Sustainability of Modern Agriculture

Below is an annotated bibliography related to the sustainability of biotechnology and pharmaceutical technologies used in 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)

New York Times Don't Cry Over rBST Milk June 29, 2007

“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)

GM crops: global socio-economic and environmental impacts 1996-

2007. Brookes & Barfoot PG Economics (summary) report (actual report)(environmental benefits 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)

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)

Basic Demographics of #AgChat Facebook Group Members

Created using R and ‘members to .csv’ Facebook Ap
March 9, 2010

Disclaimer:This is for demonstration purposes only. There were actually 643 members of the #AgChat Facebook group to date, but the ‘members to .csv’ ap limits data retrieval to 499 observations, so this represents only a sampling of actual members. Observations are also omitted for missing values for variables in each respective analysis. For instance, only 24 observations of the available 499 had hometown data listed.



Breakdown by Gender (Click to Enlarge)



Representation by Hometown City and State

Augusta , Illinois
Chicago , Illinois
Indianapolis, Indiana
Hampton , Iowa
Miltonvale, Kansas
Louisville , Kentucky
Caneyville, Kentucky
Frankfort , Kentucky
Winnipeg, Manitoba (Canada)
Saginaw , Michigan
Deckerville, Michigan
Springfield , Missouri
Tecumseh, Oklahoma
Portland, Oregon
Fredrikstad , Ostfold (Norway)
Dallas ,Texas
Selah , Washington
Union West , Virginia

# of Represented Members by Hometown State (Click to Enlarge)



Representation By Country (Click to Enlarge)
(Canada, Norway & the U.S.)

Facts about Antibiotics and Agriculture

CBS News recently aired a story covering antibiotic use in livestock. There was also a recent New York Times opinion piece (link)with a similar point of view. The story seems to reflect popular stereotypes similar to those set by the Union of Concerned Scientists:

'A study by the Union of Concerned Scientists found that in the United States, 70 percent of antibiotics are used to feed healthy livestock.'

This is meaningless. What matters is, of the antimicrobials given to animals, what % actually target pathogens that affect humans. Most antibiotics used in the livestock industry are used for treating, controlling, and preventing disease. Only 13% are used to improve nutritional efficiency and enhance growth. Resistance requires selection pressure, and if the majority of antimicrobials used in livestock production are not selecting against deadly pathogens, then the risks are overblown. What we have observed is that in countries where feed grade antimicrobials used in livestock production have been more heavily regulated or banned, the resulting increase in livestock illness has lead to an increased use of antibiotics actually used in human medicine. In Denmark ( contrary to what was reported by CBS) where some feed grade antibiotics have been banned, an increased reliance on therapeutic usage (30%) has resulted because of the increase in animal sickness. The same thing happened in Sweden as well.

These policies resulted in increased selection pressure for antibiotic resistance among pathogens dangerous to humans. Similar policies in the U.S. should be avoided.
Despite fears related to antibiotic use in livestock and resistance in humans, no conclusive scientific link has been found.


References:

Doyle et al., Institute of Food Technologists, “Antimicrobial Resistance: Implications for the Food System” Comprehensive Reviews in Food Science and Food Safety, Vol.5, Issue 3, 2006.

"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

Journal of Antimicrobial Chemotherapy, 2003

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

Animal Health Institute

'The Spread of Superbugs.' Nicholas D. Kristoff. New York Times. March 6,2010

Animal Activism and Statistical Fallacies

In a recent article, animal rights activists (Mercy for Animals-MFA) went undercover and made some observations about animal abuse on dairy farms. See-
Governor Paterson, Shut This Dairy Down

The author of the above article states:

"But the grisly footage that every farm randomly chosen for investigation--MFA has investigated 11--seems to yield, indicates the violence is not isolated, not coincidental, but agribusiness-as-usual."

This is exactly why economists and scientists employ statistical methods. Anyone can make outrageous claims about a number of policies, but are these claims really consistent with evidence? How do we determine if some claims are more valid than others?

Statistical inference is the process by which we take a sample and then try to make statements about the population based on what we observe from the sample. If we take a sample (like a sample of dairy farms) and make observations, the fact that our sample was 'random' doesn't necessarily make our conclusions about the population it came from valid.

Before we can say anything about the population, we need to know 'how rare is this sample?' We need to know something about our 'sampling distribution' to make these claims.

According to the USDA, in 2006 there were 75,000 dairy operations in the U.S. According to the activists claims, they 'randomly' sampled 11 dairies and found abuse on all of them. That represents just .0146% of all dairies. If we wanted to investigate the proportion of dairy farms that were abusing animals, if we wanted to be 90% confident in our estimate ( that is construct a 90% confidence interval) and we wanted the estimate (within the confidence interval)to be within a margin of error of .05, then the sample size required to estimate this proportion can be given by the following formula:

n = (z/2E)^2 where

z = value from the standard normal distribution associated with a 90% confidence interval

E = the margin of error

The sample size we would need is: (1.645/2*.05)^2 = (16.45)^2 = 270.65 ~271 farms!

To do this we have to make some assumptions:

Since we don't know the actual proportion of dairy farms that abuse animals, the most objective estimate may be 50%. The formula above is derived based on that assumption. (if we assumed 90% then it turns out based on the math (not shown) that the sample size would have to be the same as if we assumed that only 10% of farms abused their animals, which gives a sample size of about 98 or way more than 11). This also assumes normally distributed data. But to calculate anything, we would have to depend still on someone's subjective opinion of whether a farm was engaging in abuse or not.

I'm sure the article that I'm referring to above was never intended to be scientific, but the author should have chosen their words more carefully. What they have is allegedly a 'random' observation and nothing more. They have no 'empirical' evidence to infer from their 'random' samples that these abuses are 'agribusiness-as-usual' for the whole population of dairy farmers. While MFA may have evidence sufficient for taking action against these individual dairies, the standard should be set much higher in order to support a larger role for government in animal agriculture, which seems to be the goal of many activist organizations.

Note: The University of Iowa has a great number of statistical calculators for doing these sorts of calculations. The sample size option can be found here. In the box, just select 'CI for one proportion' Deselect finite population ( since the population of dairies is quite large at 75,000)then select your level of confidence and margin of error.

References:

Profits, Costs, and the Changing Structure of Dairy Farming / ERR-47
Economic Research Service/USDA Link

"Governor Patterson Shut Down This Dairy", Jan 27,2010. OpEdNews.com

The Gausian Copula:

Nice demo on the copula. I'm not in full agreement with the conclusion.

"That does not mean it was useless. The Gaussian copula provided a
convienent way to describe a relationship that held under particular
conditions. But it was fed data that reflected a period when housing
prices were not correlated to the extent that they turned out to be when the housing bubble popped."

