic Activity (No. 2): 409-461.Finds that raising the minimum wage above 40 to 50 percent of median wages leads to increased compliance costs, higher unemployment, workers forced to leave full-time work for part-time work, more benefits for high-income families, and inflationary effects on prices.Gregory, Peter. 1981. Legal Minimum Wages as an Instrument of Social Policy in Less Developed Countries, with Special Reference to Costa Rica. In Rottenberg (1981a): 377-402.Finds that the minimum wage has been ineffective in reducing income inequality.Grossman, Jean B. 1983. The Impact of the Minimum Wage on Other Wages. Journal of Human Resources, vol. 18 (Summer): 359-378.Finds that an increase in the minimum wage increases wages of those above the minimum wage for two reasons. First, workers above the minimum will want to restore their relative wage position, and second there will be increased demand for workers above the minimum to do the work previously done by those below the minimum.Grossman, Jonathan. 1978. Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage. Monthly Labor Review, vol. 101 (June): 22-30.Reviews the legislative history of passage of the first federal minimum wage law. Notes the limited coverage of the initial legislation.Hall, Robert E. 1982. The Minimum Wage and Job Turnover in Markets for Young Workers. InThe Youth Labor Market Problem: Its Nature, Causes, and Consequences, ed. Richard B. Freeman and David A. Wise, pp. 475-497. Chicago: University of Chicago Press.Finds that the higher unemployment among youth resulting from the minimum wage is primarily due to higher job turnover.Hammermesh, Daniel S. 1981. Employment Demand, the Minimum Wage and Labor Costs. In Minimum Wage Study Commission (1981), vol. 5, pp. 27-84.Finds that a 10% increase in the minimum wage will reduce teenage employment by 1.2% overall, with smaller declines in services and retail trade and a higher impact in manufacturing.Hammermesh, Daniel S. 1982. Minimum Wages and the Demand for Labor. Economic Inquiry, vol. 20 (July): 365-380.Finds that a minimum wage reduces teenage employment.Hashimoto, Masanori. 1981. Minimum Wages and On-the-Job Training. Washington: American Enterprise Institute.Finds that minimum wage laws lead to a curtailment of training by employers.Hashimoto, Masanori. 1982. Minimum Wage Effects on Training on the Job. American Economic Review, vol. 72 (December): 1070-1087.Finds that minimum wages reduce training, first because workers lose job opportunities, and hence on the job training, and second because employers will no longer be able to afford to give such training.Hashimoto, Masanori. 1987. The Minimum Wage Law and Youth Crimes: Time-Series Evidence. Journal of Law and Economics, vol. 30 (October): 443-464.Suggests that increases in the minimum wage may be responsible for increases in teenage crime rates.Haugen, Steven E., and Mellor, Earl F. 1990. Estimating the Number of Minimum Wage Workers. Monthly Labor Review, vol. 113 (January): 70-74.Estimates that two-fifths of workers reporting wage rates at or below the minimum wage in 1988 had supplements raising their wage rates above the minimum. However, some 1.5 million salaried workers may also make the minimum wage or less on an hourly rate.Holcombe, Randall G., and Metcalf, John G. 1977. The Appeal of Minimum Wage Laws: A Dynamic Analysis. Public Choice, vol. 29 (Spring): 139-141.Explains the popularity of minimum wage laws even among those who lose their jobs as a result as stemming from the high turnover in the low-wage market. Although a worker may initially lose his job because of an increase in the minimum wage, he will expect to get other jobs in the future that will pay more.Iden, George. 1980. The Labor Force Experience of Black Youth: A Review. Monthly Labor Review, vol. 103 (August): 10-16.Concedes that the minimum wage has had a significant negative effect on teenage employment, especially for blacks.Johnson, William R., and Browning, Edgar K. 1981. Minimum Wages and the Distribution of Income. In Minimum Wage Study Commission (1981), vol. 7, pp. 31-58.Finds that much of the benefits of a higher minimum wage accrue to high-income families and that many low-income families benefit at the expense of other low-income families.Johnson, William R., and Browning, Edgar K. 1983. The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation. American Economic Review, vol. 73 (March): 204-211.Finds that a 22% increase in the minimum wage in 1976 would have increased the incomes of the lowest 10% of households by just $200 million.Katz, Lawrence F., and Krueger, Alan B. 1992. The Effect of the Minimum Wage on the Fast-Food Industry. Industrial and Labor Relations Review, vol. 46 (October): 6-21.Finds evidence that an increase in the minimum wage led to an increase in employment in Texas.Kaun, David E. 1965. Minimum Wages, Factor Substitution and the Marginal Producer.Quarterly Journal of Economics, vol. 79 (August): 478-486.The minimum wage hurts small businesses.Keech, William R. 1977. More on the Vote Winning and Vote Losing Qualities of Minimum Wage Laws. Public Choice, vol. 29 (Spring): 133-137.Suggests that support for the minimum wage even among those adversely affected may result from those benefiting having a clearer perception of the benefits than those who are harmed have of the negative effects.Kniesner, Thomas J. 1981. The Low-Wage Workers: Who Are They? In Rottenberg (1981a): 459-481.Finds that 60% of low-wage workers are women and less than 40% are teenagers. Also finds that low wages are not strongly associated with poverty. Less than 25% of low wage workers are heads of households, and only 30% live in families with incomes below the poverty level.Kohen, Andrew I., and Gilroy, Curtis L. 1981. The Minimum Wage, Income Distribution, and Poverty. In Minimum Wage Study Commission (1981), vol. 7, pp. 1-30.Since many low-wage workers live in high-income families, increasing the minimum wage is an ineffective way of increasing the incomes of poor families.Kosters, Marvin, and Welch, Finis. 1972. The Effects of Minimum Wages on the Distribution of Changes in Aggregate Employment.American Economic Review, vol. 62 (June): 323-332.Finds that increases in the minimum wage have a significant effect on employment patterns, especially for nonwhite teenagers. As a consequence, teenagers are less able to find jobs during periods of normal employment growth and are more likely to lose their jobs during cyclical downturns.Krumm, Ronald J. 1981. The Impact of the Minimum Wage on Regional Labor Markets. Washington: American Enterprise Institute.Finds that lower-skilled workers tend to be disemployed when minimum wages are applied uniformly, leading to higher wages for higher-skilled workers. Also, because the cost of living varies from region to region, the real minimum wage will also vary.Lang, Kevin. 1995. Minimum Wage Laws and the Distribution of Employment. Washington: Employment Policies Institute Foundation.Finds that increases in the minimum wage leads fast food establishments to replace adult workers with younger workers, and to replace full-time workers with part-time workers.Leffler, Keith B. 1978. Minimum Wages, Welfare, and Wealth Trans-fers to the Poor.Journal of Law and Economics, vol. 21 (October): 345-358.Finds that increases in the minimum wage lead to increases in welfare rolls. Argues that advocates for the poor may favor higher minimum wages in order to increase the number of people on welfare, because welfare benefits may exceed the income from work.Leighton, Linda, and Mincer, Jacob. 1981. The Effects of Minimum Wages on Human Capital Formation. In Rottenberg (1981a): 155-173.Finds that minimum wages discourage on-the-job training.Levitan, Sar, and Belous, Richard S. 1979. The Minimum Wage Today: How Well Does It Work? Monthly Labor Review, vol. 102 (July): 17-21.Argues that the benefits of the minimum wage outweigh its costs.Linneman, Peter. 1982. The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question. Journal of Political Economy, vol. 90 (June): 443-469.Finds that the disemployment effects of the minimum wage fall mainly on blacks, females, restricted individuals, residents of small cities, those with low education, the old, and non-union members. Beneficiaries of the minimum wage mainly are males and union members.Mattila, J. Peter. 1981. The Impact of Minimum Wages on Teenage Schooling and on the Part-Time/Full-Time Employment of Youths. In Rottenberg (1981a): 61-87.Finds that the disemployment effects of the minimum wage have encouraged youths to stay in school. Also, youths have shifted out of full-time work and into part-time work, in order to accommodate schooling.McCulloch, J. Huston. 1981. Macroeconomic Implications of the Minimum Wage. In Rottenberg (1981a): 317-326.Finds negligible effects from the minimum wage on inflation. However, it may reduce the size of the capital stock by reducing profitability in covered industries, thereby leading to lower wages in the long run.McKee, Michael, and West, Edwin G. 1984. Minimum Wage Effects on Part-Time Employment. Economic Inquiry, vol. 22 (July): 421-428.Finds that the minimum wage discourages part-time employment in favor of full-time jobs.McKenzie, Richard B. 1980. The Labor Market Effects of Minimum Wage Laws: A New Perspective. Journal of Labor Research, vol. 1 (Fall): 255-264.Argues that increases in the minimum wage, which apply only to money wages, will lead to a reduction in non-money wages, such as fringe benefits. Thus employers can respond to a higher minimum wage by lowering benefits by the same amount.Mellor, Earl F. 1987. Workers at the Minimum Wage or Less: Who They Are and the Jobs They Hold. Monthly Labor Review, vol. 110 (July): 34-38.Finds that those earning at the minimum wage or less consist largely of young persons and women. The majority worked part-time in services or sales. Since many of these people probably also received commissions or tips, the number of workers earning the minimum wage or less may be overstated.Mellor, Earl F., and Haugen, Steven E. 1986. Hourly Paid Workers: Who They Are and What They Earn. Monthly Labor Review, vol. 109 (February): 20-26.Finds that 60% of those earning the minimum wage or less are under age 25 and one-third were teenagers.Meyer, Robert H., and Wise, David A. 1981. Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth. In Minimum Wage Study Commission (1981), vol. 5, pp. 175-201.Finds that abolition of the minimum wage would increase employment by out-of-school youth by 6%.Meyer, Robert H., and Wise, David A. 1983a. The Effects of the Minimum Wage on the Employment and Earnings of Youth. Journal of Labor Economics, vol. 1 (January): 66-100.Estimates that abolition of the minimum wage would have led to significantly higher employment among youth, especially black youth. Finds no evidence of higher earnings from the minimum wage.Meyer, Robert H., and Wise, David A. 1983b. Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth. Econometrica, vol. 51 (November):1677-1698.Finds that if the minimum wage did not exist in 1978, employment among out-of-school young men would have been 7% higher. Also, the average earnings of youth would have been higher.Mincer, Jacob. 1976. Unemployment Effects of Minimum Wages. Journal of Political Economy, vol. 84 (August): S87-S104.Finds that the negative effects of a minimum wage increase are greatest for nonwhite teenagers. Moreover, the disemployment effects on the size of the labor force are greater than the effects on the unemployment rate.Mincy, Ronald B. 1990. Raising the Minimum Wage: Effects on Family Poverty. Monthly Labor Review, vol. 113 (July): 18-25.Finds a significant impact on reducing poverty from an increase in the minimum wage. This is because the disemployment impact falls mainly on teenagers, whose contribution to family income is small.Minimum Wage Study Commission. 1981.Report, 7 vols. Washington: U.S. Government Printing Office.Concludes that a 10% increase in the minimum wage will reduce teenage employment by 1%-3%.Moore, Thomas G. 1971. The Effect of Minimum Wages on Teenage Unemployment Rates.Journal of Political Economy, vol. 79 (July/August): 897-902.Finds that the minimum wage increases unemployment primarily for nonwhite teenagers.Neumark, David, and Wascher, William. 1992. Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws. Industrial and Labor Relations Review, vol. 46 (October): 55-81.Finds that a 10% increase in the minimum wage reduces teenage employment by 1% to 2%, and a decline of 1.5% to 2% among young adults.Parsons, Donald O. 1980. Poverty and the Minimum Wage. Washington: American Enterprise Institute.Finds that the minimum wage mainly reallocates income among low-wage workers, benefiting adult females and hurting teenagers of both sexes.Peterson, John M. 1957. Employment Effects of Minimum Wages, 1938-50. Journal of Political Economy, vol. 65 (October): 412-430.One of the first empirical studies to show that minimum wages reduce employment.Peterson, John M. 1981. Minimum Wages: Measures and Industry Effects. Washington: American Enterprise Institute.Calculates the impact of the minimum wage on different industries. The negative employment effects primarily impact low-wage industries such as retailing.Peterson, John M., and Stewart, Charles T., Jr. 1969. Employment Effects of Minimum Wage Rates. Washington: American Enterprise Institute.Summarizes a large number of studies finding negative employment effects from minimum wages.Phillips, Llad. 1981. Some Aspects of the Social Pathological Behavior Effects of Unemployment among Young People. In Rottenberg (1981a): 174-190.Finds that primary impact of minimum wage is on young males, especially black males. This has encouraged continued school enrollment and entry into the armed forces. However, it has also encouraged "illegitimate" alternatives to employment, such as crime.Ragan, James F., Jr. 1977. Minimum Wages and the Youth Labor Market. Review of Economics and Statistics, vol. 59 (May): 129-136.Confirms that higher minimum wage rates reduce youth employment and increases youth unemployment rates, especially for nonwhite males.Ragan, James F., Jr. 1981. The Effect of a Legal Minimum Wage on the Pay and Employment of Teenage Students and Nonstudents. In Rottenberg (1981a): 11-41.Because the minimum wage reduces employment for teenagers, government funds spent on job training for teenagers must be counted as part of the cost of the minimum wage.Rosa, Jean-Jacques. 1981. The Effect of Minimum Wage Regulation in France. In Rottenberg (1981a): 357-376.Finds that the minimum wage reduces employment of youth in France, especially males.Rottenberg, Simon. 1981a. The Economics of Legal Minimum Wages. Washington: American Enterprise Institute.Collection of papers.Rottenberg, Simon. 1981b. Minimum Wages in Puerto Rico. In Rottenberg (1981a): 327-339.Finds that the minimum wage has caused massive disemployment in Puerto Rico and lowered the overall standard of living.Smith, Ralph E., and Vavrichek, Bruce. 1987. The Minimum Wage: Its Relation to Incomes and Poverty. Monthly Labor Review, vol. 110 (June): 24-30.Finds that 70% of workers earning the minimum wage in 1985 lived in families in which at least one other member held a job. Also, teenagers held almost one-third of all jobs paying the minimum wage.Smith, Ralph E., and Vavrichek, Bruce. 1992. The Mobility of Minimum Wage Workers.Industrial and Labor Relations Review, vol. 46 (October): 82-88.Examines a panel of workers earning the minimum wage in the mid-1980s and finds that over 60% were earning more than the minimum wage a year later, with gains averaging 20%.Sowell, Thomas. 1977. Minimum Wage Escalation. Stanford, CA: Hoover Institution Press.Argues that indexing the minimum wage would magnify its problems.Steindl, Frank G. 1973. The Appeal of Minimum Wage Laws and the Invisible Hand in Government. Public Choice, vol. 14 (Spring): 133-136.Argues that political support for the minimum wage results from the fact that those who benefit from a modest increase will outnumber those who lose.Stigler, George J. 1946. The Economics of Minimum Wage Legislation. American Economic Review, vol. 36 (June): 358-365.Argues that a minimum wage will reduce output and decrease the earnings of the poor.Tauchen, George E. 1981. Some Evidence on Cross-Sector Effects of the Minimum Wage.Journal of Political Economy, vol. 89 (June): 529-547.Finds that increases in the minimum wage tend to lower wages for those in uncovered sectors, because there is increased demand for uncovered jobs from those no longer employable at the minimum wage.Taylor, Lowell J. 1993. The Employment Effect in Retail Trade of a Minimum Wage: Evidence from California. Washington: Employment Policies Institute.Criticizes Card (1992b).Trapani, John M., and Moroney, J.R. 1981. The Impact of Federal Minimum Wage Laws on Employment of Seasonal Cotton farm Workers. In Rottenberg (1981a): 233-246.Finds that extension of the minimum wage to seasonal cotton workers in 1966 led to a substitution of mechanical processes for labor.Vandenbrink, Donna C. 1987. The Minimum Wage: No Minor Matter for Teens. Economic Perspectives, Federal Reserve Bank of Chicago, vol. 11 (March/April): 19-28.Finds large reductions in teenage employment from an increase in the minimum wage.Van Giezen, Robert W. 1994. Occupational Wages in the Fast-Food Industry. Monthly Labor Review, vol. 117 (August): 24-30.Shows that wages in the fast-food industry are closely tied to the minimum wage.Welch, Finis. 1974. Minimum Wage Legislation in the United States. Economic Inquiry, vol. 12 (September): 285-318.Finds that the minimum wage has reduced employment, especially among teenagers; it has made teenagers more vulnerable to the business cycle; and has forced teenagers out of covered occupations into those not covered by the minimum wage.Welch, Finis. 1978. Minimum Wages: Issues and Evidence. Washington: American Enterprise Institute.Finds that those primarily affected by the minimum wage are the aged, teenagers, and part-time workers.Welch, Finis, and Cunningham, James. 1978. Effects of Minimum Wages on the Level and Age Composition of Youth Employment. Review of Economics and Statistics, vol. 60 (February): 140-145.Finds that in 1970 the minimum wage reduced employment of 14-15 year olds by 46%, by 27% for those 16-17, and by 15% for those 18-19.Wessels, Walter J. 1980. Minimum Wages, Fringe Benefits, and Working Conditions. Washington: American Enterprise Institute.Finds that increases in the minimum wage lead to a reduction in fringe benefits and a deterioration of working conditions.West, E.G. 1980. The Unsinkable Minimum Wage. Policy Review (Winter): 83-95.Argues that economists should do a better job of explaining the negative effects of the minimum wage.Williams, Walter. 1977a. Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities. Policy Review(Fall): 7-30.Argues that minimum wage laws have had a disproportionately negative effect on black teenagers.Williams, Walter. 1977b. Youth and Minority Unemployment. Study prepared for the Joint Economic Committee, U.S. Congress. Joint Committee Print, 95th Congress, 1st session. Washington: U.S. Government Printing Office.Points out that in 1947, prior to expansion of the minimum wage, black teenage unemployment was actually lower than white teenage unemployment, and that teenage unemployment generally was sharply lower than it is today.

1 Million Dollars: Pennywise Pound Poor Deficit Reduction Ideas

2011-07-01T03:36:00.001-07:00

Remember this scene from the Austin Powers movie?

A parity of our political leaders discussion of budget cuts and tackling the deficit? This especially reminds me of the political posturing we get from the right and the left (like in a recent NYT article) discussing cuts to farm subsidies. Cutting the entire farm program budget amounts to less than 1/2 of 1 % of total government spending. Given the problems with medicare and social security, it seems like it costs us more to simply discuss farm subsidies than what we will ever end up saving through cuts. Some groups like the EWG have spent a lot of resources tracking farm subsidy data. Why? I guarantee it is not a fiscally minded agenda. They are more concerned with politically correct agriculture than sustainable farms or government, and I guarantee if subsidies were redirected to organic and local backyard production, the EWG data base would probably go away while the deficit grows and the check is in the mail for wealthy special interests.

Have Ethanol Subsidies Impacted Food Prices?

2011-06-28T03:20:00.000-07:00

"Using the 2004 corn price of $2.06 per bushel as a reference, actual corn prices increased by an average of $1.65 per bushel from 2006 to 2009. Only 14 cents (8%) of this increase was due to ethanol subsidies. Another 45 cents of the increase was due to market-based expansion of the corn ethanol industry. Together, expansion of corn ethanol from subsidies and market forces accounted for 36% of the average increase that we saw in corn prices from 2006 to 2009. All other market factors accounted for 64% of the corn price increase." Read more here.

The Impact of Ethanol and Ethanol Subsidies on Corn Prices: Revisiting History
by Bruce A. Babcock and Jacinto F. Fabiosa. Center for Agricultural and Rural Development. Iowa State University.

Do we get more energy out of ethanol than it takes to make it?

2011-06-28T03:16:00.000-07:00

"Overall then, ethanol has made the transition from an energy sink, to a moderate net energy gain in the 1990s, to a substantial net energy gain in the present."

2008 Energy Balance for the Corn-Ethanol Industry. USDA

DTN/The Progressive Farmer Agriculture iPad App

2011-06-20T20:15:00.001-07:00

The best ap I've ever used.

http://www.youtube.com/watch?v=41nyOXpnNXo&feature=youtube_gdata_player

Regulating Commerce

2011-06-17T06:20:00.000-07:00

Given the recent talk from the department of transportation regarding the possibility of requiring farmers and ranchers to have commercial drivers licenses, I thought I'd revisit some the flawed ideas related to the commerce clause. As it is, one of the regulator's primary concerns is if agricultural activity in this sense constitutes 'interstate commerce.'

In the case Wickard v. Filburn (1942) the Agricultural Adjustment Act (AAA) was found to be constitutional. This was on the basis that congress had a right to ‘regulate commerce.’
The power to ‘regulate commerce’ can be found article 1 Section 8 of the constitution. It is listed as one of the enumerated powers of the constitution:

‘To regulate Commerce with the foreign Nations, and among the several States, and with the Indian Tribes;’

In this case a farmer’s crop was being taxed because he produced more than was allowed under the AAA. His defense was that the federal government had no power or business telling him what he could grow on his private property in his state.

The court concluded that even though his crop was grown on his land in his state, it was possible that after he sold it, it could be marketed with grain harvested by other producers across the country. As a result this was considered ‘interstate commerce’ and could be regulated or taxed. The court did not give any more specific definition of ‘interstate commerce’ and set a precedent that if an activity could be considered ‘interstate commerce’ in theory, then it was subject to federal jurisdiction.
Was the court’s decision consistent with what was written in the constitution and our founder’s intentions? How broad did they interpret the power to regulate commerce?
What was meant by regulating congress among the several states?

In Federalist # 45 we read the following:

‘The powers delegated by the proposed constitution to the federal government are few and defined. Those which are to remain in the state governments are numerous and indefinite.’
‘The powers reserved to the several states will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people and the internal order, improvement, and prosperity of the state.’

It appears here that our founders never intended for the federal government to be very involved with business and agriculture in the states. The Wickard interpretation is very broad. It does not seem consistent with the idea that the powers of the federal government are few or defined. It is obvious that this decision is contrary to our founder’s idea of limited government.

If we read Federalist # 41, six powers of the federal government are identified and explained. Two of these described the federal government’s relationship with regard to interstate commerce.

‘Maintenance and Harmony and proper intercourse among the states.’
‘Restraint of the states from certain injurious acts.’

To put this in context, after the American Revolution, some of the states were imposing tariffs on each other. The purpose of the interstate commerce clause was to prevent these kinds of ‘injurious acts’ so that trade and ‘proper intercourse’ could take place between the states. The founders never intended that the federal government should have the power to control every aspect of trade that occurred in or even between the states.

Given this history and the state of fear that our founders had of a powerful government, they would have never ratified the constitution if they thought ‘to regulate commerce’ meant congress would have the power to intervene in private business based on nothing more than a theoretical connection to interstate commerce. Wickard v Filburn lead to a huge expansion of power unanticipated by our founders, and a transfer of power away from the people and states without their consent.The purpose of the constitution was to ensure that the government did very little without the consent of the governed. Court cases like these leave us defensless.

As quoted from Ayn Rand’s book Atlas Shrugged ‘ …the government’s plans cannot be held up by the matter of your consent.’

Re-printed from my AgWeb post: http://www.agweb.com/blog/Economic_Sense_190/Regulating_Commerce_Agricultural_History_18256/

Rand Paul's Pro Choice Agenda

2011-06-17T06:01:00.000-07:00

Choice is fundamental in a free society, however, this most basic civil right is constant prey for special interests and power hungry politicians. This radio broadcast from AgriTalk with NCBA president Steve Foglesong pretty well sums up many of the major issues in agriculture and economic policy for that restrict our personal freedoms. As he says, GIPSA (new proposed rules) is another example of excessive government overreach, among other things including the takeover of the financial industry, the auto industry, as well as proposed regulations on dust and greenhouse gases, not to mention proposed tax increases on thousands of family farms and ranches (marginal tax rates are still set to increase in 2011). Add to that the attempt in the courts to ban sustainable choices in alfalfa and sugar beat (biotech) production earlier this year and coming legislation that will limit choices related to sustainable livestock production via pharmaceutical technologies.

Now, even more imperious, some in the department of transportation are investigating whether producers and farm workers should be required to have CDL (commercial drivers licenses) licenses to transport agricultural products or operate farm equipment. The basis is on another flawed interpretation of the commerce clause. This is ridiculous, what about kids and teenage employment? Labor and compliance costs would skyrocket. ITS NOT ABOUT SAFETY!!! Of course accidents happen, but the role of licensing in an economy in general is about power and control as opposed to virtue. The flawed assumption or justification is that licensing will make drivers safer or more responsible. I have a feeling that there are special interests behind this that could care less about your safety or civil right to choose.

As Steve Foglesong implied, this has to stop somewhere. We saw what happened to the financial and auto industry as a result of excessive intervention (via the social planning of money and interest) and obsessive attempts to micromanage our choices in housing and automobiles (via CAFE standards). (contrary to the misinformed opinion that it was lack of planning and regulation that caused the financial crisis). Do we really want to be bailing out the agriculture industry in a few years? While some may claim ag has a revolving bailout program in subsidies, we are currently spending less than 1/2 of 1 percent of the federal budget on farm programs. Continuing to micromanage our food and fiber system to the point of collapse would entail a lot larger sum (recall agriculture is a huge part of GDP and is responsible for about 1 in 6 jobs in the U.S.- in the end do we really want to be bailing out Wal-Mart or McDonalds?)

Luckily, some in the senate are taking a stand against this affront on our personal freedoms and liberties. Particularly in the video, Senator Rand Paul from Kentucky has taken on the energy department's out of control mircomanaging of the simplest aspects of our daily lives

What's obvious is the emoting comeback we get from the energy department, vs. Senator Paul's cutting analytic approach based on fundamental economic principles. (see also The Misery of 1.6 Gallons and Ch. 3 and17 in Robert Murphy's Lessons for the Young Economist) We need more critical and analytical thinking like this in DC. The obvious flaw in the energy department's defense of limiting our choices in light bulbs or toilets is that 'consumers wouldn't make environmentally responsible choices without these restrictions.' Is that true in every case? Look again at agriculture. Noone is forcing producers to use green bio tech and pharmaceutical technologies in animal production, but farmers have adopted them hand over fist and nearly everything we find on the shelf (save the limited numbers of GMO free and organic products) is a biotech related product. The resulting improvements in biodiversity, reductions in toxic chemical use, and particularly greenhouse gas and water use reductions from these choices dwarf the impacts of light bulbs and toilets. Spontaneous order.

Working at the Fed

2011-06-08T15:25:00.000-07:00

From: When a Nobel Prize Isn't Enough

"The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. *If much of the unemployment is related to the business cycle — caused by a lack of adequate demand — the Fed can act to reduce it without touching off inflation*…...We need to preserve the independence of the Fed from efforts to politicize monetary policy"."

This line of thinking is what characterizes the Fed's activity in the 2000's leading up to the financial crisis and likely at least partly is contributing to our anemic recovery (and hopefully not setting the stage for a second dip). I'm not sure how the Fed can truly achieve political independence without relinquishing its very political mandate related to unemployment. While Diamond may have been qualified (a statement that Mankiw endorses) I'd prefer bringing back ThomasHoenig who's set to retire this year.

Can we really price carbon?The (trickle down) Economics of Climate Change

2011-06-05T07:50:00.000-07:00

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Frederick Hayek

What some people thing about climate economics:

What economists must do then is take consensus science into account, and approximate what the price of carbon should be to limit economic damages from CO2. This level will be achieved where the marginal cost of reducing carbon emissions is equal to the benefits of decreased damages from climate change in the future.

What some people believe to be the current state of the art of climate economics:

Nordhaus ( Using the DICE-2007 model, and based on the science of the IPCC Fourth Assessment Report) prices carbon at about $30/ ton, with the average person in the US generating about 5tons/yr, for a total of about $150/year, or .09 /gallon of gas and .01/kwh for electricity. However, the Stern Proposal(proposed by another economist in the U.K) estimates the damage from global warming to be closer to $300/ton carbon for the next two decades. In this case we are looking at increasing gas prices by about $1.20/gallon. (read more)

Discussion:

Let's ponder, who is right, and how can economics narrow the gap between these approaches. I question the idea of even 'pricing carbon' and the assumption that the impacts of climate change (manmade or not) fail to be captured in market interactions.

Carbon Taxes

The idea of pricing carbon is that given the assumption that CO2 production has a negative impact on climate change and so many goods and services are carbon intensive, if we can put a price on carbon (paid by corporations that trade carbon permits or a carbon tax) to capture the value of the negative externality, this will 'trickle down' to the mirco level, such that when you buy an ice cream cone, gasoline, or a pencil, the impact of your choice on the climate will be captured in the price you pay for it. This is the climate change knowledge problem. We have to get the initial price of CO2 correct so that the 'trickle down' economics works at the micro level and we ward off catastrophic climate change.

The correct price for carbon will balance the marginal cost of reducing carbon emissions with benefits of decreased damages from climate change in the future. As Armstrong points out, there are few scientific forecasts related to these future damages. And technological change allows us to continually respond the volatile effects of climate change. Advances in biotechnology are allowing us to produce more climate resilient crops, all the while reducing our carbon footprint in agriculture. How can we incorporate this knowledge into our calculus? When it comes to the costs of reducing carbon emissions, it isn’t any easier. What are the opportunity costs of resources invested in emissions mitigation (voluntarily vs. those mandated or incentivised by government administered prices for carbon)?

Tradeable Permits

Some will argue that instead of a tax, you can get similar or superior results by defining property rights in the form of carbon credits or tradeable permits. Then markets can solve the information problem via the price mechanism that manifests in the trading of permits. The problem still stands. Someone has to initially assign some quantity of permits to 'polluters.' This quantity has to be based on some determination of an 'optimal' quantity of CO2 emissions. This also requires the information necessary for determining the marginal benefits and costs of each associated unit of CO2. The knowledge problem has not been solved, just reformulated in a way that is equivalently intractable for planners to solve. Unless planners get this quantity right, the price that 'trickles down' at the micro level for all goods and services will be too high or too low, based on the artificial scarcity or excess created by the planners’ miscalculation. The classic example of the Coase Theorem solves the externality of pollution of common property like a lake by clearly assigning property rights. The optimal level or quantity of pollution is a separate problem solved by the price mechanism via subsequent exchanges of property rights or contracting. In the case of CO2, the assignment of property rights and the optimal quantity of pollution both have to simultaneously be determined. You have to determine some initial quantity of pollution in order to create the permits (which a are then traded to establish a price).

From the Capitalism Today Blog at Western Kentucky University there was recently a discussion regarding macroeconomic equilibrium and the difficulties of knowing the micro-level equilibrium for something (seemingly) as simple as ice cream:

"They act as if not only there is equilibrium, but that they know where it is. If anyone knows exactly how many ice cream cones the US needs to produce tomorrow, please raise your hands. What no hands? No one can know the “appropriate” amount of ice cream cone production for today let alone for tomorrow. The $15 trillion US economy makes a lot more than just ice cream cones."