From:In defense of the Gaussian copula, The Economist

You have to ask, if you were basing risk correlation on the copula, how can you incorporate the uncertainty and instability created by the fed maintaining artificially low interest rates for so long. Bubbles/Booms usually result from an accumulation of mistakes. Markets typically by their very nature consist decentralized decisions. What would lead so many decentralized decision makers to all make the same mistakes when it came to the financial crisis? This kind of coordination and the accumulation of mistakes is very likely explained by the fed's interventions. Decisions about risk, leverage, and asset prices would very likely become more correlated in an environment of centrally planned interest rates than under 'normal' conditions.

Class: The Politics of Food

Chew On It: New J-Term Class Delves Into 'The Politics of Food'

After just a few days in the class, several students had already altered their eating habits. Third-year Rashawnda James gave up eating chicken after watching "Food, Inc." and seeing how factory farms cram chickens into cages so tiny that they can never spread their wings. One line from the film, "We're not breeding chicken; we're breeding food," conveyed the objectification and inhumane treatment of animals endemic to factory farming, James said.

Pape noted that he personally buys organic milk. When a student asked why, he noted that he didn't want to serve any additional hormones to his 12-year-old daughter.Freedman noted that he also purchased organic milk for his family, and had a hard time explaining, even to himself, exactly why he made that choice. "I think it's a little superstitious. I think a lot of my food choices are tied not to reason, and not necessarily even to preference or taste, but to practice and tradition and habit."

From the description in this story, it appears that the entire class is focused on politically motivated films and books, with an agenda critical of modern agriculture and most family farms. Perhaps there should be a co-requisite or a companion course that also looks at the science and environmental impacts of food choices. Perhaps it could convince Mr. Freedman to give up on his superstitious practices.

Just presenting some basic facts might help Mr. Freedman deal with his superstitions. Somatotropin receptors in human cells cannot recognize bST. (the hormone he probably doesn't even realize he's concerned with). Residue levels of hormones in food have been demonstrated to be safe,and are well below any level that would have a known effect in humans. Given no conclusive scientific link between the use of antibiotics in livestock and clinically important antibiotic-resistant infections in humans, more effort should be placed on judicious use in humans.

Facts relating to the environmental impacts of these lagely personal and political choices wouldn't hurt either. For example, energy use and greenhouse gas emissions per pound of beef are increased three-fold in grass-fed beef cattle vs. conventional, excluding the positive benefits of growth enhancing pharmaceuticals.

More information:

USDA

rBST -Cornell University Dept of Animal Science

Antimicrobial Resistance: Implications for the Food System
Comprehensive Reviews in Food Science and Food Safety
Volume 5 Issue 3, Pages 71 - 137

Forbes: Big Fat America

It looks like Forbes is emulating TIME magazine with more point of view journalism targeting agriculture and family farms.

Big Fat America - link


Here are some of the outlandish statements I found in the piece:

Archer Daniels Midland ( ADM - news - people ), the self-professed "super market to the world" is the behemoth buyer of farm products that's been influential in the development of factory farms.

It is true that Archer Daniels Midland has played a huge role in modernizing the agriculture supply chain. But the results of this have been mainly positive if you consider that modern agriculture is more sustainable and has a lower carbon footprint than ever in history! It appears the attempt here is imagery. The author is unable to cite anything negative negative about ADM that is substantiated other than using the adjective 'Factory Farm.' The term factory farm is not defined, and I guess is assumed to be understood by the readers as just a bad thing associated with big agribusiness like ADM. I often find that when one evokes the term 'Factory Farm', it is just like profanity- strong words used in place of better reasoning. Other cases I've seen this sort of shibboleth is in the attempt to appear to be pro family farm while stealthily advocating polices that would be detrimental to all producers.

The documentary Food Inc. makes the compelling case that factory farming spreads disease among cattle, hogs and birds and that diseases are spreading to crops like peanuts and spinach.

It is true that Food Inc. makes these outrageous claims, but it is a novelty film, not a scientific report. No evidence is given to grant that the case made by Food Inc is compelling in the sense of being convincing. Emotionally appealing? Yes. Again with the use of the term 'Factory Farm.'

Is organic beef healthier than beef from a factory farm? There's no doubt. Cows aren't supposed to eat corn, but factory farmers feed it to them to fatten them up fast, so by definition a corn-fed cow is going to produce fattier meat than a grass-fed one. The corn causes bacteria to grow in the cow's digestive equipment, which is why the cows need all the darned antibiotics. Cows get fed corn because corn is cheap, and corn is cheap because it's subsidized. Dropping those subsidies might raise the price of corn feed, so that letting cattle wander and graze could become an appealing choice again.

Again, the author again applies the label 'Factory Farm' to what are mainly family farms that either finish their own cattle corn or sell calves to feedlots where corn is fed. As I mentioned when criticizing similar junk science last summer in TIME magazine, what matters is of the antimicrobials given to animals, what % actually target pathogens that affect humans. Resistance requires selection pressure, and if the majority of antimicrobials used in livestock production are not selecting against deadly pathogens, then the risks are overblown. What we have observed is that in countries where food grade antimicrobials used in livestock production have been more heavily regulated or banned, the resulting increase in livestock illness has lead to an increased use of antibiotics actually used in human medicine. And just like the case with the TIME article, the environmental benefits of growth enhancing pharmaceuticals are never mentioned. Pound-for-pound, beef produced with grains and growth hormones produces 40% less greenhouse gas emissions and saves two-thirds more land for nature compared to organic grass-fed beef.

Also, high-fructose corn syrup isn't sugar, so there's no way that the two are nutritionally identical unless the phrase "nutritionally" is meaningless. If the government subsidies are pulled, food makers might turn back to sugar land, since it's more expensive, they might even use less of it.'

It is true, high fructose corn syrup is not the same as table sugar. The author makes this distinction and leaves us with the conclusion that this is bad, again without evidence. High Fructose corn syrup, in the highest formulation used in most foods and beverages is 55% fructose. The author doesn't bother to mention that the alternative that they propose, table sugar is 50% fructose! Most recent research indicates that the effects of sugar sweetened beverages ( mostly sweetened with HFCS) have no statistical link to obesity.

The idea that eliminating subsidies would be a good way to combat obesity is purley speculative and again is contradicted by evidence, as I've cited before from UC Davis:

'The culprit here is not corn subsidies; rather,it is sugar policy that has restricted imports, driven up the U.S. price of sugar, and encouraged the replacement of sugar with alternative caloric sweeteners...Given that consumers generally show limited responses to retail food price changes, eliminating the corn subsidy would reduce corn-based food consumption by at most 0.2 percent."

Finally, the author concludes by proposing that we need more labeling. For what? The purpose of labeling is to warn consumers of potential dangers. There is no evidence indicating any potential dangers from GM foods, and the organic market clearly establishes their brands as being GMO free ( losing out on the environmental benefits of biotech). But, no need for labels.


References:

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


International Journal of Food Microbiology
Volume 120, Issue 3, 15 December 2007, Pages 296-302

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.

Am J Clin Nutr doi: 10.3945/ajcn.2009.27573
Adolescent beverage habits and changes in weight over time:
findings from Project EAT1–3
Michelle S Vanselow, Mark A Pereira, Dianne Neumark-Sztainer, and Susan K Raatz

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

Economists Explain Political Aides Disappointment

Some of our political leaders are advocating for more regulation and are disappointed with the results:( from CNN Money )

"Not only do they come for a bailout, but in this short period of time where they have a level of normalcy because of what the government did to help them, they're now back trying to fight consumer offices and the type of protections that will prevent another type of situation where the economy is taken over the cliff by the actions taken on Wall Street and the financial market," Emanuel said on CNN's "State of the Union."

"The most offensive thing is, we haven't seen the kind of increase in lending that we should," Axelrod said in reference to tight credit for consumers and small businesses that need capital for growth."

However, economists Gary Becker and Steven Davis explain the disappointing results are expected given the current economic climate: (Wall-Street Journal)

"We believe two factors are behind this rather tepid rebound. An obvious one is the severe financial crisis that precipitated this recession, with many major financial institutions receiving large bailouts from the federal government...Faced with a highly uncertain policy environment, the prudent course is to set aside or delay costly commitments that are hard to reverse. The result is reluctance by banks to increase lending"

"These facts suggest that it was a serious economic mistake to press for a hasty, major transformation of the U.S. economy on the heels of the worst financial crisis in decades. A more effective approach would have been to concentrate first on fighting the recession and laying solid foundations for growth. They should have put plans to re-engineer the economy on the backburner, and kept them there until the economy emerged fully from the recession and returned to robust growth. By failing to adopt a measured approach to economic policy, Congress and the president may be slowing the economic recovery, and thereby prolonging the distress from the recession."

It bears repeating that this isn't the first time we've seen such a wide margin between policy and reality. Note Chamberlain made a similar observation concerning the efforts to combat the Great Depression:

"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?"

The preponderance of evidence suggests a new direction that involves tax cuts and more pro-growth policies.



(Source)



References:

Uncertainty and the Slow Recovery
Wall Street Journal
Jan 4, 2010

Obama aides: Wall Street shouldn't fight reform
CNN Money
Oct 19, 2009

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

Poll: Most Oppose Tax on Junk Food

"Most Americans want to lose weight, a new CBS News poll finds – but they do not favor a tax on junk food and do not believe that such a tax would help lower obersity. "
Link


Note: Recent research from George Mason University indicates that the tax rate required to have significant impact on obesity would be in the 1200 percent range, and even if taxes eliminated (in this case soda) consumption, the impact on obesity would be very small.

Avatar, Property Rights, and the Environment

Some may claim that Avatar could not have had a libertarian or pro-market theme, because the Na'vi people in the movie didn't have a strong notion of property rights. Never was there mention of deeds, titles, or stock exchanges among the Na'vi. One might even go so far as to say that these people lived in harmony with their environment, and really had no conception property.

First, the movie was full of clues that the Na'vi people embraced property. First of all, what is property, other than a formal relationship between oneself, others, and resources. The Na'vi appeared to live in a society that embraced monogomous marriage, where two individuals take exclusive ownership in one another. They also appeared to take exclusive ownership in some of the animal life, and if they had no sense of ownership, why would they care to fight for their land and homes?

Now it certainly did appear that they lived in harmony with their environment, and there was little mention of extensive institutions of property like deeds and titles. If you review the literature on property and the environment (Coase, Demsetz, Hardin) you will find a common theme illustrating the role of property rights in internalizing negative externalities- in other words, mitigating conflicts of interests and leading to choices that put individuals in harmony with one another and their environment. Demsetz looks specifically at various groups of Native Americans and the relationship between resources, scarcity, enforcement costs, technology, and property. In cases where technology is insufficient or enforcement costs are too great, property rights may not evolve. In other cases, when resources become scarce, there are not technological barriers, ( or there are technological breakthroughs) and enforcement costs are low, more extensive systems of property rights may develop.

It appeared from the movie, that on Pandora, resources were relatively abundant. There appeared to be no need to develop intricate forms of property to internalize any negative externalities resulting from common ownership of some scarce resources. However, that does not imply that they were alien to the notion of property.


"Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place." — Frederic Bastiat

"The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not." -Hayek.

"[A] private property regime makes people responsible for their own actions in the realm of material goods. Such a system therefore ensures that people experience the consequences of their own acts. Property sets up fences, but it also surrounds us with mirrors, reflecting back upon us the consequences of our own behavior." –Tom Bethell


References:

'Tragedy of the Commons.' Science, Vol 162 no 3859 Dec 13, 1968 p. 1243-1248 Garret Hardin

Towards a Theory of Property Rights.
Harold Demsetz
The American Economic Review. Volume 57, Issue 2. May, 1967

The Problem of Social Cost
R. H. Coase
Journal of Law and Economics, Vol. 3, Oct., 1960 (Oct., 1960), pp. 1-44

Avatar: Anticapitalist? Not Really

I've read a few reviews of the movie Avatar, and many of them make the claim that the movie has an 'anti-capitalist' message. Having seen the movie, I didn't see anything that made me think of capitalism. Anyone that has seen the new movie Avatar might agree that there are a lot of lessons that one could take away from the story. Among the many themes, one might suggest that the story is about corporate greed. Someone else might say that it is about environmental exploitation. While you might say that the people in Avatar are struggling with issues related to corporate greed and environmental exploitation, you could not say that capitalism is an issue. This movie offers a teachable moment and an important lesson in economics.

If a capitalist system had been adopted, there would have been no conflict between the two societies. Issues could have been resolved by peaceful,cooperative, mutually beneficial, voluntary exchange. ( a good description of capitalism) The absence of force, is by definition a necessary and sufficient condition for capitalism. There are two things that cannot be achieved at gun point- charity and capitalism.

Ask yourself, was this movie about peaceful cooperative solutions or using violent means to serve an end?
Was the private company that seemed to be central to the plot really a private company- or was it the result of some public private partnership? Was it a government sponsored enterprise? If not, was this the only company on the planet ? I saw no indication that it was in competition with rivals- so if it wasn't a government sponsored enterprise did it achieve monopoly status through some sort of regulatory advantage? The instituional arrangement that would allow for such unaccountable behavior as this company exhibited, and that made use of force, was something other than capitalism.