I think this analogy may also apply to pricing carbon. Ice cream comes in lots of varieties and flavors, produced and marketed various ways (natural, conventional, biotech, hormone free, organic, home made, store bought, ice cream trucks, retail outlets). Ice cream is pretty differentiated when you think about it. What about carbon? Noone knows how to set a 'national' or even a 'local' price for items as seemingly simple as ice cream or pencils, or the correct quantity that our complex world requires. Why do we expect carbon to be any different than ice cream or pencils? Even if economists like Nordhous and Stern were in agreement, their solutions would not sufficiently deal with climate change's knowledge problem.

Some will agree that planners are no match for markets in determining prices and quantities, but because we currently have no established property rights to the atmosphere there is no 'price' for carbon. As such, there are going to be consequences if we do nothing, and the next best solution is an attempt, even if not perfect, to price carbon because it is not considered in market transactions.

Is that really the next best solution and is it true that the price mechanism totally ignores CO2?

What is carbon really? 'Carbon' in an economy manifests itself in how we heat and cool our homes, how we manufacture goods and services, how we respond to emergencies, how we travel and transport goods, how we store and retrieve information. Leonard E. Read's essay I, Pencil demonstrates the complexity involved in an economy that thrives on disaggregated information and processes with numerous feedback loops and interactions. In a complex society, carbon is no different, and while it may not be explicitly and directly priced, it is hard to believe that its role is not part of the pool of knowledge characterized by the partial bits of information held by all individuals in society.

In fact, while politicians and special interests argue over the politically optimal arrangement of regulatory protections and subsidies to 'combat climate change' markets have responded in much more meaningful ways without any bureaucratically administered price of carbon or cap on CO2.

As Dr. Don Boudreaux of George Mason University points out in a recent piece in the Wall Street Journal, in response to climate alarmists’ connecting violent storms and climate change (and obviously calling for centralized solutions to combat it): (read more)

"...because of modern industrial and technological advances—radar, stronger yet lighter building materials, more reliable electronic warning devices, and longer-lasting packaged foods—we are better protected from nature's fury today than at any other time in human history."

Perhaps the innovations in green technologies in agriculture provide the greatest example of mitigating climate change:

Total decreases in carbon dioxide as a result of using biotech crops was equivalent to removing 6 million cars from the road in 2007. The carbon footprint for a gallon of milk produced in 2007 was only 37 percent of that produced in 1944. For every 1 million cows, the reduction in global warming potential from rBST supplemented cows is equivalent to removing 400K cars from the roadways or planting 300 million trees. The use of grain and pharmaceutical technology in beef production has resulted in a nearly 40 percent reduction in greenhouse gases (GHGs) per pound of beef compared to grass feeding. Intensive agriculture has actually has a mitigating effect on climate change with a reduction of 68 kgC (249 kgCO2e) emissions relative to 1961 technology. (read more)

Conclusion:

We are not really sure how to price carbon, and what we observe in all of these instances is that despite the absence of a centrally planned price or quantity of carbon, people are making choices that optimize its use or production. Because we don't have the knowledge to price carbon, we don't know that the resources expended in 1) lobbying lawmakers to tweak the proposed rules and regulations 2) complying with the burdens of a centrally planned price or quantity, would not have higher valued uses mitigating climate change in other ways (like investment in green technologies like biotech). The best approach for dealing with climate change or any environmental problem is to develop resilient market based economies that are able to invest in the technology necessary to adapt to ever changing resource constraints.

More on “Wanna Bet”

2011-06-03T01:43:00.000-07:00

More on the details and reasoning behind Dr. Boudreaux's bet:

"My prediction is that, as long as ours remains a reasonably free-market economy – and, for all of its imperfections, I'm predicting that the U.S. economy will continue to be 'reasonably free market,' and one that, despite the absurd protectionist efforts of the likes of Sens. Sherrod Brown, Lindsey Graham, and Chuck Schumer, an economy increasingly and (hence) beneficially integrated in to the global economy – our increasing prosperity and the global-economy's innovation will make Americans increasingly safe from the worst effects of tornados, floods, and hurricanes.

By the way, not only will Americans become more protected from these weather events; peoples in other market-oriented societies will, too."

http://cafehayek.com/2011/06/more-on-wanna-bet.html

Lessons for the Young Economist - Robert P. Murphy - Mises Institute

2011-06-02T19:14:00.000-07:00

A great reference principles of economics text (no charge & available in several formats)

http://mises.org/resources/5706/Lessons-for-the-Young-Economist

On Twisters, Markets, & Climate Change

2011-05-31T06:05:00.001-07:00

More Weather Deaths? Wanna Bet? -WSJ May 31,2011

...because of modern industrial and technological advances—radar, stronger yet lighter building materials, more reliable electronic warning devices, and longer-lasting packaged foods—we are better protected from nature's fury today than at any other time in human history.

While time and resources are wasted trying to *design* a pricing or regulatory framework (with all of the requisite handouts to corporate and special interests that killed Waxman-Markey) to combat climate change, the price mechanism seems to have the lead on actually dealing with it. Consider also that green technology breakthroughs in food production (like biotechnology and growth enhancing pharmaceuticals) and the consequent reductions in greenhouse gas emissions have dwarfed the impact of wind, solar, and hybrid cars. All without regulatory mandates or putting an official price on carbon. In fact, from a regulatory perspective, we've done much to limit these breakthroughs (for example recent restrictions on biotech alfalfa, sugar beets etc. while giving tax credits an subsidies to the former) likely accompanied by the applause of some of those most vocal about combating climate change.

President's Discussion of Farm Subsidies or The Combines Have Taken Over the Farm

2011-05-30T07:25:00.000-07:00

Recently at a town hall the president responded to a 'vegetable' farmer's question (about the President's policy direction for farm programs):

'very profitable big combines are getting a lot of money from taxpayers’

The machines have taken over, combines have taken on a mind of their own and are keeping all of the farm subsidy money for themselves! But maybe the combines are our only hope for defending the planet from GMO zombie frankencrops! It is sad, but to some, these ideas aren't humor, sarcasm, or science fiction.

Seriously, I'm sure the combine statement was just another spoof. Just like President Bush and Sarah Palin or any politician in this age of multimedia, good luck with avoiding being caught on camera being human. Just hope the media is responsible and objective with the footage.

Some of this dialogue on farm subsidies goes back to the largely under-analyzed mantra repeated over and over again that most farm subsidies go to the largest wealthiest farms. As I've pointed out before here, it's true that the bulk of money spent on farm policy (of that that doesn't go to other programs) goes to larger operations, but on a dollar for income basis it's the smaller farms that benefit the most. So, the income caps would ensure that only those farms that depend the most on the subsidies would get them. However, in terms of getting the most out of our tax dollars in terms, other data (as pointed out by economist Darren Hudson at Texas Tech)shows that larger farms produce more per dollar spent. If larger farms also adopt green technologies (like biotech and autosteer technology) at greater rates than smaller farms then it is possible that they are also more sustainable.

The other issue, how to limit subsidies to 'genuine family farms.' The terms 'family farm' and 'factory farm' are often used by activists in very manipulative and political way, divorced from any real objective definition. I'm optimistic that our policy makers are more shrewd and objective. Based on USDA numbers, 98% of all farms are family farms. There is no income cutoff. And, as this farmer points out in the Huffington Post, (also consistent with my data) it doesn't take but a few thousand acres to produce revenues near or above $1 million dollars and the land and capital necessary to for even these smaller grain farms could also put net worth into the millions (which is why the death tax disproportionately penalizes family farms so heavily). Even on the net, it would make sense to have a 'risk adjusted' net worth cutoff (since farming can be an extremely financially risky operation). Doing these things would probably put means adjusted cutoffs back in the range of the top 6% of family farms. (back to wealthy profitable combines)

Lower cutoffs would probably only have the effect of propping up hobby farms, or small vegetable farmers that produce for themselves or maybe a local farmers market. But that's a dramatic shift, and a change from subsidizing staples that feed the world to novelty crops that are nice to have. Perhaps that is the answer the farmer in the town hall was looking for.

In the grand scheme of things, what to spend on agriculture is really a philosophical 'size and scope of government' question anyway. The amounts being spent make little or no difference to the budget deficit (<.5%). Long gone are the days when we were plowing under crops and slaughtering livestock to deal with the surpluses. Because the payments make up such a small part of most farmers incomes, any disincentives have been overpowered by market driven Investments in green technologies and improved production practices that have reduced any negative environmental consequences pointed out by activists that want more intervention. Even in the area of ethanol, consumers are saving about $400 /yr even netting out energy differences from gasoline and we are now exporting to Brazil.

References:

Obama calls for "revamping" of farm support system, possible income caps for subsidies
http://www.cbsnews.com/8301-503544_162-20062208-503544.html

The Face of A Giant Agribusiness - The Huffington Post
http://www.huffingtonpost.com/noah-hultgren/face-of-a-giant-agribusin_b_861502.html

Agritalk- May 12, 2011
http://www.agritalk.com/podcast/?p=episode&name=2011-05-12_may_1211.mp3

Jude Capper on Sustainable Beef

2011-05-25T19:50:00.000-07:00

From a recent interview with food sustainability expert Dr. Jude Capper:

What is the environmental impact of beef grown on grass compared to conventional beef?

Dr. Capper – "Cows grow more slowly when grass is all they eat. If all of the beef in the U.S. were grass-fed we would need an additional 64.6 million cows in order to match the amount of beef produced in 2010. That would require an additional 131 million acres of land, which is about 75% of the state of Texas. That many cows would need an additional 1,700-billion liters of water, which amounts to the annual consumption of 46.3-million U.S. households. These cows would generate an additional 135 million tons of carbon which would be like adding 26.6 million cars to the road every year. So, in terms of land, energy, water, and carbon, grass-fed beef has a much larger environmental impact than conventional beef production."

Is it more natural for a cow to eat grass instead of corn?

Dr. Capper – "Cows probably did not eat corn 500 years ago. But does it matter if it's natural as long as it improves environmental impact, food safety, and beef affordability? Almost nothing we do today is 'natural' compared to 500 years ago. We have cars and airplanes. We have treatments for cancer and heart disease. Why is it that in every other business sector we celebrate increased efficiency and productivity thanks to new technology while when it comes to food some want it done the old-fashioned way?"

Read the entire interview:

http://www.bestfoodfacts.org/main/food_for_thought/0/30

Time has come to end farm subsidies (or end small farms?)

2011-05-21T06:25:00.000-07:00

"This is good news. Agricultural subsidies cost taxpayers more than $15 billion each year, and until those subsidies are eliminated, farming in America will never be sustainable." - Baltimore Sun, May 18, 2011.

I've seen similar numbers reported recently in the New York Times as well. Bear in mind, $15 billion sounds like a lot, but it amounts to less than 1/2 of 1% of total federal spending. The data also show that small farms depend more heavily on subsidies than larger farms (often misunderstood as 'big agribusiness' or 'industrial farms' ). Eliminating subsidies then, if anything would lead to more concentration in the industry and larger farms.

So in terms of financial sustainability, then yes the article would be correct on that point, as the smaller, less financially sustainable farms may go away. But what about environmental sustainability?

The argument that eliminating subsidies will make agriculture more environmentally sustainable is tantamount to arguing that eliminating smaller farms will make agriculture more sustainable (which seems to be the opposite of what many anti-subsidy advocates want or think is sustainable)

Many of the green technologies (herbicide and pest resistant GMO crops, pharmaceuticals) used by modern farmers dwarf the impact of other consumer green technologies like hybrid cars. Many of these are 'scale neutral' (for instance, the single largest growing demographic among GMO adoption is small farmers in developing countries) so eliminating small farms that use these technologies won't help with sustainability, given they have adopted these technologies. Other green technologies in agriculture include GPS and auto steer technology. Larger scale production is likely necessary to get the most (financially and environmentally) from these technologies.

Among those most lagging in green technology adoption are organic producers, which have zero tolerance for GMOs, (although fully embracing more volatile methods utilizing nuclear radiation to breed better plants)

However, even as the market for these products is greatly expanding, it makes up a very small proportion of the food we consume (largely supplementals like fruits and vegetables vs. the staple commodities that feed the world) making organic largely irrelevant to the overall conversation about sustainability in agriculture and subsidies. I'm not sure why the article even goes down this path.

Some are arguing for a compromise, capping subsidies based on income level. That may be a way to preserve smaller farms, but doesn't really make much difference in terms of government spending and likely won't matter much in terms of sustainability without knowing more about green technology adoption rates and productivity of smaller farms. Many of the arguments for ending farm subsidies based on spending, sustainability, nutrition etc. lack empirical support. Ultimately the argument about farm subsidies comes down to your view on the role of government.

As far as the article's comments on farming like our great grandparents, I'm not sure 26 bushels an acre, no matter what the method, is going to cut it these days.

#GMOs #Toxins and unborn babies... a deeper examination of the study. #science #communication #peerreview #fb - Consider Icarus...

2011-05-21T05:27:00.000-07:00

A Very good piece by Dr. Cami Ryan:

http://doccami.posterous.com/gmos-toxins-and-unborn-babies-a-deeper-examin

May 20, 2011

"GM food toxins found in the blood of 93% of unborn babies"(see: http://www.independent.ie/lifestyle/parenting/toxic-pesticides-from-gm-food-crops-found-in-unborn-babies-2652995.html)

These headlines (or a version of it) are making their rounds in the media these days. They refer to a study done in Quebec. Aziz Aris and Samuel Leblanc claim to have detected herbicides and/or the insecticidal protein Cry1Ab in the blood of Canadian women, pregnant or not pregnant, and in umbilical cords. Their study / results were recently published in the journal Reproductive Toxicology (TITLE: "Maternal and fetal exposure to pesticides associated to Genetically Modified Foods in Eastern Townships of Quebec, Canada").

In April, I received an anonymous email from someone who challenged me on the results of this study (amongst other things…)

"While I can see the potential benefits of GMOs, I am uncomfortable with how readily pro-GMO scientists dismiss the gathering evidence of potential harmful impacts (such as the very recent study finding the BT toxin in mother's breast milk)."

My response was as follows – and points to problems with the methodological approach…

"I think that you are referring to the article by Aris etal and their study on the sera (blood) (as opposed to breast milk) that was published in a recent issue of Reproductive Technology (2011). I read the article and, quite frankly, have some questions regarding the methodology. First, there seems to be a lack of controls in the experimental approach. What are the serum levels of female organic farmers who spray Bt vs those conventional female farmers who plant Bt soy, corn and cotton? Bt is one of the most effective pesticides used in the organic industry and, generally, the number of applications is even higher in organic crops than in conventional/GE. What are serum levels of women who eat no corn or soy products and do not buy organic (having no exposure)? The lack of controls in this study is alarming and can account for false positives in results (I refer you to the paper in the J. Agric. Food Chem. 2005, 53, 1453-1456: "To avoid misinterpretation, samples tested positive for Cry1Ab protein by ELISA should be reassessed by another technique"). In my opinion, the Aris etal study is only moderately interesting and very, very incomplete."

As far as I can tell, there is a real problem with 'credibility' here. I question the peer review process. This is echoed in another response to this publication…

http://www.marcel-kuntz-ogm.fr/article-aris-72793155.html

So, how do we accomplish a balance between "expedited publication" (which, after the long-term, laborious research process, the researcher desires - the "reward") and "thorough, competent review"? (I review this a bit further in my blog entry:http://doccami.posterous.com/peer-review-peer-rejected-peer-review-academi )

Peer review, improperly executed, leads to devastating results. Take for example, the fallout from an article published in The Lancet in 1998 (later retracted) that claimed a connection between the MMR vaccine and Autism. These claims (based on a study that was improperly reviewed) rippled through media causing an uproar (fuelled by the celeb-fluence of Jenny McCarthy, I might add) which, ultimately, led to the reduction in numbers of childhood vaccinations (bringing with it a whole other set of problems).