While some might like to characterize what they saw in the film as capitalism, and may think that it provides an anti-capitalist message, they are wrong. If anything it stands to show the dangers of posed in the absence of property rights, liberty, and voluntary exchange. I remember my geography teacher playing a song ( 'Beds are Burning'? By Midnight Oil) and proceeding to tell us how freedom and capitalism was destroying the planet. I hope such a great movie like Avatar is not misused in the same way.
Avatar was about a lot of things, but capitalism was not one of them.

Kudos to Monsanto: Forbes Company of the Year

Monsanto, a pioneer in sustainable food production technology, is named Company of the Year by Forbes magazine.

Excerpts:

"It is like computers in the 1960s," says Robert T. Fraley, Monsanto's chief technology officer. "We are just at the beginning of the explosion of technology we are going to see." Adds Grant: "Our pipeline is richer and deeper than it has ever been." A new corn variety that includes eight genes for pest resistance and herbicide tolerance could become the company's next big product. It is due out this spring. Also in testing are drought-tolerant corn, corn that needs less fertilizer and higher-yielding biotech soybeans and corn."

"Even some organic farmers are clamoring for genetically modified crops. Don J. Cameron grows both organic and conventional cotton on his farm in Helm, Calif. The organic fields cost $500 per acre to weed by hand, versus only $30 an acre for glyphosate-immune fields. Lately he can't even sell organic cotton because the stuff coming out of India, Syria and Uganda is so cheap. "I feel the organic industry has painted itself in a corner saying that all genetically modified organisms are bad. Eventually they're going to have to allow it," Cameron says."

"But the effect on the environment is just the opposite. GM seeds lower pesticide use or, in the case of Roundup resistance, may reduce soil erosion by making low-till farming more practical. "We have to feed people in a less destructive way," says uc, Davis plant biologist Pamela Ronald, author of the pro-biotech book Tomorrow's Table. "Genetically engineered crops can be useful for that."

"Farmers vote one spring at a time. You get invited back if you do a good job," Grant says.

Read the entire article in Forbes (link)

Soft Drink Video: Insulting Our Intelligence

Many may have seen the video from New York City regarding soft drinks and fat:

( link)

While it is true that the excessive consumption of calories and lack of exercise could result in weight gain, this campaign fails to specify these qualifications. It makes a mockery of science, and is insulting to consumer intelligence.

It is surprising that anyone would stake so much on a campaign with such little support from the literature. Research from the American Journal of Clinical Nutrition finds no link to obesity and soft drink consumption.

"We showed no association between sugar-sweetened
beverage consumption, juice consumption, and adolescent weight
gain over a 5-y period. A direct association between diet beverages
and weight gain appeared to be explained by dieting practices.
Adolescents who consumed little or no white milk gained significantly
more weight than their peers who consumed white milk. Future
research that examines beverage habits and weight among adolescents
should address portion sizes, adolescent maturation, and dieting behaviors."

This corroborates previous findings from the journal Nutrition:

"Our analysis shows no evidence for an association between SSB consumption at age 5 or 7 y and fat mass at age 9 y in this cohort of British children"

A recent blog post (link) gets close to accurately reporting the issue of high fructose corn syrup- a sweetener chemically identical to table sugar found in soft drinks:

"Fructose and high-fructose corn syrup aren't the same. It appears that the writer, Lois Rogers, conflated the two and jumped to all kinds of incorrect conclusions. For example, that the research had anything at all to do with "the obesity epidemic." It didn't."

"The environmental site Grist tends to see everything through an ideological lens, and so is always on the hunt for evidence that high-fructose corn syrup is somehow more harmful than common sugar"

But then the article starts to get off track in stating:

"It is cheap (high fructose corn syrup) in large part because of farm subsidies. As a result, it is ubiquitous and is making a lot of people fat, diabetic, and prone to heart disease."

Research taking the claim of a connection between obesity and farm policy in a more direct fashion can be found here( from UC Davis).

"'The culprit here is not corn subsidies; rather,it is sugar policy that has restricted imports, driven up the U.S. price of sugar, and encouraged the replacement of sugar with alternative caloric sweeteners...Given that consumers generally show limited responses to retail food price changes, eliminating the corn subsidy would reduce corn-based food consumption by at most 0.2 percent.""

Similarly, this weak response of consumers to food prices undermines policies that advocate taxing soft drinks to reduce consumption and obesity. Research ( from the Mercatus Center at George Mason University) indicates that the taxes required to have any real affect on obesity would be in the 1200 percent range, and even if taxes eliminated ( in this case soda) consumption, the impact on obesity would be very small. The study concludes that "the sensitivity of individuals to changes in relative food prices is not sufficient to make “fat taxes” a viable tool to lower obesity."

These campaigns are nothing more than emotional appeals designed to solicit support for new taxes and regulations that ultimately undermine the agriculture industry and family farms.

References:

Media Gets Stuck in High-Fructose Corn Syrup
Dan MItchell
Daily Bread, The Business of Food Blog
The Big Money by Slate

Am J Clin Nutr doi: 10.3945/ajcn.2009.27573
Adolescent beverage habits and changes in weight over time:
findings from Project EAT1–3
Michelle S Vanselow, Mark A Pereira, Dianne Neumark-Sztainer, and Susan K Raatz

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

Taxing Sins: Are Excise Taxes Efficient
The Mercatus Center
George Mason University

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

Family Farmers Stand Up Against Elites

Farmers are starting to speak out against the attacks from point of view journalism, celebrity authors, and novelty film makers that have cleverly crafted arguments against 'industrial' farms, while stealthily undermining the practices of most family farmers.

The Omnivore’s Delusion: Against the Agri-intellectuals

By Blake Hurst- The American July 30 2009

"He quieted and asked me what kind of farming I do. I told him, and when he asked if I used organic farming, I said no, and left it at that. I didn’t answer with the first thought that came to mind, which is simply this: I deal in the real world, not superstitions, and unless the consumer absolutely forces my hand, I am about as likely to adopt organic methods as the Wall Street Journal is to publish their next edition by setting the type by hand. He was a businessman, and I’m sure spends his days with spreadsheets, projections, and marketing studies. He hasn’t used a slide rule in his career and wouldn’t make projections with tea leaves or soothsayers. He does not blame witchcraft for a bad quarter, or expect the factory that makes his product to use steam power instead of electricity, or horses and wagons to deliver his products instead of trucks and trains. But he expects me to farm like my grandfather, and not incidentally, I suppose, to live like him as well. He thinks farmers are too stupid to farm sustainably, too cruel to treat their animals well, and too careless to worry about their communities, their health, and their families...The most delicious irony is this: the parts of farming that are the most “industrial” are the most likely to be owned by the kind of family farmers that elicit such a positive response from the consumer. Corn farms are almost all owned and managed by small family farmers. "

Farm official: Elitists’ efforts would mean more hungry people
Saturday, December 12, 2009
Agrinews Online

“The elitists have been able to put in place zealots who are causing proposed regulations to come down the pike that will affect production agriculture more than ever,” he said. “They are trying to carry out their concepts, their ideas, of what needs to be done to forge what they perceive as a lifestyle that everybody should participate in.”

Attacks on the toolboxes that help farmers increase productivity are at the top of the list. A new review of atrazine — just reviewed in 2006 — the banning of carbamates, nutrient application rules and proposed spray drift controls are some of the attempts by elitists to impose their will on the nation’s food producers.The controversial issues of global warming and climate change and international indirect land use are issues on which elitists are focusing as a way of imposing more regulations on production agriculture.

“Tools that production agriculture has used are being removed from our toolbox,” Weinzierl said.

Food, Inc., discussion draws 50 in Fergus Falls

Agrinews- Dec 10,2009

"It's not telling the whole story," said the crop consultant and former farmer. "I think it was quite biased. I am an advocate for agriculture and I support all of agriculture. But this isn't telling the whole story."

Farmer Cynthia Johnson agreed.

"I substitute teach in the school and ag is not painted a beautiful picture in any of the textbooks," she said.

Rush is Right- No Rush to Innovate in this Climate

On my way to a late lunch yesterday I got a chance to catch a bit fromt he Rush Limbaugh show. He was talking about a story from CNN Money entitled "Recession's latest victim: U.S. innovation." The concern was that the recession was leading to a decrease in patents being filed which could lead to less innovation and fewer job and opportunities.

The article calls for patent reform to help speed up the process, but seems to miss a bigger point. Despite the costly process of applying for a patent, and the huge costs associated with defending them, there are also the costs involved in the R&D that went into developing whatever innovation you are filing for. All of this eats into profits, which lately have been thin and held under strict scrutiny. All the while businesses are blamed both for taking job creating risks and for excessive profits when they succeed. My ears perked up when I heard Rush say:

"when you are on the verge of passing legislation that will destroy the private sector, raise taxes, and punish achievement… and have a pay czar out there. If you succeed too much, the pay czar is going to be knocking on your door and telling you how much you can pay yourself and your other employees. It is not the recession killing innovation. In fact, innovation is largely key coming out of recessions"

Not only did this seem consistent with basic economics, but it reminded me of an old essay I read from a pamphlet I got from my high school history teacher. It was taken from John Chamberlain's book 'Enterprising Americans'.

One central theme behind Roosevelt's stimulus policies, like today, was that business was sitting on thier hands and the government had to tax and spend to get things going and regulate to keep them going and prevent the next downturn. Things never got going under the New Deal. It wasn't until after WWII that we began to see any change at all. But as Chamberlain pointed out:

"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"

and had business simply reached a point of stagnation that only government spending could revitalize

"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 Patomac?"

With the pay czars, government takeovers, bailouts, and numerous other talked about interventions in the economy this certainly reads true for today. Just substitute the word "czars" for "planners."


Reference:

The Enterprising Americans:
A Business History of
the United States
BY JOHN CHAMBERLAIN
INSTITUTE FOR CHRISTIAN ECONOMICS
TYLER, TEXAS

The Real Farmville

This video (courtesy of the Animal Agriculture Alliance), makes the obvious point that modern agriculture isn't like the Facebook game 'Farmville', and it is quite a bit different than how we produced food 100 years ago. Implicit in this statement is the fact that 98% of all farms are family farms and account for 96% of output while improved management, production methods , biotech, and pharmaceutical technologies have allowed us to achieve an unprecedented balance between increased output and decreased environmental impact ( improving overall biodiversity as well as the diversity of crops planted) .


* The U.S. dairy industry produced 8.3 billion more gallons of milk than in 1944 (vs. 2007), but due to improved productivity, the carbon footprint of the entire dairy farm industry dropped 41% during the same time period. Geenhouse gas emissions per gallon of milk produced are 63% lower.

*Roundup Ready technology has allowed for glyphosate herbicide to substitute for 7.2 million pounds of other chemicals that are more toxic and persistent in the environment. Overall Biotech crops have reduced pesticide spraying 125%.

*Between 1987 and 2007 energy use per unit of output is down in corn, soybeans and cotton production by nearly 40% . Irrigated water use per unit of output decreased by 20% while carbon emissions per unit of output have dropped by 33% in the three crops.

*Grain feeding combined with growth promotants results in a 40% reduction in greenhouse gases per pound of beef compared to grass finishing, with growth promotants accounting for 25% of the reduction.

More Information:
--------------------

Structure and Finances of U.S. Farms: Family Farm Report, 2007 USDA ERS

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

GM crops: global socio-economic
and environmental impacts 1996-
2007 Graham Brookes & Peter Barfoot
PG Economics Ltd, UK
Dorchester, UK

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.

‘‘Diversity of United States Hybrid Maize Germplasm as Revealed by
Restriction Fragment Length Polymorphisms.’’ Crop Science 32: 598–604

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

Agricultural Outlook ERS/USDA Aug 2006.

Jobs Summit: 20% Unemployment- No Surprise

This week our leaders in DC held a job summit, but I'm not sure how open they were to the current evidence about unemployment. Last October the Wall Street Journal reported that teenage unemployment in September was at 25.9%. (link). As reported this is very close to what economist David Neumark of the University of California predicted would happen with the increase in minimum wages.

A recent Washington Post story (link) notes that unemployment for 16-24 year olds was at 19.1% in October while it was at 34.5% for African Americans in the same age group.

Again, this is not surprising and is consistent with the evidence (see references below).

Of course we have to take into consideration that we are in the worst recession since the Carter years, and that would obviously have an impact on unemployment in addition to the effects of raising the minimum wage. However, we have to ask, since we are in the worst recession in 30 years, why has noone discussed repealing the recent increases when they are know to be so harmful to low income earners? As the Washington Post story above noted, the problem is not just the temporary issue of not having a job:

"Jobless teens are more likely to be jobless twenty-somethings. Once forced onto the sidelines, they likely will not catch up financially for many years. That is the case even for young people of all ethnic groups who graduate from college. "

We also have to consider the other polices coming down the pipeline. With the near trillion dollar stimulus package, we still have over 10% unemployment overall. The world's best economists predicted that the stimulus would be ineffective,(Cole & Ohanion, Prescott, Barro, Becker, Rizzo, Mankiw, Sargent) and it seems we are repeating the same mistakes made during the Great Depression that gave us 25% unemployment.

With the expiration of the Bush tax cuts, small businesses and farms are set for huge tax increases. ( see Taxing our Farms and Businesses via AgWeb). Add to this the uncertainty of increased energy and health care taxes as well as out of control deficits and it doesn't provide much incentive for creating jobs. We saw under both Reagan and Bush that cutting marginal tax rates can help stimulate the economy and reduce deficits ( see Evidence on Tax Cuts via Agweb) Recent research from Harvard University concludes that ' Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases.' (link via Greg Mankiw) It also concludes that deficits are better handled through spending cuts than tax increases.