Science is a good thing. But key to good science is a set of checks and balances that monitors and challenges results and ensures accountability in the process.

The peer review process... Maybe it needs to be 'peer reviewed'?

Gas Prices, Long Lines, Parachutes & Profits

2011-05-06T22:09:00.000-07:00

Recently, from the New York Times:

"The crisis rolled on through the summer. Irrationality set in. All over the country, people wasted gallons of gas waiting in line for the gas they were afraid wouldn’t be there the next week. The crisis was the only news story anyone cared about. A protest outside Philadelphia turned violent. People stood guard beside their cars at night against thieves who siphoned out fuel."

From Atlas Shrugged:

“Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them….when money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips,and guns; or dollars.”

Recently, some clever bureucrats have gotten together to form a group known as the 'Oil and Gas Price Fraud Working Group.'

As quoted at the Knowledge Problem blog:

"And I would also note that one of the things the Attorney General task force will be looking at is coordinating with state attorneys general to make sure that we don’t have a what I’ve heard described as a “rockets-and-parachutes phenomenon,” where prices at the pump rocket up when oil prices rocket up, and yet they come down in a parachute fashion when oil prices go down. So we want to make sure that a drop in oil prices is appropriately reflected in a drop in gas prices at the pump."

Based on what I just read in the NYT above, I hope these guys don't take themselves too seriously. Of course, many people get upset about things like Exxon's recent profits reports, but as economist Mark Perry point's out at Carpe Diem, revenue from gas taxes (based on recent numbers) is almost 7 times Exxon's profit on a per gallon basis. (and we still have budget deficits).

It turns out, that consumer behavior in a competitive market (not greedy gas station owners, speculators, or oil companies) explains the "rockets and parachutes" phenomonon.

'Rockets and Parachutes (or feathers) and research here:

ASYMMETRIC PRICE ADJUSTMENT AND CONSUMER SEARCH:

AN EXAMINATION OF THE RETAIL GASOLINE MARKET

MATTHEW LEWIS

Department of Economics

The Ohio State University
(forthcoming Summer 2011 Journal of Economics and Management Strategy)

"The model predicts that consumers search less when prices are falling. This reduced search results in higher profit margins and a slower price response to cost changes than when margins are low and prices are increasing."

and here:

"Contrary to public opinion and previous work suggesting that collusive behavior was the cause behind asymmetric pricing, this paper shows that it can well be the outcome of a competitive market"

Rockets and Feathers
Understanding Asymmetric Pricing
[Job Market Paper]
Mariano Tappata
UCLA
January 2006

Other references:
That ’70s Energy Crisis

By SUSAN STRAIGHT
Published: April 30, 2011
The New York Times

Earth Day: In celebration of affluent middle class fetishes?

2011-04-26T19:46:00.000-07:00

Last Friday was earth day, and across the country I can guarantee a lot of attention was given to eating sustainably, with a focus on local,natural,and organic food. I doubt much emphasis was given to the sustainability of modern food supply chains made possible by large agribusinesses like Cargill, ADM, or Wal-Mart, or the positive environmental impact of biotechnology. As economist Don Boudreaux at Cafe Hayek states regarding sustainability:

"No word currently in vogue among Very Smart and Oh-So-Concerned People smuggles in more mistaken presumptions wrapped in a sentiment that no one in his or her right mind can disagree with than “sustainability.”

Let's look at these presumptions about sustainable agriculture.

Eating Local

One presumption is that eating local implies that food has to travel less, and as a result leads to less energy use. However, this precludes the notion that modern food supply chains and their efficiencies can actually be close competitors to, if not exceed local food in their greenness. As pointed out here in National Geographic (citing this research Environ. Sci. Technol. 2008, 42, 3508–3513) here from the USDA, and here from UC Davis, local foods are often not as energy or climate friendly as those we get from more industrial sources.

Eating Natural

Natural food often implies grass fed, hormone and antibiotic free livestock. However, there are many reasons that corn, hormones, and antibiotics can add a little green to your plate. Based on research from the Leopold Center for Sustainable Agriculture Alex and Dennis Avery (in The Environmental Safety and Benefits of Growth Enhancing Pharmaceutical Technologies in Beef Production, Center for Global Food Issues) found that grain feeding in combination with growth enhancing pharmaceuticals results in nearly a 40% reduction in greenhouse gas emissions compared to natural grass fed livestock. This is corroborated by research from Jude Capper, which found that for every 1 million dairy cows utilizing the hormone rbST, the annual decrease in global warming potential is equivalent to removing 400 thousand cars from the road annually.

Organic

Organic foods have particular restrictions related to biotechnology- essentially zero tolerance on GMO ingredients. This is a major drawback to trying to 'go green' on an all organic diet. According to research from the USDA, biotechnology has led to large reductions (and in some cases total elimination) of many toxic chemicals. According to research from PG Economics, in 2009 alone, greenhouse gas reductions associated with biotechnology were equivalent to removing 7.8 million cars from the road.

Of course, there is nothing wrong with local, organic, or natural food. I am a regular consumer of certain local and organic brands, and frequent places like Trader Joe's fairly often (despite the nearest location is 70 miles away). The problem is, that local, organic, and natural have become almost like a fetish to many sustainability enthusiasts, and this distraction has kept many well intending environmentalists (and the media and perhaps even some educators) from noticing the drastic improvements in the sustainability of modern agriculture. As a result many of earth day celebrations have become occasions for indulging in these affluent middle class fetishes at the expense of exploring a greener world of possibilities offered by modern agriculture.

Constrained Capitalism? Not

2011-04-21T15:00:00.001-07:00

From the Guardian and you can find an article entitled "Arguments for Constrained Capitalism in Asia."

And we wonder where people get ideas, like ending our addiction to economic growth.

The article is very thought provoking, but I'm not sure the author truly understands economics, prices, or capitalism, or they are confusing their terms.

They advocate "constrained capitalism – which limits the use of natural resources and inhibits the behavior of consumers" and state that "Governments need to tell their people that they can't have everything"

Prices, interest rates, profits, property rights, torts- all the things that make up a system of capitalism, by definition, work to limit the use of natural resources and constrain the behavior of consumers. They serve as reminders that we can't have everything and that our choices always involve trade offs. Often times, it is the intent of government policy to override these constraints, sending the false signal that yes you can have everything. (i.e. socially planned interest rates and the excess that lead up to the financial crisis that reminded us, no you can't have everything and prices matter). Prices reflect information related to scarcity and the knowledge and preferences of multitudes (billions) of individuals, and force each of us (consumers and businesses), with nearly every decision we make, to consider the impacts of our choices on others and the environment. There are of course instances when we think that prices don't capture the full impact of our behavior (externalities- see Hardin, Coase, Demsetz) but many times over the answer isn't less reliance on market forces, but more. Paul Ehrlich and Jared Diamond have tried to make similar arguments related to 'constrained capitalism' and economic growth, but technological change and economic growth have undermined their claims time and time again.

"investment in rural areas to improve sustainable farming methods and raise farming incomes."

This is one area, perhaps, where I agree, but modern agriculture in general (with GM foods, the application of genomics, proteomics, and pharmaceutical technologies in livestock production, GPS, modern intricate supply chains) is an example of an industry that has drastically reduced its environmental impact, mostly as a result of voluntary decisions by farmers on a global scale to adopt these practices. Investment in these green technologies has paid off. How much of it is due to government sponsored R&D I'm not sure.

"He uses a telling fact: 2.2 billion Asians now have mobile phones, but far fewer have access to drinking water or toilets."

Access to potable water is perhaps one of the areas where increased reliance on markets and the price mechanism could offer the greatest improvement.

"The problem is not about needing more technology but about restructuring an economic system to meet human needs."

Economics and capitalism are all about meeting human needs. There are cases, where according to the article, it may seem that capitalism has not favored nations or peoples that are less than well off, but take the case of Egypt for example, or the many countries in Latin American. As Hernando DeSoto has pointed out, they suffer from a lack of markets and capitalism as opposed to suffering from markets and capitalism. In a market system, if needs are not met, then competition drives profits down. If needs are met with great difficulty or under constraints of scarcity (as the article in the Guardian implies), then prices and profits will reflect that.

"There is no future unless we constrain human behaviour, how you do that is the question of our time"

That is the question of all time, and the subject of economics, which is the study of people's choices and how they are made compatible. Understanding economics and the nature of the price mechanism and spontaneous order provides the analytical framework for addressing so many of the concerns of this article.

References:

Science 13 December 1968:

Vol. 162 no. 3859 pp. 1243-1248

DOI: 10.1126/science.162.3859.1243

The Tragedy of the Commons

Garrett Hardin

The Problem of Social Cost

R. H. Coase

Journal of Law and Economics

Vol. 3, (Oct., 1960), pp. 1-44

Published by: The University of Chicago Press

Article Stable URL: http://www.jstor.org/stable/724810

Toward a Theory of Property Rights

Harold Demsetz

The American Economic Review, Vol. 57, No. 2, Papers and Proceedings of the Seventy-ninth

Annual Meeting of the American Economic Association. (May, 1967), pp. 347-359.

Facts for Ag Fact Friday

2011-04-14T21:45:00.000-07:00

Today is Ag Fact Friday, so here are 10 facts about modern sustainable agricultrue.

Dairy & Livestock Production

#1 The carbon footprint for a gallon of milk produced in 2007 was only 37 percent of that produced in 1944. For every 1 million cows, the reduction in global warming potential from rBST supplemented cows is equivalent to removing 400K cars from the roadways or planting 300 million trees.

#2 Transportation accounts for at least 26% of total anthropogenic GHG emissions compared to roughly 5.8% for all of agriculture & less than 3% associated with livestock production in the U.S.

#3 The use of grain and pharmaceutical technology in beef production has resulted in a nearly 40 percent reduction in greenhouse gases (GHGs) per pound of beef compared to grass feeding.

#4 Bans on feed grade sub- therapeutic antibiotics in European countries lead to increased reliance on therapeutic antibiotics important to human health.

Crop Production

#5 Biotechnology improves insect biodiversity, crop plant diversity, and has lower levels of carcinogens than conventional and organic corn.

#6 The use of biotech Roundup resistant crops has led to reduced herbicide use and allowed roundup to replace other herbicides that were up to 17 times more toxic.

#7 Total decreases in carbon dioxide as a result of using biotech crops was equivalent to removing 6 million cars from the road in 2007. (that’s a lot more than the # of hybrid cars sold in 2007)

Modern Agriculture in General

#8 Rather than having a negative impact on climate change, intensive agriculture has actually has a mitigating effect on climate change with a reduction of 68 kgC (249 kgCO2e) emissions relative to 1961 technology.

#9 Small farms actually benefit more from subsidy programs than large scale farms, despite the relative shares of total subsidies paid. The impacts of subsidies on food choices have not contributed to the obesity epidemic.

#10 Local food production can actually be more energy intensive than modern efficient supply chains. On average, fuel use per cwt for local food production is about 2.18 gallons vs. .69 and 1.92 for intermediate and traditional supply chains for beef production.

References:

The environmental impact of dairy production: 1944 compared with 2007. Journal of Animal Science,Capper, J. L., Cady, R. A., Bauman, D. E. 2009; 87 (6): 2160 DOI: 10.2527/jas.2009-1781

San Diego Center for Molecular Agriculture: Foods from Genetically Modified Crops

A Meta-Analysis of Effects of Bt Cotton and Maize on Nontarget Invertebrates. Michelle Marvier, Chanel McCreedy, James Regetz, Peter Kareiva Science 8 June 2007: Vol. 316. no. 5830, pp. 1475 – 1477

Comparison of Fumonisin Concentrations in Kernels of Transgenic Bt Maize Hybrids and Nontransgenic Hybrids. Munkvold, G.P. et al . Plant Disease 83, 130-138 1999.

Indirect Reduction of Ear Molds and Associated Mycotoxins in Bacillus thuringiensis Corn Under Controlled and Open Field Conditions: Utility and Limitations. Dowd, J. Economic Entomology. 93 1669-1679 2000.

"Why Spurning Biotech Food Has Become a Liability.'' Miller, Henry I, Conko, Gregory, & Drew L. Kershe. Nature Biotechnology Volume 24 Number 9 September 2006.

Genetically Engineered Crops: Has Adoption Reduced Pesticide Use? Agricultural Outlook ERS/USDA Aug 2000

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics report

The Environmental Safety and Benefits of Growth Enhancing Pharmaceutical Technologies in Beef Production. By Alex Avery and Dennis Avery, Hudson Institute, Centre for Global Food Issues.

Lessons from the Danish Ban on Feed Grade Antibiotics. Dermot J. Hayes and Helen H. Jenson. Choices 3Q. 2003. American Agricultural Economics Association.

Does Local Production Improve Environmental and Health Outcomes. Steven Sexton. Agricultural and Resource Economics Update, Vol 13 No 2 Nov/Dec 2009. University of California.

Communal Benefits of Transgenic Corn. Bruce E. Tabashnik Science 8 October 2010:Vol. 330. no. 6001, pp. 189 - 190DOI: 10.1126/science.1196864

Farm Subsidies and Obesity in the United States. Julian M. Alston, Daniel A. Sumner, and Stephen A. Vosti. Agricultural Resource Economics Update V. 11 no. Nov/Dec 007 U.C. Davis

Greenhouse gas mitigation by agricultural intensification Jennifer A. Burneya,Steven J. Davisc, and David B. Lobella.PNAS June 29, 2010 vol. 107 no. 26 12052-12057

Clearing the Air: Livestock's Contribution to Climate ChangeMaurice E. Pitesky*, Kimberly R. Stackhouse† and Frank M. MitloehnerAdvances in Agronomy Volume 103, 2009, Pages 1-40

Comparing the Structure, Size, and Performance of Local and Mainstream FoodSupply ChainsRobert P. King, Michael S. Hand, Gigi DiGiacomo,Kate Clancy, Miguel I. Gómez, Shermain D. Hardesty,Larry Lev, and Edward W. McLaughlin Economic Research Report Number 99 June 2010

The environmental impact of recombinant bovine somatotropin (rbST) use in dairy production Judith L. Capper,* Euridice Castañeda-Gutiérrez,*† Roger A. Cady,‡ and Dale E. Bauman* Proc Natl Acad Sci U S A. 2008 July 15; 105(28): 9668–9673

''Diversity of United States Hybrid Maize Germplasm as Revealed by Restriction Fragment Length Polymorphisms.'' Smith, J.S.C.; Smith, O.S.; Wright, S.; Wall, S.J.; and Walton, M. (1992) Crop Science 32: 598–604

USDA Report- Government Payments and the Farm Sector: Who Benefits and How Much?

http://www.ers.usda.gov/Briefing/FarmPolicy/gov-pay.htm

USDA Report-Farm Income and Costs: Farms Receiving Government Payments

http://www.ers.usda.gov/Briefing/FarmIncome/govtpaybyfarmtype.htm

EWG Headine: A Bailout for Corporate Agriculture?

2011-04-09T12:29:00.000-07:00

Previously I found an article published by the EWG regarding the role of women in agriculture, that I found somewhat misleading. Recently, I ran across a piece by the EWG titled 'Government's Continued Bailout of Corporate Agriculture' which, in addition to the title, made some pretty bold and possibly misleading statements. I'm not saying this is intentional on the part of EWG, but these statements could easily be misinterpreted.

From 1995-2009 the largest and wealthiest top 10 percent of farm program recipients received 74 percent of all farm subsidies

This is true, but it could give the false perception that farm subsidies benefit large farms perhaps at the expense of smaller farms, but I addressed this before in another post Do Farm Subsidies Benefit the Largest Farms the Most?

It's true that many subsidies are tied to commodity production. As a result, those that grow more commodities (i.e. larger farms) will get more money from the government. As a result larger producers take in a larger share of all subsidies (especially those related to commodities). However, subsidies account for a much smaller percentage of income for large producers, and make up a much larger percentage of total income for medium or small producers.

EWG does admit that they favor subsidies going to smaller and midsize farms, where they have the biggest impact on operating budgets. Another quote:

The vast majority of farm subsidies go to raw material for our industrialized food system, not the foods we actually eat. Even less money goes to support the production of the fruits and vegetables that are the foundation of a healthy diet.

This couldn't be further from the truth. It is true, as I discussed above, that most of the subsidies go to commodities, but it isn't true that they don't contribute to the production of foods that we actually eat. In fact, as Michael Pollan has brilliantly stated:

"What I keep finding in case after case, if you follow the food back to the farm — if you follow the nutrients, if you follow the carbon — you end up in a corn field in Iowa, over and over and over again." -Michael Pollan

As I've pointed out many times before, it is a miracle that modern sustainable agriculture can feed so many people in so many ways, with just a few common staple crops, and do it sustainably!

The EWG quote also could give some people the perception that healthy supplements in our diets, like fruits and vegetables, are more expensive than processed foods containing corn and soybeans because corn and soybeans are subsidized more heavily than fruits and vegetables. Again, this couldn't be further than the truth. The agronomics, labor, risk, economies of scale, and capital costs associated with fruit and vegetable production make those crops much more expensive than commodities, and have a much larger role on their prices than subsidies. Eliminating commodity programs would have an insignificant impact at the retail level, and the subsides required to make fruits and vegetables more affordable would dwarf what we are currently spending on commodties.

Finally, while this corporate giveaway has gone on unabated, conservation continues to be shortchanged.

While this may be true, in terms of the allocation of funds, conservation and sustainability in terms of on the farm practices isn't shortchanged in the least. Market forces have overcome subsidy related distortions and led producers and agribusinesses to focus heavily on green technologies including herbicide and pest resistance, water use efficiency, fuel efficiency etc. Again, all the practices that make modern agriculture, sustainable agriculture.

Text Mining Tweets About Factory Farms

2011-04-09T11:30:00.000-07:00

On another blog last year I noted the how those in the agriculture industry were benefiting from the use of social media. (like the Yellow Tail and Pilot Travel incidences). While social media has allowed farmers to organize and communicate about their industry, it also provides a rich data source for measuring sentiment or perceptions about their industry. Companies are finding that by mining text from web pages, comments, blogs, and social media, they can get measure consumer perceptions almost as well or better than they can through explicit surveys. These powerful analytics could be very beneficial to those in the ag industry or agvocacy groups.

After a week as SAS Gobal Forum, I've been pretty excited about some of the text mining presentations that I got to see. After getting home I found a tweet from @imusicmash sharing a post from the Heuristic Andrew blog that shared text mining code from R. (although SAS has some pretty powerful text mining tools, I don’t have access to them for personal blogging purposes) Anyway, I thought I’d take a stab at mining tweets related to ‘factory farms’ using open source R.

I extracted about 2000 tweets containing the term ‘factory farms’ and produced the following cluster analysis on the text:

This seems to give an idea about the content of conversations regarding ‘factory farms.’ Some of these appear to center around gmo foods and Monsanto. This already informs me of misperceptions about ‘factory farms’ and biotechnology. Should people tend to associate these terms when 98% of farms are family farms and most of them raise biotech corn and soybeans?

It seems there are separate clusters of conversations, some related to Monsanto and gmo’s, others related to food and livestock production in general.

It also appears that the topic of ‘factory farms’ is often discussed by the #agchat group, and other food and animal related issues.

I also ran some correlations, or ‘word associations.’ Terms that tend to be used in association with ‘factory farms’ include hens, debeaked,suffering, cruelty,secretive, excess. All of these terms tend to be related to livestock production, and seem to have negative sentment. Words correlated with family farms are more neutral, hauled, Missouri, beans, peas, operated, battling. Terms associated with ‘gmo’ include ban, irreversible, killing. Interesting the term ‘sustainable’ brought up neutral terms. It doesn’t appear, at least from this sample, that sustainable agriculture is associated with biotechnology, at least in the context of tweets related to ‘factory farms.’ Again, to me this speaks more about misperceptions related to modern sustainable agriculture.

Of course, this is just a first jab at this, I’m no expert in text analytics, and I had to rely on my subjective interpretation to some extent. And, obviously, I have not discovered anything that most people in the ag industry don’t already know. However, more sophisticated analysis is possible and could be more revealing than the example I just gave. I truly believe that text analytics can be a powerful tool for the ag industry and agvocation in the future.

Gold, The Fed & Terrorism?

2011-03-22T22:12:00.001-07:00

US Attorny Says Attempts To Use "Liberty Dollar" As Money Is Domestic Terrorism after Bernard Von Nothaus Found Guilty of Counterfeiting | CoinWeek

http://www.coinweek.com/news/featured-news/us-attorney-says-using-gold-as-money-is-terrorism-after-bernard-von-nothaus-found-guilty-of-counterfeiting/

Interesting comments- 'clear and present danger to economic stability' I thought the Fed had that covered- perhaps the housing crisis, current recession, and recent events in Wisconsin slipped the court's mind.

'to challenge the legitimacy of our democratic form of government'- perhaps, but recall the diseases of democracy the founders warned us about in Federalist 10:

"A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project"

Sent from my iPhone

Comment: Some Animals Are More Equal Than Others

2011-03-16T06:35:00.000-07:00

My comments on the NYT Opinionator post:

I'm not an expert on animal welfare, and I'm not sure that the laws in Iowa or Florida make sense. It would make better sense to legally require anyone that is aware of abuse to report it. i.e. if you are more interested in taking the time to create and edit a video as opposed to immediately reporting abuse, that should be a chargeable offense. It should also call into question your priorities about animal welfare. Animal welfare aside, one tradeoff that people are not often willing to admit is that the touchy feely, sentimental, emotional agriculture that they may prefer (free range, natural, etc.) isn't necessarily the most efficient or sustainable. Modern production methods that utilize green pharmaceutical and biotech technologies and efficient supply chains have a much lower carbon foot print are much more sustainable than often given credit for. The bigger story of the improved sustainability of modern agriculture in the last 10-2- years often gets lost in the drama created by stories like these, that often appear to be 'pro-family farm' and 'pro-sustainability' but ultimately support practices that undermine long term sustainability and the practices of most family farms.

National Ag Week

2011-03-15T19:01:00.000-07:00

Today is National Ag Day, and this is National Ag Week. It is a good time to point out, as Pollan’s quote unintentionally draws attention to, the spectacular fact that we can feed so many people in so many ways with just corn (and a few other commodities). With modern agriculture, using green technologies brought to market by companies like Monsanto and efficient supply chains created by companies like Cargill and ADM, family farmers can do this sustainably using fewer toxic chemicals, less water, less energy, and with a lower carbon footprint, at an affordable price.

Today, have your coke and fries, steak and beer, or soy milk and salad, or whatever, but keep in mind the local producer and the modern sustaianable agricultural infrastructure that made it possible. And don't forget, agriculture makes up almost 20% of our national work force!

Do Farm Subsidies Benefit the Largest Farms the Most?

2011-03-08T19:53:00.000-08:00

Most people contend that farm subsidies should be eliminated because they benefit mostly larger farms vs. saving the family farm. It's true that many subsidies are tied to commodity production. As a result, those that grow more commodities (i.e. larger farms) will get more money from the government. As a result larger producers take in a larger share of all subsidies (especially those related to commodities). However, subsidies account for a much smaller percentage of income for large producers, and make up a much larger percentage of total income for medium or small producers.

                                                  Definitions:        Commercial farms: >= $250,000
                                                                             Farms with sales < $250,000 include
                                                                               1) Intermediate farms: full time operators
                                                                                 2) Rural residence farms

As the chart above (from the USDA) shows, in 2008 farms earning less than $250,000 /yr recieved a much greater percentage of their income in the form of government payments, while subsidies only accounted for 4% of income for producers with the largest incomes. The chart below indicates that this relationship seems to hold across years for the last decade.

References:
USDA Report- Government Payments and the Farm Sector: Who Benefits and How Much?
http://www.ers.usda.gov/Briefing/FarmPolicy/gov-pay.htm

USDA Report-Farm Income and Costs: Farms Receiving Government Payments
http://www.ers.usda.gov/Briefing/FarmIncome/govtpaybyfarmtype.htm

Modern Sustainable Agriculture is Not Descriminating

2011-03-08T19:16:00.000-08:00

Last week I commented about an Environmental Working Group article that seemed to give the impression that women were more likely to be involved in or play a larger role sustainable agriculture. As I concluded, modern sustainable agriculture is driven not by gender, but by markets and technology.

If we take a more global view, far from discriminating, modern sustainable agricultural technology has increased economic mobility for women and the poor, especially in developing countries. Read the following from GM Crops: Engines of Economic Mobility, written by a small widowed farmer in the Philipines:

"Access to biotechnology has transformed my life. The increased productivity allowed me, as a widow, to send my three sons to college. I doubt this would have been possible without GM seeds. Women may have gained the most, according to a new study by the University of Warwick in the United Kingdom. In India, cotton harvesting is traditionally a female activity. Since the introduction of GM cotton, women who pick in these fields have seen their income rise by 55 percent. “Overall, [GM] cotton enhances the quality of life of women through increasing income and reducing ‘femanual’ work,” said Arjunan Subramanian, a professor at Warwick. Men, for their part, spend less time spraying pesticides. This leaves them more available for family chores and activities."

EWG Post Misleading About Modern Ag and Women

2011-02-27T12:23:00.001-08:00

In a recent Corn Commentary post, Pam Johnson pointed to this article posted by the Environmental Working Group (EWG) addressing the role of women in agriculture. The EWG post is another example of an activist group, giving the impression of being 'pro family farm' and 'pro sustainable agriculture' yet making statements and accusations that actually undermine the sustainable practices of most family farmers.

For example, here are some quotes from the article:

"Big Ag is big business – and big profits. And when anyone raises questions about the billions of tax dollars lavished on the largest industrial growers of corn, soybeans and other commodity crops or points out the harm that these perverse incentives do to the environment, Big Ag's lackeys lash out."

"More important, though, is how these women farm the land and conserve natural resources. The Organic Farming Research Foundation reports that 22 percent of organic farmers are women. They, and their fellow male organic farmers, follow practices that conserve soil and biological diversity by rotating crops and avoiding synthetic fertilizers, pesticides, hormones and genetically-modified seed."

It almost has a sexist overtone, but we'll ignore that, and Pam Johnson did a great job taking on misconceptions about women in ag in her post. I am more interested in other topics.

Is it true that we are lavishing tax dollars on the largest industrial growers of corn and other commodities? Well it is certainly true, as Michael Pollan points out, that when ever he tries to follow food from the shelf back to its origin, he ends up in a corn field. It is in fact a miracle of science, and the market place, that we can feed the world in so many ways with just a few commodities- and do it sustainably! The state of technology and market fundamentals determine this, not subsidies. In terms of incentives, subsidies do not promote the production of commodities over fruits and vegetables. The market fundamentals, costs, technology, labor inputs etc. guarantee that those production decisions are distinct. (i.e. the presence or absence of a loan deficiency payment is not going to incentivise you to retool for tomato production over corn or vice versa). It is also true that many of our commodity programs are based on production and so larger producers will as a group get a larger share of the government's money, but as pointed out in a recent post at the Truth in Food blog, this does not imply that subsidies promote large scale agriculture at the expense of smaller farms:

"The food ActiviSphere was quick to unanimously pat the Times on the back, bobbing their heads in agreement with the party line that farm subsidies distort the $2.8 trillion food system, encouraging "mainly large-scale farmers" to apparently slavishly plant (or not plant) regardless of what the market tells them.....while it's true the largest dollar amount of farm subsidies go to the largest farms (as you would expect, since subsidies are typically tied directly to production, and production is tied directly to gross sales), looking at the microeconomic effects of subsidies on individual farms should correctly lead you to an entirely different conclusion."

When it comes to impacts on marginal income, the author provides data showing that subsidies make a bigger difference to the smaller producers, not the larger ones. Get rid of the subsidies, and corn is still king, and it is likely we'll see more consolidation vs. a well spring of smaller farms. And of course, the largest overlook in this is the fact that 98% of all farms are still family farms, an inconvenient truth that activists typically overlook. They have often tried to get around this by getting away from terms related to ownership and trying to focus on technologies used, but they then dig themselves another hole in terms of sustainability. Which brings us to another topic.

Are there perverse incentives that lead to production decisions that are harmful to the environment as the EWG article implies? On the contrary, modern production agriculture is one of those industries that make a prime example of 'the invisible green hand.' Individual family farmers have overwhelmingly adopted sustainable green technologies such as genetic modification or growth enhancing pharmaceuticals. (reducing or eliminating the use of toxic chemicals,improving insect biodiversity, reducing food toxins, reducing erosion and groundwater pollution, reducing greenhouse gas emissions, reducing water and fossil fuel use) This is done without overbearing direction given by government regulations and is invariant to incentives created by subsidies. Market incentives have led farmers, acting in their own self interest, to adopt these technologies producing environmental benefits for all. (for peer reviewed research related to the sustainability of modern agriculture see here, or see this fact filled video related to modern sustainable agriculture). If anything, incentives in the ag industry promote behavior that is better not worse for the environment.

I'd like to revisit a quote from the EWG article:

"They, and their fellow male organic farmers, follow practices that conserve soil and biological diversity by rotating crops and avoiding synthetic fertilizers, pesticides, hormones and genetically-modified seed"

Bear in mind, that most modern family farmers employ crop rotation to better manage fertility, pests, and to combat issues related to resistance. It's great that organic producers implement these practices, but these practices are not unique to organic production. It is certainly true that organic standards restrict the use of synthetic chemicals, but do make allowances for many toxic chemicals (see here for a list from § 205.601 Synthetic substances allowed for use in organic crop production.) Alex Avery does a good job pointing this out in his articel 'Natures Toxic Tools.' I've already spoken about the improved sustainability from genetic modification and pharmaceutical technologies, but what is not made clear is the sci-fi type mutated plants that organic standards find perfectly acceptable. As Pamela Ronald points out in her book Tomorrow's table: organic farming, genetics, and the future of food, mutation breeding involves exposing plants to radiation or chemicals to produce random mutations that hopefully produce better performing crops. Unlike the very precise and controlled methods used by Monsanto to create Roundup Ready Soybeans, mutation breeding is perfectly acceptable according to U.S. organic standards. Not something they seem proud of promoting. Secondly, organic producers, compared to their modern not-till counterparts, essentially rape and pillage the soil through tillage, destroying soil structure, increasing run off and groundwater pollution.

Comments on the Corn Commentary Blog:

"At EWG we value transparency: transparency in farm payments to the largest and wealthiest operations and transparency in the millions spent on marketing campaigns that are too often designed to mislead consumers."

There are lots of reasons to consume organic food. Some people have nostalgic preferences for foods produced the old fashioned way. Others have preferences just about the way food is produced in general. I'm sure there are many environmental and non environment related benefits. I personally prefer to consumer certain organic products based solely on taste. I don't go around attacking people for their food choices, however, I don't hold back from teachable moments when others mischaracterize production agriculture or mislead consumers. The point of my post is not to attack organic food, but to point out the lack of transparency and misleading implications that some promoters of organic employ to attack the sustainable efforts of most family farms. The EWG post seems to mischaracterize both modern agriculture and the role that women play it, and in this way seems quite misleading. I wonder if most actual organic producers really want the EWG and others out there using these divisive tactics to promote their products?