Some in D.C. remain stubborn. Recently when Texas representative Michael Burgess suggested that we offer tax relief to business and have government get out of their way, Treasury Secretary Timothy Geithner responded:

“That broad philosophy helped produce the worst financial crisis and the worst recession we’d seen in generations.”

This shows either ignorance or rejection of the current evidence, or it shows that Geithner's priorities are more concerned with philosophical and theoretical ideals than results.

With climate gate, it might have been possible to keep the evidence about climate change behind closed doors. But with the economy, everything is out in the open and the evidence is freely available. This makes more government spending and regulation a very hard sell, and it is surprising that some policy makers continue to try to make the case for it. What's not surprising is the continued high rates of unemployment.

References:

Geithner’s Crisis Sleepwalk Is Reason He Must Go: Kevin Hassett

Nov. 23 (Bloomberg)

The Young and the Jobless Wall Street Journal Oct 3, 2009

Blacks hit hard by economy's punch. Washington Post Staff Writer
Tuesday, November 24, 2009 (link)

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.

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.

Hashimoto, Masanori. 1982. Minimum Wage Effects on Training on the Job. American Economic Review, vol. 72 (December): 1070-1087.

Thanksgiving or Ingratitutde

The First Thanksgiving offered a great lesson in how free markets and private property can lead to agricultural abundance. In many ways we have done well in learning this. Family farmers account for 98% of all farms and produce 96% of all the food in this country. Their own pursuit of self intrerest utilizing markets and private property has led them to adopt GPS, pharmaceutical technology, and biotechnology to produce an abundant food supply, while drastically reducing our impact on the environment. These institutions, capitalism, property rights, and the family farm put the 'S' in sustenance and sustainablity.

Unlike the first Thanksgiving, this abundance is commonplace for the vast majority of Americans today. For many, little physical exertion is required to enjoy access to a fulfilling meal. This combination of abundant cheap food and a sedentary lifestyle certainly has contributed to issues related to health and obesity. Unfortunately, instead of dealing with this issue in a productive, thoughtful, and thankful way, the reaction by many has been spiteful and ingracious- biting the proverbial 'hand that feeds us.'

One way this attitide has come out is what can only be described as a biggoted and condescending attitude towards obese members of the population. PETA has intentions of creating billboards with taglines like:

"The 400-Pound Virgin: Lose Weight. Look Great. Get Laid. Go Vegan."

Lincoln University, in Pennsylvania, has cast aside grand ideals of enlightenment and tolerance through education and research and instead opted for special descrimintory education requirements for obese students.

Many activists and even the media have also started leveling attacks against family farmers using degrading terms like 'industrial agricultrue','factory farming', and 'frankenfoods' to describe the methods most family farmers use to produce our safe and sustainable food supply. By using these terms, activists are able to build resentment towards these technologies, while few people realize their proposals would have a direct negative impact on the family farms they may claim to be 'liberating' from the (ficticious) grip of big agribusiness. They are literally trying to coax us into biting the hand that feeds us.

Celebrity authors like Michael Pollan are leading the charge, linking industrial agriculture (i.e. family farms) with climate change and obestiy among other things. Retailors have engaged in misleading advertising gimmicks, labeling some foods with messages like 'contains no High Fructose Corn Syrup or Artificial Ingredients' while the ingredients list sweeteners such as cane or beat sugar that contain similar levels of fructose. ( & giving the impression that HFCS is an artificial ingredient) Lawmakers, desperate for revenue and popular appeal in times when both are scant, are proposing sugar taxes and calorie added taxes based on little evidence to prove their effectivness and false premises of a correlation with consumption of these foods and obesity.

Instead of showing thanksgiving for our way of life, and modern production techniques that have made it possible, many in society have shown ingratitutude.

For More Information:

Structure and Finances of U.S. Farms: Family Farm Report, 2007 USDA ERS

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.

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

GM crops: global socio-economic
and environmental impacts 1996-
2007 Graham Brookes & Peter Barfoot
PG Economics Ltd, UK
Dorchester, UK (link)

Nutrition July-August 2007, Volume 23, Issues 7-8, Pages 557-563
"Is sugar-sweetened beverage consumption associated with increased fatness in children?" Authors: L. Johnson, A.P. Mander, L.R. Jones, P.M. Emmett and S.A. Jebb

Am J Clin Nutr (October 28, 2009)
"Adolescent beverage habits and changes in weight over time: findings from Project EAT1,2,3" Michelle S Vanselow, Mark A Pereira, Dianne Neumark-Sztainer and Susan K Raatz

The First Thanksgiving: A Lesson in Free Market Agriculture

The first Thanksgiving story provides an interesting lesson in agricultural economics. Foremost, the celebration was about thanking God for the abundance. However, an important aspect is what resulted from a move away from a socialist or common property model of organizing and allocating resources (imposed on them by the Colony’s Sponsors) to a system of private property rights.

As governor William Bradford commented on the dreadful conditions of 1622:

“The experience that was had … that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing; as if they were wiser than God. For this community was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. For the young men, that were most able and fit for labor and service, did repine that they should spend their time and strength to work for other men's wives and children without any recompense. The strong… had no more in division of victuals and clothes than he that was weak and not able to do a quarter the other could; this was thought injustice."

In 1623, they embraced the incentives of private property and capitalism:

“They had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression…By this time harvest was come, and instead of famine, now God gave them plenty, and the faces of things were changed, to the rejoicing of the hearts of many, for which they blessed God.”

The first Thanksgiving was a great example of agricultural productivity, given the proper incentives.

The source for these excerpts can be found at the Foundation for Economic Education here.

Why Agricultural (Applied) Economics?

Why study Agricultural Economics?

"The combination of quantitative training and applied work makes agricultural economics graduates an extremely well-prepared source of employees for private industry. That's why American Express has hired over 80 agricultural economists since 1990." - David Edwards, Vice President-International Risk Management, American Express

Agricultural Economics is a very applied field covering many topics beyond those stereotypically thought of as pertaining to agriculture. These may include finance and risk management, environmental and natural resource economics, game theory, or public policy analysis to name a few. More and more 'Agricultural Economics' is becoming synonymous with 'Applied Economics.' Many departments have changed their name from Agricultural Economics to Agricultural and Applied Economics and some have even changed their degree program names to just 'Applied Economics.'

This trend is noted in recent research in the journal Applied Economic Perspectives and Policy:

"Increased work in areas such as agribusiness, rural development, and environmental economics is making it more difficult to maintain one umbrella organization or to use the title “agricultural economist” ... the number of departments named “Agricultural Economics” has fallen from 36 in 1956 to 9 in 2007."

Agricultural/Applied economics provides students with skills in high demand, particularly in the area of analytics.

"Some companies have built their very business on their ability to collect, analyze, and act on data." (See 'Competing on Analytics.' Harvard Bus.Review Jan 2006)

Recently from the New York Times: (For Today’s Graduate, Just One Word: Statistics )

"Though at the fore, statisticians are only a small part of an army of experts using modern statistical techniques for data analysis. Computing and numerical skills, experts say, matter far more than degrees. So the new data sleuths come from backgrounds like economics, computer science and mathematics."

To quote, from Johns Hopkins University’s applied economics program home page:

“Economic analysis is no longer relegated to academicians and a small number of PhD-trained specialists. Instead, economics has become an increasingly ubiquitous as well as rapidly changing line of inquiry that requires people who are skilled in analyzing and interpreting economic data, and then using it to effect decisions ………Advances in computing and the greater availability of timely data through the Internet have created an arena which demands skilled statistical analysis, guided by economic reasoning and modeling.”

Finally, a quote I found on the (formerly) American Agricultural Economics Association's web page a few years ago:

“Nearly one in five jobs in the United States is in food and fiber production and distribution. Fewer than three percent of the people involved in the agricultural industries actually work on the farm. Graduates in agricultural and applied economics or agribusiness work in a variety of institutions applying their knowledge of economics and business skills related to food production, rural development and natural resources.”

References:
'What is the Future of Agricultural Economics Departments and the Agricultural and Applied Economics Association?' By Gregory M. Perry. Applied Economic Perspectives and Policy (2010) volume 32, number 1, pp. 117–134.

Greed, Envy, and Compensation

To me, we have seen a lot of hypocrisy lately in the public discourse regarding the issue of compensation. The underlying premise for much of the call for capping executive compensation has been that executives are overcompensated. That compensation structures have provided too much incentive for excessive risk taking. When you combine these pay structures with greedy executives, you get all of the problems that characterize the recent financial crisis. Since they had a lot to do with our current problems, they should not be rewarded with generous compensation or bonuses.

I deem this line of thought as hypocritical in the following way. I think much of the popular support for new regulations regarding executive salaries has to do more with envy, than economics (which I will discuss more below). Often political leaders will attempt to exploit envy from below, in order to create a larger movement for social control from above. Envy is just the desire to have more, and often more of what someone else has. Lately, envy has meant begrudging others of what they have and has led to having government take it away. How is that so different from greed?

Are executives really overcompensated? Research from the Journal of Political Economy by Jenson and Murhpy indicated that for every $1000 of value created for a company, executives were only compensated by $3.25. It hardly appears that they are overcompensated. There has also been the criticism that capitalism, and greedy executives, has lead to too much concentration on short term gains without concern for long term outcomes. This too is without merit. Research from the Journal of Applied Corporate Finance indicates that near term cash flows account for only a small percentage of a firm's capitalized market value. Only 18% of share value can be attributed to short term expectations of profits within a 5 year window. Expectations looking 10 years out account for up to 35% of share value. In other words, capitalism, or markets place greater value on long therm gains than short term wins.

A major challenge in corporate finance and compensation structures has been to actually encourage, not discourage executives to take calculated risks. A basic principle of finance is that with greater risks come greater returns. A leader that consistently abstains from taking risks will not create value for any organization. Large bonuses and golden parachutes aren't just the product of greed, but are designed to give executives the incentive to take prudent risks and create long term value for their firm and its shareholders.

Is too much risk taking really a problem? Some people claim that deregulation in addition to greed lead to excessive risk taking and our current problem. The only problem with that point is that we have not had a single act of deregulation by congress in well over a decade, and that was during the Clinton administration. But this deregulation ( the Gramm-Leach-Bliley Act) in fact helped create stability in the recent financial crisis, instead of being a source of the chaos. As quoted from the Wall Street Journal ( Oct 18,2008)

'Indeed, it allowed Bear Stearns and Merrill Lynch to be acquired by J.P. Morgan Chase and Bank of America, and allowed Goldman Sachs and Morgan Stanley to convert to bank holding companies to help shore up their positions during the mid-September bear runs on their stocks.'

But I do agree, that excessive risk taking did have a huge role to play in the current crisis. Market interest rates check excessive debt accumulation and risk taking. However,the artificially low, socially planned interest rates of the fed upset these natural checks and balances. Risky projects that did not offer a return high enough to offset risks under market interest rates, became profitable at new artificially lower interest rates. Businesses took on more risks and more debt than market fundamentals otherwise would have supported, and suddenly we have the makings of a rational bubble and the inevitable crash that followed. Implicate greed and risk taking if you will, but don't take it so far as to blame salaries and deregulation in the process.

What are the effects of our current stance on salaries? Now, of all times is when we need the best talent to lead us back to positive returns. If we really want the bailed out companies to ever be in a position to repay taxpayer dollars or regain their independence from government control, we need the top leaders to put them in that position. We won't get off cheap doing it. Already Bank of America is having trouble finding executives willing to be their CEO at the government imposed $500,000 pay cap. ( Wall Street Journal Nov 14, 2009).

Having not addressed the root causes of the financial crisis,and implementing more regulations that decrease risk taking, decrease compensation, and decrease investment incentives will only prolong the crisis and lead to stagnant long term growth.

If greed has ever been a problem, then it will be the envious regulatory response that keeps us from solving it.

References:

'Most Pundits Are Wrong About the Bubble-The repeal of Glass-Steagall has helped us weather the storm.' Wall Street Journal, Oct 18,2008. Charles Calamiris.

'BofA Hits Pay Snag in its CEO Hunt.' Dan Fitzpatrick. Wall Street Journal, Nov 14,2009.

Michale C. Jenson and Kevin J. Murphy."Performance Pay and Top Management Incentives," Journal of Political Economy, 98 No. 2 (April 1990) p. 225-264.

J.R. Woolridge, "Competitive Decline: Is a Myopic Stock Market to Blame?" Journal of Applied Corporate Finance, Spring 1988. p. 26-36

Earth Liberation Front: Resistance Part II

Previously I was discussing Eigene Weekly's Next Big Thing blog interview of Craig Rosebraugh regarding Earth Liberation Front's magazine 'Resistance.' I pointed out a couple of myths being perpetuated about the role of profits and biotechnology as they relate to environmental sustainability. In the same interview, Mr. Rosebraugh makes the following comment:

"This is a corrupt government, one that has been corrupt since its inception in 1776. The most unreasonable, potent, and damaging lie ever told to the people of the United States is that this is a democracy. The United States has never been a democracy nor will it ever be one without a significant change in the way the government is structured and the way it operates. This plutocracy or oligarchy is going to do what is in the best interest of the wealthy, of the corporations, and even to this day of the white male. Anything that stands to challenge the power the government and corporations hold over the people will be met with extreme force and violence."