§ 205.601 Synthetic substances allowed for use in organic crop production

2011-02-27T11:54:00.000-08:00

§ 205.601 Synthetic substances allowed for use in organic crop production.

Source: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=f1312ca30770a8e585290633a1216a75&rgn=div8&view=text&node=7:3.1.1.9.32.7.354.2&idno=7

In accordance with restrictions specified in this section, the following synthetic substances may be used in organic crop production: Provided, That, use of such substances do not contribute to contamination of crops, soil, or water. Substances allowed by this section, except disinfectants and sanitizers in paragraph (a) and those substances in paragraphs (c), (j), (k), and (l) of this section, may only be used when the provisions set forth in §205.206(a) through (d) prove insufficient to prevent or control the target pest.

(a) As algicide, disinfectants, and sanitizer, including irrigation system cleaning systems. (1) Alcohols. (i) Ethanol. (ii) Isopropanol.
(2) Chlorine materials— Except, That, residual chlorine levels in the water shall not exceed the maximum residual disinfectant limit under the Safe Drinking Water Act.
(i) Calcium hypochlorite. (ii) Chlorine dioxide. (iii) Sodium hypochlorite.
(3) Copper sulfate—for use as an algicide in aquatic rice systems, is limited to one application per field during any 24-month period. Application rates are limited to those which do not increase baseline soil test values for copper over a timeframe agreed upon by the producer and accredited certifying agent.
(4) Hydrogen peroxide.
(5) Ozone gas—for use as an irrigation system cleaner only.
(6) Peracetic acid—for use in disinfecting equipment, seed, and asexually propagated planting material.
(7) Soap-based algicide/demossers.
(b) As herbicides, weed barriers, as applicable.
(1) Herbicides, soap-based—for use in farmstead maintenance (roadways, ditches, right of ways, building perimeters) and ornamental crops.
(2) Mulches. (i) Newspaper or other recycled paper, without glossy or colored inks. (ii) Plastic mulch and covers (petroleum-based other than polyvinyl chloride (PVC)).
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(c) As compost feedstocks—Newspapers or other recycled paper, without glossy or colored inks. (d) As animal repellents—Soaps, ammonium—for use as a large animal repellant only, no contact with soil or edible portion of crop. (e) As insecticides (including acaricides or mite control). (1) Ammonium carbonate—for use as bait in insect traps only, no direct contact with crop or soil. (2) Boric acid—structural pest control, no direct contact with organic food or crops.
(3) Copper sulfate—for use as tadpole shrimp control in aquatic rice production, is limited to one application per field during any 24-month period. Application rates are limited to levels which do not increase baseline soil test values for copper over a timeframe agreed upon by the producer and accredited certifying agent.
(4) Elemental sulfur. (5) Lime sulfur—including calcium polysulfide. (6) Oils, horticultural—narrow range oils as dormant, suffocating, and summer oils. (7) Soaps, insecticidal. (8) Sticky traps/barriers. (9) Sucrose octanoate esters (CAS #s—42922–74–7; 58064–47–4)—in accordance with approved labeling. (f) As insect management. Pheromones. (g) As rodenticides. (1) Sulfur dioxide—underground rodent control only (smoke bombs). (2) Vitamin D3. (h) As slug or snail bait. Ferric phosphate (CAS # 10045–86–0). (i) As plant disease control.
(1) Coppers, fixed—copper hydroxide, copper oxide, copper oxychloride, includes products exempted from EPA tolerance, Provided, That, copper-based materials must be used in a manner that minimizes accumulation in the soil and shall not be used as herbicides.
(2) Copper sulfate—Substance must be used in a manner that minimizes accumulation of copper in the soil. (3) Hydrated lime. (4) Hydrogen peroxide. (5) Lime sulfur.
(6) Oils, horticultural, narrow range oils as dormant, suffocating, and summer oils. (7) Peracetic acid—for use to control fire blight bacteria. (8) Potassium bicarbonate. (9) Elemental sulfur.
(10) Streptomycin, for fire blight control in apples and pears only.
(11) Tetracycline, for fire blight control only and for use only until October 21, 2012.
(j) As plant or soil amendments.
(1) Aquatic plant extracts (other than hydrolyzed)—Extraction process is limited to the use of potassium hydroxide or sodium hydroxide; solvent amount used is limited to that amount necessary for extraction.
(2) Elemental sulfur. (3) Humic acids—naturally occurring deposits, water and alkali extracts only.
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(4) Lignin sulfonate—chelating agent, dust suppressant, floatation agent. (5) Magnesium sulfate—allowed with a documented soil deficiency.
(6) Micronutrients—not to be used as a defoliant, herbicide, or desiccant. Those made from nitrates or chlorides are not allowed. Soil deficiency must be documented by testing.
(i) Soluble boron products. (ii) Sulfates, carbonates, oxides, or silicates of zinc, copper, iron, manganese, molybdenum, selenium, and cobalt.
(7) Liquid fish products—can be pH adjusted with sulfuric, citric or phosphoric acid. The amount of acid used shall not exceed the minimum needed to lower the pH to 3.5.
(8) Vitamins, B1, C, and E.
(9) Sulfurous acid (CAS # 7782–99–2) for on-farm generation of substance utilizing 99% purity elemental sulfur per paragraph (j)(2) of this section.
(k) As plant growth regulators. Ethylene gas—for regulation of pineapple flowering. (l) As floating agents in postharvest handling. (1) Lignin sulfonate. (2) Sodium silicate—for tree fruit and fiber processing.
(m) As synthetic inert ingredients as classified by the Environmental Protection Agency (EPA), for use with nonsynthetic substances or synthetic substances listed in this section and used as an active pesticide ingredient in accordance with any limitations on the use of such substances.
(1) EPA List 4—Inerts of Minimal Concern.
(2) EPA List 3—Inerts of Unknown Toxicity allowed:
(i) Glycerine Oleate (Glycerol monooleate) (CAS #s 37220–82–9)—for use only until December 31, 2006.
(ii) Inerts used in passive pheromone dispensers.
(n) Seed preparations. Hydrogen chloride (CAS # 7647–01–0)—for delinting cotton seed for planting.
(o)–(z) [Reserved]
[65 FR 80637, Dec. 21, 2000, as amended at 68 FR 61992, Oct. 31, 2003; 71 FR 53302 Sept. 11, 2006; 72 FR 69572, Dec. 10, 2007; 75 FR 38696, July 6, 2010]

Modern Sustainable Agriculture Annotated Bibliography (updated)

2011-02-27T08:35:00.001-08:00

Below is a review of literature discussing the sustainability of modern agriculture.

The environmental impact of dairy production: 1944 compared with 2007. Journal of Animal Science,Capper, J. L., Cady, R. A., Bauman, D. E. 2009; 87 (6): 2160 DOI: 10.2527/jas.2009-1781

-reduced carbon footprint in dairy production

"Antimicrobial Resistance: Implications for the Food System." Doyle et al., Institute of Food Technologists

Comprehensive Reviews in Food Science and Food Safety, Vol.5, Issue 3, 2006ter for Molecular

-safety of pharmaceutical technologies in food production in relation to antibiotic use in livestock

"Microbiological Quality of Ground Beef From Conventionally-Reared Cattle and "Raised without Antibiotics" Label Claims" Journal of Food Protection, July 2004,Vol 67 Issue 7 p. 1433-1437

-factors other than the sub therapeutic use of antibiotics in beef production contribute to antimicrobial resistant bacteria in ground beef

San Diego Center for Molecular Agriculture: Foods from Genetically Modified Crops ( pdf)

-summary of environmental and health benefits of biotechnology

''Hybrid Corn.'' Abelson, P.H. (1990) Science 249 (August 24): 837. -improved diversity of crops planted

Enterprise and Biodiversity: Do Market Forces Yield Diversity of Life? David Schap and Andrew T. Young Cato Journal, Vol. 19, No. 1 (Spring/Summer 1999)

-improved diversity of crops planted

A Meta-Analysis of Effects of Bt Cotton and Maize on Nontarget Invertebrates. Michelle Marvier, Chanel McCreedy, James Regetz, Peter Kareiva Science 8 June 2007: Vol. 316. no. 5830, pp. 1475 – 1477

-reduced impact on biodiversity

''Diversity of United States Hybrid Maize Germplasm as Revealed by Restriction Fragment Length Polymorphisms.'' Smith, J.S.C.; Smith, O.S.; Wright, S.; Wall, S.J.; and Walton, M. (1992) Crop Science 32: 598–604

-improved diversity of crops planted

Comparison of Fumonisin Concentrations in Kernels of Transgenic Bt Maize Hybrids and Nontransgenic Hybrids. Munkvold, G.P. et al . Plant Disease 83, 130-138 1999.

-Improved safety and reduced carcinogens in biotech crops

Indirect Reduction of Ear Molds and Associated Mycotoxins in Bacillus thuringiensis Corn Under Controlled and Open Field Conditions: Utility and Limitations. Dowd, J. Economic Entomology. 93 1669-1679 2000.

-Improved safety and reduced carcinogens in biotech crops

"Why Spurning Biotech Food Has Become a Liability.'' Miller, Henry I, Conko, Gregory, & Drew L. Kershe. Nature Biotechnology Volume 24 Number 9 September 2006.

-Health and environmental benefits of biotechnology

Genetically Engineered Crops: Has Adoption Reduced Pesticide Use? Agricultural Outlook ERS/USDA Aug 2000

-environmental benefits and reduced pesticide use of biotech crops

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics report

-environmentalbenefits of biotech: reduced pollution, improved safety, reduced carbon footprint

Soil Fertility and Biodiversity in Organic Farming. Science 31 May 2002: Vol. 296. no. 5573, pp. 1694 – 1697 DOI: 10.1126/science.1071148

-20% lower yields in non-biotech organic foods

'Association of farm management practices with risk of Escherichia coli contamination in pre- harvest produce grown in Minnesota and Wisconsin.' International Journal of Food Microbiology Volume 120, Issue 3, 15 December 2007, Pages 296-302

-comparison of E.Coli risks and modern vs. organic food production methods, odds of contamination are 13x greater for organic production

The Environmental Safety and Benefits of Growth Enhancing Pharmaceutical Technologies in Beef Production. By Alex Avery and Dennis Avery, Hudson Institute, Centre for Global Food Issues.

-Grain feeding combined with growth promotants also results in a nearly 40 percent reduction in greenhouse gases (GHGs) per pound of beef compared to grass feeding (excluding nitrous oxides), with growth promotants accounting for fully 25 percent of the emissions reductions- see also: Organic, Natural and Grass-Fed Beef: Profitability and constraints to Production in the Midwestern U.S. Nicolas Acevedo John D. Lawrence Margaret Smith August, 2006. Leopold Center for Sustainable Agriculture)

Lessons from the Danish Ban on Feed Grade Antibiotics. Dermot J. Hayes and Helen H. Jenson. Choices 3Q. 2003. American Agricultural Economics Association.

-Ban on feed grade sub- therapeutic antibiotics lead to increased reliance on therapeutic antibiotics important to human health.

Does Local Production Improve Environmental and Health Outcomes. Steven Sexton. Agricultural and Resource Economics Update, Vol 13 No 2 Nov/Dec 2009. University of California.

-local production offers no benefits to sustainability

UPDATES:

Communal Benefits of Transgenic Corn. Bruce E. Tabashnik Science 8 October 2010:Vol. 330. no. 6001, pp. 189 - 190DOI: 10.1126/science.1196864

"Bt corn planted near non-Bt corn can provide the unmodified plants with indirect protection from pests"

Areawide Suppression of European Corn Borer with Bt Maize Reaps Savings to Non-Bt Maize Growers. Science 8 October 2010:Vol. 330. no. 6001, pp. 222 - 225 DOI: 10.1126/science.1190242W. D. Hutchison,1,* E. C. Burkness,1 P. D. Mitchell,2 R. D. Moon,1 T. W. Leslie,3 S. J. Fleischer,4 M. Abrahamson,5 K. L. Hamilton,6 K. L. Steffey,7, M. E. Gray,7 R. L. Hellmich,8 L. V. Kaster,9 T. E. Hunt,10 R. J. Wright,11 K. Pecinovsky,12 T. L. Rabaey,13 B. R. Flood,14 E. S. Raun15,

"Cumulative benefits over 14 years are an estimated $3.2 billion for maize growers in Illinois, Minnesota, and Wisconsin, with more than $2.4 billion of this total accruing to non-Bt maize growers."

Greenhouse gas mitigation by agricultural intensification Jennifer A. Burneya,Steven J. Davisc, and David B. Lobella.PNAS June 29, 2010 vol. 107 no. 26 12052-12057

-'industrial agriculture' aka family farms utilizing modern production technology have a mitigating effect on climate change

Clearing the Air: Livestock's Contribution to Climate ChangeMaurice E. Pitesky*, Kimberly R. Stackhouse† and Frank M. MitloehnerAdvances in Agronomy Volume 103, 2009, Pages 1-40

-transportation accounts for at least 26% of total anthropogenic GHG emissions compared to roughly 5.8% for all of agriculture & less than 3% associated with livestock production vs. 18% wrongly attributed to livestock by the FAO report 'Livestock's Long Shadow' Conclusion: intensified 'modern' livestock production is consistent with a long term sustainable production strategy

Large Agriculture Improves Rural Iowa Communities
http://www.soc.iastate.edu/newsletter/sapp.html

-"favorable effect of large-scale agriculture on quality of life in the 99 Iowa communities we studied"

Comparing the Structure, Size, and Performance of Local and Mainstream FoodSupply Chains
Robert P. King, Michael S. Hand, Gigi DiGiacomo,Kate Clancy, Miguel I. Gómez, Shermain D. Hardesty,Larry Lev, and Edward W. McLaughlin
Economic Research Report Number 99 June 2010
http://www.ers.usda.gov/Publications/ERR99/ERR99.pdf

-Study finds that fuel use per cwt for local food production was 2.18 gallons vs. .69 and 1.92 for intermediate and traditional supply chains for beef

The environmental impact of recombinant bovine somatotropin (rbST) use in dairy production Judith L. Capper,* Euridice Castañeda-Gutiérrez,*† Roger A. Cady,‡ and Dale E. Bauman* Proc Natl Acad Sci U S A. 2008 July 15; 105(28): 9668–9673

-rBST supplemented cattle lead to an 8% reduction in cattle requirements vs a 25 % increase in organic cattle numbers to produce equivalent amounts of milk. For every 1 million cows, the reduction in GWP from rBST supplemented cows is equivalent to removing 400K cars from the roadways or planting 300 million trees

Manufacturing On The Rise

2011-02-12T11:57:00.000-08:00

From: http://mobile.boston.com/art/67/bostonglobe/editorial_opinion/oped/articles/2011/02/06/made_in_the_usa/?p=3

"Americans make more "stuff'' than any other nation on earth, and by a wide margin. According to the United Nations' comprehensive database of international economic data, America's manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China's output of $1.48 trillion by nearly 46 percent. China's industries may be booming, but the United States still accounted for 20 percent of the world's manufacturing output in 2009 — only a hair below its 1990 share of 21 percent"

"A vast amount of "stuff'' is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list."

Job Creation & The Knowledge Problem

2011-02-12T11:37:00.001-08:00

" It's hard to object to feel-good terms like "infrastructure" or "green" initiatives, but in a world of scarcity and choice, some spending is likely to be more beneficial, or at least less wasteful (Can you say Cash for Clunkers?), than another alternative. Do we choose bridges and overpasses instead of a high-speed rail network, restoring government buildings, more day-care centers and homes for senior citizens, or some elected official's pet project to placate his or her political base of support? Or perhaps shore up our human capital infrastructure—education, health—or address environmental concerns? In a world of finite resources, "Let's do them all" is simply not an option."

From: http://www.chicagolife.net/content/politics/JOBS_JOBS_JOBS

This does a good job describing the 'knowledge problem' plaguing stimulus & job creation. This is not an issue with market prices. Prices reflect tradeoffs based on the knowledge and specific preferences of millions of individuals, coordinate that information & provide incentives to act on it. (taking into account the multivariate array of alternatives, interactions, and consequences of each choice or action taken) Planned job creation & stimulus must rely on the relatively minute pool of knowledge at the disposal of a few voters, politicians, experts, or administrators, in the face of adverse incentive structures.

This doesn't mean to me that 'stimulus' spending has a zero multiplier. It means that it won't produce results that will allow us to get the most out of our scarce resources.

Biotech Alfalfa: Who May Harm Who

2011-01-21T21:33:00.001-08:00

From Drovers/Cattle Network "Using Property Rights Is A Trick Against Biotech Crops"

"Some politicians wrap themselves in the flag to justify their positions, and then there is Secretary of Agriculture Tom Vilsack appealing to farmers and ranchers' belief in "private property rights" to justify limiting biotech crop production"

Great article with a lot of great points. For the sake of this discussion, lets view biotech contamination of organic crops as 'pollution.' (despite the evidence that the risks are slight)

Traditionally when it comes to environmental pollution, the general philosophy was that 'the polluter pays'. A factory polluting the air or water should pay for the damages that are caused. In a much simpler case, if you build a house next to me and you don't like the smell of livestock waste coming from my property, the traditional philosophy would hold that you could have the government stop my operation. (or in this case, the biotech alfalfa grower pays for genetic contamination of organic alfalfa)

The economist Ronald Coase brought additional insight to this issue.

1) yes it is true that my operation is harming you via air pollution. (odor)
2) however, in stopping me via government or legal intervention ( or taxing my waste production) you are harming me.

Coase says that the issue is that nonone owns the air that surrounds my livestock operation and your home. There then follows a dispute over how the air should be used- to absorb livestock odor, or to provide a scent free atmosphere in your back yard. Whenever the cost of one's behavior is not factored into a price at which a choice can be valued, I can harm you without compensating you for it. ( i.e. an externality exists)

However, if I own rights to the air, then I can choose to pollute the air. If you own rights to the air, then you can prevent me from polluting it. If noone owns the air, then it is first come first served or winner takes all.

That is not the end of the story though. What Coase emphasizes is that if I own the rights to pollute, you can pay me to limit my pollution i.e. buy those rights from me. I can then use the proceeds to alter my livestock nutrition, genetics, and management to reduce the odor my operation is causing. On the other hand, if you own the rights to pollute I can purchase those rights from you, or invest in technology that will allow me to continue my operation without violating your rights. I will do which ever is most optimal. This can be accomplished without major government regulation, or the arbitrary imposition of a tax.

The assignment of property rights and the potential for bargaining results in behavior that is changed or altered to account for the negative impact our choices have on others. This is the essence of what is known as the 'Coase Theorem"

However, if transaction costs are high, then bargaining may not take place. In that case, Coase emphasizes that any assignmnet of property rights should be based on which party can bear the externality at the lowest cost. Transaction costs can change based on changes in technology, which can also change how we define property rights. (for example, the technology that allows us to monitor CO2 emissions is what makes the concept of cap and trade possible).

How might this apply in the context of biotech alfalfa? According to the Coase Theorem, it shouldn't matter who is assigned the rights in this case (giving the biotech producer the right to pollute, or giving the organic producer the right to stop neighbors from planting biotech). Both parties could bargain ahead of time to determine the optimal mix of biotech/organic production. Transaction costs should not be any higher than any normal land rental agreement. Alternatively, one producer or the other could purchase insurance that would pay an indemnity in the event of contamination. (who would have to pay the premiums would depend on who has the right to pollute etc.) However, monitoring and enforcement costs could be high in terms of determining genetic contamination.

Another option would be a regulatory approach, limiting planting options for biotech producers. This is what the Drovers article is critical of Tom Vilsack for. You could say it is enforcing property rights, but only in a very arbitrary way, and unnecessary.

The agriculture industry offers some of the greatest examples of how technological advances and market forces lead to self correcting or internalization of externalities. The adoption of biotechnology has led to reduced groundwater pollution, increased biodiversity, and reduced greenhouse gas emissions. All of which has occured in absence of taxes or government regulations. In the case of biotech alfalfa, a technological advancement that would trump legal or regulatory remedies would be use of 'terminator' gene technology. Of course, that takes the power and prestige away from regulators, and empowers property owners and market forces. In any case, what the Coase Theorem tells us is that there is no case for arbitrarily giving organic growers a trump card over those that want to use biotech alfalfa. The principle of polluter pays is not always optimal.

Editorial: The Only Way to Go Green

2011-01-20T06:40:00.001-08:00

The only way to truly go green is to efficiently allocate our resources. The economic definition of efficiency is getting the most out of our scarce resources. Sustainability is essentially dynamic efficeincy, getting the most our of our scarce resources over time. Decisions about allocating scarce resources must be based on the best information we have, using the best technology available. Market prices serve this role in information coordination and resource allocation. However, as we see in the editorial below, our ability to sustainably feed the world is often limited by institutional constraints on market forces:

From: http://www.investors.com/NewsAndAnalysis/Article.aspx?id=560009&p=2

"Warnings of a global food shortage are cropping up in the news. This should not be happening in 2011. But while our technologies have advanced, our politics are still prehistoric....Man cannot control the weather. But famine today is as much man-made as it is a force of nature."

"Zimbabwe, for instance, was once considered the breadbasket of Africa. It exported wheat, corn and sugar cane across the continent and beyond. But the country's agriculture industry has been destroyed by a Marxist government that has seized privately owned farms in the name of "land reform."

"Friends of the Earth publicly asked governments in the hungry African countries of Ghana and Sierra Leone to recall U.S. food aid that contained genetically modified rice. Zambian President Levy Mwanawasa set the wrong tone in 2002 when he called the food offered to his famished nation "poison" and "intrinsically dangerous."

"Given that we have the technology to grow larger crops on smaller parcels and fly fresh food around the world to where it's needed in a matter of hours, the obstructionism is inexcusable. We need policymakers who are as advanced as today's technology."

Huffington Post: How The Federal Reserve Bought The Economics Profession

2011-01-19T07:59:00.001-08:00

This is an older article but still interesting: From the Huffington Post

A lot if interesting statements in the article, and I believe they get this correct:

"In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry."

Not so much this:

"Paul Krugman, in Sunday's New York Times magazine, did his own autopsy of economics, asking "How Did Economists Get It So Wrong?" Krugman concludes that "[e]conomics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system." So who seduced them? The Fed did it."

I have a hard time believing that the Fed promotes or believes in a frictionless market system. If so, it certainly doesn't practice what it preaches. Perhaps this belief is conditional on the their mandate for the social planning of money and interest. But the housing crisis is a demonstration of just how 'frictionless' markets are given these interventions. If anything, what was missed was the consequences and frictions created by departures from market based information coordination and resource allocation. (Fear the Boom and Bust)

Feeding the 9 Billion: Rational Optimism

2011-01-16T10:29:00.001-08:00

From 'The Rational Optimist: How Prosperity Evolves'

"Bad harvests in Russia and Australia, combined with rising oil prices, have begun to cause shortages, export bans and even riots. Does starvation loom?No"

"A few years ago environmentalists argued that fertiliser would soon run short, because it is made using natural gas, a fossil fuel. But the discovery of how to extract abundant shale gas has turned that argument on its head: there are probably many decades' worth of natural gas now available to make fertilizer."

"There are high-tech changes afoot too. Maize and rice that have been genetically modified to resist pests and use less water, soybeans with better amino acid balance for pig food, wheat that can resist rust - all these are coming. Benighted Europe may reject these GM crops for superstitious reasons but surely not for long. The environmental benefits alone are now stark: GM crops can be pest resistant without the use of sprays that kill harmless insect bystanders."

"For all these reasons food production will probably continue to rise faster than population in the decades ahead...so long as trade is free and innovation flourishes, by 2050 it is easily possible that we can feed nine billion people with more and better food from less land."

There Will Be Fuel or Drill Baby Drill?

2011-01-16T08:56:00.001-08:00

In a basic principles of economics class, students will learn that as resources become scarce, their prices rise to reflect this scarcity.(absent government intervention and price manipulation). In response to these incentives, efforts are made to find alternatives or to economize on those scarce resources. Often times, technological change augments the process. (as a result of these price incentives, profit signals, and incentivised R&D investments). As a result, the prices of most natural resources over time have either declined or stayed about the same. What we can take from this is that natural resource constraints have not been a limiting factor to sustainable economic growth. These recent articles form the New York Times are a reflection of that finding, as it relates to fossil fuels.

There Will Be Fuel: NYT

"The same high prices that inspired dire fear in the first place helped to resolve them. High oil and gas prices produced a wave of investment and drilling, and technological innovation has unlocked oceans of new resources. Oil and gas from ocean bottoms, the Arctic and shale rock fields are quickly replacing tired fields in places like Mexico, Alaska and the North Sea...."The technology producing these resources has absolutely made the difference," Mr. Odum said. "It's the same with the Arctic, with the shale oil, all over the world. Technology is the key...."When you add it up," Mr. Morse noted, "you get something that very closely approximates energy independence."

Economic Optimism: NYT

"It's true that the real price of oil is slightly higher now than it was in 2005, and it's always possible that oil prices will spike again in the future. But the overall energy situation today looks a lot like a Cornucopian feast, as my colleagues Matt Wald and Cliff Krauss have recently reported. Giant new oil fields have been discovered off the coasts of Africa and Brazil. The new oil sandsprojects in Canada now supply more oil to the United States than Saudi Arabia does. Oil production in the United States increased last year, and the Department of Energy projects further increases over the next two decades.........You can always make news with doomsday predictions, but you can usually make money betting against them. "

The Energy Future Ain't What it Used to Be: NYT

"The price of natural gas and electricity will be low over the next quarter-century, and crude oil will become more expensive but not radically so, the Energy Department predicted on Thursday, in a report that contradicts widely held notions. And even without a national global warming law, American carbon dioxide emissions will not inexorably set new records; they will stay below the rate of 2005 for the next 15 years because of economic forces, the forecast said. "

A Guide to Sustainable Agriculture

2010-11-10T20:47:00.000-08:00

Office Sustainability Committee

2010-11-01T18:26:00.000-07:00

Below is my attempt to create an animation that depicts a back and forth discussion between two people with two very different perspectives on sustainable food production. I have to compliment xtranormal.com for making this possible. If you can type, you can make movies.

"ose"gate

2010-09-09T18:28:00.000-07:00

I was having a conversation with someone recently about Sara Lee replacing their High Fructose Corn Syrup ingredient with ‘High Fructose’ table/cane/beet sugar, and they coined the phrase “ose” gate. I thought that summed it up well.

So what is the “ose” gate scandal/conspiracy? It is a combination of things. Several scams if you will. First it is the ‘sugar switcheroo’. Unfortunately, many people confuse the compound fructose with high fructose corn syrup (HFCS). Even worse, because it is “high fructose” corn syrup, they think that it is a sweetener that is really high in fructose compared to others. The undeniable truth is the fructose levels in HFCS are about 50%. But when you look at any other type of sugar, it is also 50% fructose. So, if fructose is bad, then HFCS and regular sugar are equally bad. It is all in a name. If we are comparing sweeteners based on fructose content, we could just as easily call table sugar “High Fructose” table sugar- let’s start calling it what it is ‘HFTS.’ The scandalous part is that food marketers are catering to this ignorance by advertising that they have removed HFCS from their foods and switched it with sugar. It makes no difference in terms of fructose content or calories, and consumers are being duped by the old ‘switcheroo.’

So, if it makes no difference in fructose content, or calories, then it likely will make no difference on obesity rates, yet that is the next scam. The ‘big fat lies’ scam. Opponents, (or conspiracy theorists) often like to claim that the massive use of HFCS is leading to obesity, but advocating that we replace it with HFTS (my new acronym). It makes no sense, but anti-agricultural activists and politicians are making hay with it. The argument that sugar sweetened beverages are related to obesity is shaky at best anyway. (1) Besides that, according to USDA data, the most abundant sweeteners in American's diets is not HFCS but HFTS (2) (both are about equal but HFTS as aways had the lead)

Then there are the attacks on farm programs, which sometimes comes from both democrats and republicans. Those on the left don’t like the idea of subsidizing politically incorrect farming practices (more on this later) and some from the right like to point out unintended consequences of government policies. The misconception is that subsidies lead to more corn production and cheaper HFCS and then cheaper high calorie foods- that lead to obesity. (I’ve already addressed obesity). Research from UC Davis blows this myth out of the water. If we get rid of all corn subsidies the impact on corn production would not be large enough to have a major impact on retail prices or consumption (they estimated the impact on would decrease consumption by at most .2%) (3) Subsidies , which amount to less than ½ of 1% of our federal budget become a scape goat for all of our problems.

Next, there is the dilemma of the Omnivore’s Dilemma:

“If you eat industrially, you are made of corn. It holds together your McNuggets, it sweetens your soda pop, it fattens your meat, it is everywhere. It is fed to us in many forms, because it is cheap- a dollar buys you 875 calories in soda pop but only 170 in fruit juice. A McDonalds meal was analyzed as almost entirely corn."-Michael Pollan Omnivore's Dilemma (4)

This is bad how? The fact that modern family farmers are able to feed the world in so many different ways and do it cheaply should be considered a miracle. Although not his intention, the quote from Pollan is actually a statement of accomplishment for farm families everywhere!

Finally, there is the myth that HFCS is the product of industrial agriculture and industrial farms, which are unsustainable and are having a negative impact on our environment. These beliefs have made modern family farming practices politically incorrect, or socially irresponsible in the minds of many consumers and politicians. According to USDA data, 98% of all farms in the U.S. are family farms and they account for 85% of all production.(5) Large family farms are more diversified (5) and benefit the community according to recent research at Iowa State(6) In terms of sustainability, the technology used on modern family farms has led to drastic reductions in greenhouse gases, decreased soil erosion, decreased groundwater pollution, improved water use efficiency, and has increased wildlife diversity and food safety. (7)

So, to review I have outlined the 5 ‘sweet’ scams that define the "ose"gate conspiracy:

1) The Sugar Switheroo Scam

2) Big Fat Lies Scam

3) The Subsidy Scape Goat Scam

4) The Dilemma of the Omnivore’s Dilemma

5) The Political Correctness Scam

What can you do? You can support your local family corn farmer by having a coke (or beverage of your choice) sweetened with HFCS. Maybe get that with a supersized value meal at McDonalds.

1 Adolescent beverage habits and changes in weight over time: findings from Project EAT1,2,3Am J Clin Nutr (October 28, 2009). doi:10.3945/ajcn.2009.27573

Nutrition July-August 2007, Volume 23, Issues 7-8, Pages 557-563 "Is sugar-sweetened beverage consumption associated with increased fatness in children?"

2 http://www.ers.usda.gov/Briefing/Sugar/data/table49.xls

3 Farm Subsidies and Obesity in the United States

Julian M. Alston, Daniel A. Sumner, and Stephen A. Vosti

Agricultural Resource Economics Update

V. 11 no. Nov/Dec 007

U.C. Davis

4 http://www.treehugger.com/files/2007/01/food_fight_is_c.php

5 Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition / EIB-24 Economic Research Service/USDA

6 Large Agriculture Improves Rural Iowa Communities

http://www.soc.iastate.edu/newsletter/sapp.html

7 Matt Bogard. "Sustainable Agriculture Bibliography" 2010 Available at: http://works.bepress.com/matt_bogard/6

Everything You Should Know About Economics and Politics

2010-07-19T16:26:00.001-07:00

The Spontaneous Order

A wealthy class results from satisfying the needs of others, making the middle class lifestyle (homes, cars, technology) possible. Living the middle class lifestyle also (by creating a market for all the things that go into being middle class) sustains the wealthy, in addition to providing opportunities for the poorest members of society to Improve their lot (job opportunities + technologies and conveniences that make poverty less grinding). Economic growth perpetuates this system, which is really like a self sustainable ecological system, with stabilizing feedback mechanisms (prices, profit, loss, interest rates). These natural checks kick in when someone gets too 'greedy', takes excessive risks, or imposes excessive costs on others or squanders resources inappropriately. The price system ensures a 'spontaneous order' in which our individual choices are made compatible in a world of scarce and finite resources and infinite preferences,cultures, and interests.

The Role of Government and Politics

Government has a role in this 'spontaneous' order, primarily to enforce property rights and prevent fraud and force. There is little power or glory for politicians, other than a reputation for fair enforcement of the law and restraint of using government to grant favors or confiscate wealth.

If a clever politician can fabricate flaws in the order, and convince people that if we give them special powers and privileges to fix the problems, they have much to gain. Clever business owners and special interests also may fabricate flaws that can only be fixed by giving
some politician the power to make rulings that disproportionately benefit their business.

These fabrications may often be described in terms of leakages from the system, cases where prices, profits, or interest rates don't keep our interests in check. Admitting that every choice will have some side effect not totally captured in the price of a good, (referred to as an externality by economists)many of these problems can be handled within the system by an appropriate assignment and enforcement of property rights, torts, or contract law. Often times technological change and economic growth will take care of many of these issues. Unfortunately these solutions have little glamor for ambitious politicians. They are often able to convince others to give them the power to take a more dramatic approach, which involves a role for government to control or influence choices and resources.

The Political Order

No longer are choices guided by prices based on tradeoffs which reflect the knowledge and preferences of free people, but now they are heavily influenced by the narrow preferences of some self interested politician, business, special interest, or politically manipulated majority block of voters.

Suddenly the natural checks and balances of the 'spontaneous order' are upset, and our many choices become incompatible. We get shortages, surpluses, booms, and busts. We face the wrath that comes within a world unequipped to deal with the problems of scarce resources in the face of infinite preferences, personalities, cultures, and needs.(often referred to as the 'calculation problem' by economists)

To deal with these problems it may seem that the obvious solution is to expand the role of government and minimize the role of individual interactions. This leaves little opportunity for the harmonizing forces of a 'spontaneous order' to work. The politician with the most dramatic fabrication and solution with the greatest populist appeal will get elected. A new strongly entrenched political order unfolds with few checks and balances but strong self perpetuating political feedback mechanisms. The elites and most well connected businesses will prosper.

Conclusion

The spontaneous order created by free individuals appeals to cooperation for meeting the needs of society peacefully. The political order creates masters and servants and appeals to the use of force, either directly or vicariously through some agent of the state.

Financial Reform Impacts the Farm

2010-07-15T06:43:00.000-07:00

From the Wall Street Journal :

Finance Overhaul Casts Long Shadow on the Plains

“Farmer Jim Kreutz uses derivatives to soften the blow should the price of feed corn drop before harvest. His brother-in-law, feedlot owner Jon Reeson, turns to them to hedge the price of his steer. The local farmers' co-op uses derivatives to finance fixed-price diesel for truckers who carry cattle to slaughter.… The question for these farmers is whether such rules will make hedging more expensive. Some say new requirements on big players will create higher costs for small players, including the cash dealers will have to put aside to enter into private derivatives transactions. Some brokers think restrictions on big-money banks and investors will drain the amount of money available to the everyday deals farmers favor… Mr. Gengenbach estimates that one quarter of his farm clients use derivatives." LINK

One thing is, the financial reform bill does little to address the causes of the financial crisis (see the Posner and Becker blog for Five Major Defects of the Financial Reform Bill- LINK) and as the above points out, could have a negative impact on farms.Some bloggers and others have already attacked the Wall Street Journal article as being hack journalism, for example see:

WSJ Tries to Tie Farmers to Bank Reform, Fails By Ryan Chittum

'The paper wants you to get the impression that yeoman farmers are getting crushed under the wheel of the new bill. Or that they are afraid they will.' (link)

USDA research indicates that across the board as many as 25% of farmers utilize futures markets or hedges to manage their risk. The report indicated that it’s not just the wealthiest farmers using these tools either. Data presented in that report indicated that in 1996 almost 20% of farmers earning below $50,000 utilized futures hedges. That's not everyone, but we are still talking about thousands of farms. Now not all of these are using products that may directly be affected by the legislation, but as the Journal points out, there are concerns that 'restrictions on big-money banks and investors' could reduce capital and increase the costs of the products that every day farmers use. (or at least the 25% that currently may be utilizing these risk management tools). Besides the Wall Street Journal, as reported on AgWeb.com, agricultural economist Scot Irwin explains the number of ways that this legislation could impact farmers that don’t directly use the kind of products specifically addressed by this legislation. Again, as many politicians and journalists ( like those critical of the WSJ article) fall prey to the fallacy of concentrating only on what is seen (vs. unseen) Irwin points out the “law of unintended consequences may make it much more likely that a commercial enterprise will get caught up in these limits."

Some are critical that the Journal only pointed out 'potential worries' but never in fact talked to real farmers that had real concerns or (I guess they forgot about the farmer showcased in the article that hedges 70% of his crop). But the truth is, and the lesson we learned from the Great Depression is that it is worry and uncertainty that in fact prevent a market rebound and encourage prolonged stagnation as much as real direct impacts can.

"Businessmen came to ask themselves whether Roosevelt really understood a system where the hope of profit sparks expansion and investment. Or did he believe simply in centralizing decision and authority in boards and "planners" along the Patomac?"-John

ChamberlainChamberlain goes on to explain how many businesses during the great depression were developing the products that would fuel the economic growth we saw in the decades that followed. Only, during the depression, Roosevelt's reforms and policies created uncertainty that kept them from taking any action until after WWII.

"the magnitude of the response of U.S. business to the war is in itself refutation of the thesis that in the thirties businessmen simply sat on their hands..it simply would not have been able to produce the new type of goods when the war button was pressed"

The financial reform bill certainly has the potential to prolong the recession and have a negative impact on many sectors of the economy. As quoted in the AgWeb story:

“Scott Irwin, ag economist at the University of Illinois, says the impact on agriculture is a guessing game. Irwin, who has studied market players for many years, notes that the impacts on farmers and those with whom they do business will very much depend upon how the law is interpreted and enforced.”

And that is an awful truth. When it comes to comprehensive reforms like these, (over 2,000 pages) it isn’t what the bill says, it’s not what your elected representative says it means, it’s what some lawyer, bureaucrat, or judge interprets it to mean after it has passed. That isn’t the kind of government our founders intended, but it does create the uncertainty that is dragging out this recession. Great reporting by the WSJ and AgWeb.

References:

The Enterprising Americans:A Business History ofthe United StatesBY JOHN CHAMBERLAIN
Finance Overhaul Casts Long Shadow on the Plains. Wall Street Journal. Michael M. Phillips. July 13,2010.

WSJ Tries to Tie Farmers to Bank Reform, Fails. Columbia Journalism Review. Ryan Chittum. July 14,2010.

Five Major Defects of the Financial Reform Bill. Posner and Becker Blog. http://www.becker-posner-blog.com/2010/07/five-major-defects-of-the-financial-reform-bill-becker.html

Derivatives Impact on Agriculture Still in Question. AgWeb.com. Linda H. Smith. July 15, 2010.

Managing Risk in Farming: Concepts, Research, and Analysis. Joy Harwood, Richard Heifner, Keith Coble, Janet Perry, and Agapi Somwaru. Agricultural Economics Report No. (AER774) 136 pp, March 1999 (link)

Is GMO Free the Next Ford Pinto?

2010-07-10T08:49:00.000-07:00

Does corporate greed put our lives at risk? Some believe so, and as this naïve college student in the 1970’s points out, (see video via YouTube) the Ford Pinto is a prime example. However, as Milton keenly corrects him, risk is just one more tradeoff that we make in our everyday lives. Sometimes it is between risk vs. convenience (an easier to use product that comes with more risk) or risk vs. value ( a riskier but more affordable product). Profit maximizing companies try to produce goods and services that match as closely as possible consumer preferences, including preferences related to risk. Now it is true that if a firm is grossly negligent, they should be liable. But as Friedman points out, producing a product that simply factors in consumer’s risk preferences is not the same thing as negligence.

In agriculture we see that many people voluntarily take risks that may seem absurd to others- for example consuming medium or rare ground beef, raw milk (where legal) , or even organic vegetables where it has been found that ‘the use of animal wastes for fertilization of produce plants increased the risk of E. coli contamination in and semi-organic produce significantly.’ (organic produce was found to make E.coli contamination 13 times more likely with a 95% confidence interval) It’s not just organic, but conventional non-GMO foods also have increased health risks. Foods made with GMO-free corn have been shown to have increased levels of fusarium infestation and higher levels of the toxin fumonisin.

Besides personal risks, there are also environmental risks related to food choices. When Kroger (and other retailers) decided to remove all milk containing Monsanto’s green technology rbST ( recombinant bovine somatotropin) they immediately increased their carbon footprint in their dairy supply chain, noting that the use of rbST in the dairy industry has resulted in the equivalent of removing ‘400,000 family cars from the road or planting 300 million trees.’ Biotech (GMO) crops in general have lead to reduced fossil fuel use, reduced carbon footprint, and reduced use of toxic chemicals. In general, the decision to buy GMO free or organic has attached with it, environmental risks.

Of course consumers should be given choices. At least with the Ford Pinto, to my knowledge, it was not marketed as the word’s safest and most environmentally friendly car. But, unlike the Pinto, many food products, especially non-GMO lines, are marketed as or at least give many the impression of having reduced personal and environmental risk. This could be misleading.

As Conko, Miller and Kersh point out:

‘Companies that insist upon farmers’ using production techniques that involve foreseeable harms to the environment and humans may be held legally accountable for that decision. If agricultural processors and food companies manage to avoid legal liability for their insistence on nonbiotech crops, they will be ‘guilty’ at least of externalizing their environmental costs onto the farmers, the environment and society at large.’

Which leads me to ask, is GMO free going to be the next Ford Pinto?

References:

The environmental impact of recombinant bovine
somatotropin (rbST) use in dairy production
Judith L. Capper*, Euridice Castan˜ eda-Gutie´ rrez*†, Roger A. Cady‡, and Dale E. Bauman*§ 9668–9673 PNAS July 15, 2008 vol. 105 no. 28

Avik Mukherjeea, Dorinda Spehb and Francisco Diez-Gonzaleza. Association of farm management practices with risk of Escherichia coli contamination in pre-harvest produce grown in Minnesota and Wisconsin. International Journal of Food Microbiology. Volume 120, Issue 3, 15 December 2007, Pages 296-302

Comparison of Fumonisin Concentrations in Kernels of Transgenic Bt Maize Hybrids and Nontransgenic Hybrids. Munkvold, G.P. et al . Plant Disease 83, 130-138 1999.

“Why Spurning Biotech Food Has Become a Liability.’ Miller, Henry I, Conko, Gregory, & Drew L. Kershe. Nature Biotechnology Volume 24 Number 9 September 2006.

Milton Friedman on Self-Interest and the Profit Motive 2of2. Posted by 'sidewinder'. YouTube.

GM crops: global socio-economic and environmental impacts 1996-
2007. Brookes & Barfoot PG Economics

Genetically Engineered Crops: Has Adoption Reduced Pesticide Use?Agricultural Outlook ERS/USDA Aug 2000

The Truth About Modern Pork Production

2010-07-04T08:05:00.000-07:00

Family farms like this aren't portrayed well in King Corn or Omnivore's Dilemma. Sustainable Family farms like in this video (some larger some smaller) account for 98% of all farms and 85% of all food production. Corporate/Factory/non-Family farms actually only account for 2% of all farms and only 15% of production in ...the US. Activists have cleverly been able to appear 'pro-family farm' and 'pro-sustainability' while actually undermining the tools and technologies that most family farms rely on to produce safe, affordable and sustainable food.

References:

Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition / EIB-24
Economic Research Service/USDA

Does the FTC want to make this illegal?

2010-06-13T09:30:00.000-07:00

Does the FTC want to make this illegal? Or just tax it out of existence?

From the Washington Times

"The bureaucracy sees it as a problem that the Internet has introduced a wealth of information options to consumers, forcing media companies to adapt and experiment to meet changing market needs."

"In other words, government policy would encourage a tax on websites like the Drudge Report... Such a tax would hit other news aggregators, such as Digg, Fark and Reddit,"

BP and Capitalism (or lack thereof)

2010-06-10T14:47:00.000-07:00

Once a government pet, BP now a capitalist tool

By: Timothy P. Carney

Examiner Columnist

June 9, 2010

Link

“Lobbying records show that BP is no free-market crusader, but instead a close friend of big government whenever it serves the company’s bottom line.
While BP has resisted some government interventions, it has lobbied for tax hikes, greenhouse gas restraints, the stimulus bill, the Wall Street bailout, and subsidies for oil pipelines, solar panels, natural gas and biofuels. ..BP was a founding member of the U.S. Climate Action Partnership (USCAP), a lobby dedicated to passing a cap-and-trade bill.”

Timothy P. Carney: Republicans should end the Big Oil bailout

By: Timothy P. Carney

Examiner Columnist

May 21, 2010

Link

“The federal government has no business protecting BP from paying for the harm it has done to shrimp fisherman. The liability cap and the spill fund are subsidies for oil drilling. In a free market, oil companies would have to buy more insurance to cover the cost of a potential spill. In other words, a free market in oil drilling would mean no liability cap, no 8-cents-a-barrel tax, and no special fund whereby careful drillers pay for sloppy spillers.”

Oil spills, movie stars, robot unicorns and regulation

Link

“Even before the current oil spill into the Gulf of Mexico it was well understood that drilling offshore sometimes results in spills. The current oil spill in the news has brought the idea of spills to the attention of many, many more people, people who don’t usually think too much about these things. But it isn’t obvious to me that the spill should cause us to revise our estimates of the likelihood of spills, or otherwise alter any of the factors that go into well reasoned policy analysis. And if all of the inputs going into a well-reasoned policy analysis stay the same, then the policy recommendation should stay the same too…. you should identify the new policy-relevant information upon which you base your call for changes. Or, in other words, you should specify what was wrong with your understanding of offshore oil development as of about two months ago, and then explain how correcting that mistake leads you to favor more restrictive regulations.”

In a Truly Free Market, BP Would Be Toast

Link

“Advocates for the regulatory state are fond of complaining that things like the financial meltdown, the BP oil spill, and the like, are the result of an “unregulated marketplace.” But it was federal loan guarantees that first made securitized mortgages into a marketable asset. And I wouldn’t consider a $75 million cap on liability to be exactly “laissez-faire.”…What passed for federal regulations were ineffectual because, among other things, it’s not the federal government’s own money that’s at risk. Things get downright chummy between regulators and regulated. Inspectors sleeping with executives and snorting crystal meth off of toaster ovens is what you call a “public-private partnership,” I guess.”

“But if relations between regulators and regulated aren’t really all that adversarial, you know what is adversarial? Relations between insurers and the insured… Insurance companies take the kind of adversarial attitude toward the insured that liberals only wish government regulators took toward regulated industries.”