Some of this really needs to be broken down line by line.

Let's start here:

"The most unreasonable, potent, and damaging lie ever told to the people of the United States is that this is a democracy. "

He is correct, but for all the wrong reasons. It seems that many people do have the misconception that we live in a democracy- but that is not what was intended. If it is a lie being told, that is being done in our schools or by activists and politicians. It certainly does not reflect the famous exchange made by Ben Franklin regarding the constitution:

Someone: “Well, Doctor, what have we got—a Republic or a Monarchy?” -

Ben Franklin: “A Republic, if you can keep it.”

A republic, not a monarchy, not a democracy. Rosebraugh is correct though, this myth about us being a democracy has been damaging, but not for the reasons he thinks. Some politicians have been so ambitious as to think that democratic popularity should override the protections our founders gave us in the Constitution- in other words congress should be able to do what ever it wants as long as it has the votes and the people keep sending them to Washington. And, if the constitution gets in the way, then it is OK for some unelected judge to make up a new interpretation granting congress the power it needs. I have a feeling that this is exactly the 'significant change in the way the government is structured and the way it operates' that Mr. Rosebraugh has in mind. We apparently just haven't went far enough in his mind and formally rescinded the Bill of Rights.

He also says that "This is a corrupt government, one that has been corrupt since its inception in 1776."

Well, of course government has always been corrupt in every form. But that is exactly why our founders gave us a Constitutional Republic. As Thomas Jefferson said:

“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”

By unbinding an otherwise democratic government from its constitutional restraints, as Mr. Rosebraugh may prefer, we open the door to some of the worst kinds of corruption we have seen in our history.

In a constitutional republic,(at least with our Constitution as it was written) corporations have no power other than the power we give them when we buy their products. Our Constitution as it is written expressly forbids government granting them any other power or special privileges over the common man. And, it protects us from any power held by the government. Only when we compromise (as we continue to do)for example with wild interpretations of 'the commerce clause' or the term 'general welfare' do we give up these protections.

But, these very compromises are what give the federal government the power it needs to enforce the environmental regulations these anti-ag activists treasure so much. The reforms that Mr. Rosebraugh and ELF are pushing certainly may be responsible for any truth that there may be regarding his statement:

"Anything that stands to challenge the power the government and corporations hold over the people will be met with extreme force and violence."


Only in a democracy void of constitutional restraint could we have such corruption and abuse of power. Our founders may have had their flaws, but they definitely knew what they were doing.

Earth Liberation Front: Resistance ( or Obstinance)

The following is an excerpt from a recent interview (here on Eigene Weekly's Next Big Thing blog) of Craig Rosebraugh regarding Earth Liberation Front's magazine 'Resistance.'

"This movement realizes that when governments and politicians refuse to act to protect the planet, it is up to all of us to step in and protect our home. And the only logic way that this protection may occur is to understand the primary force driving environmental destruction. That force is economic; it is the financial incentive that corporations and governments have when they clear-cut old growth forests, when they pump out gas-guzzling vehicles, when they destroy mountain tops and communities for coal, when they lay gas and oil pipelines across landscapes and ecosystems, when they genetically alter the natural world, when they pump toxins into the air, into the water and soil. It is the profit motive that is driving environmental destruction. So it only makes logical sense to work to directly remove that profit motive from these entities so they either are persuaded to stop their harmful practices or go out of business."

This seems to really resonate some of the fallacious thinking that we have seen in print lately via the Michael Pollan's and the Brian Walsh's of the world. He is linking profits and biotechnology with environmental destruction. It is annoying that these same 'stories' continue to be told. They are like myths that it seems we must continue to debunk over and over again. Now that we have people in power willing to subordinate evidence to wider emotional appeal, ( like regs on antibiotic use in livestock, cap-and-trade, the recent bailout, the stimulus package) we have to be even more resilient.

Removing the profit motive is the very last thing that one would want to do if long term sustainability is the goal. It was largely the profit motive that led to the production of biotech crops, and adoption by farmers. Sure we are all motivated by things besides profit, but the market system helps to coordinate our decisions, so that our choices are compatible and resources are used efficiently in a world of scarcity. And guess what, as so much evidence has indicated, farming is more sustainable than ever! While the agriculture industry may be one of the best examples of how markets and profits can lead to sustainable outcomes, the basic principle holds true across all industries. I guess Mr. Rosebraugh has never heard of The Invisible Green Hand.'

Of course, considering ELF as the source, we would not expect their publications to be considerate of all of the evidence, it's not like they are TIME magazine or anything.

Richmond Times Dispatch- Back and Forth

My previous post- 'House Passes Anti-Ag Health Care Bill' I expanded on some comments that I had left there in response to an editorial entitled Snack Attack ( which I was in favor of).

Someone responded to my comments as follows:

"But the interpretation of law is the foundation of the constitutional system; it’s intentionally ambiguous. To have anything more authoritative in a democracy would cross the boundary of representation towards dominance. It’s not so much that collective governance plays a part, but that the part it plays is available for interpretation."

...

"(As a side note, there’s no empirical link between the size of a policy bill and it’s efficacy—the US Military operates with far more than 111 internal bureaucracies, to say that it should or shouldn’t require as much without citing the substance of the organizational structure means nothing.)" -R

My Response:

In fact, the constitution was never intentionally ambiguous. A few quotes from our founders and the federalist papers make it clear that the words were intentional and have specific meaning.

“With respect to the two words “general welfare,“ I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.“ - letter to James Robertson from James Madison

Also by Madison in Federalist # 41:

“Nothing is more natural nor common than first to use a general phrase ( like common welfare) and then to explain it and qualify it by a recital of particulars.“

In Federalist # 45:

“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.“

Thomas Jefferson also was an advocate of this position as he states in a letter to Albert Gallatin in 1817:

“Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated.“

The idea that the constitution can have multiple or ambiguous interpretations represents a transfer of power away from the people to the jurist. It is what economist Thomas Sowell has brilliantly described as the quiet repeal of the American Revolution.
The cognitive meaning of the constitutional text should always have dominance over the arbitrary whims or diseases endemic to democratic processes.

As stated:

from Federalist # 10. Madison states:

“In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government.”

What are these diseases? Again from #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”

Basically everything that has recently brought us to the point where we are today- why - because our elected leaders justify their actions by appealing to court precedents based on wild interpretations. With the courts, stripping away these protections, these diseases flourish.

You make a good point about the size of a bill and it’s efficacy. However, the relevant illustration made by me and the author is how its size seems speaks to just how disingenuous the bill is. IF providing means to purchase healthcare were really a concern, it would not require 1900 pages with provisions for vending machine regulations.

Unlike the constitution however, I belive this bill, is intentionally ambiguous. That way one can deny the existence of death panels ( or whatever topic) , but also provide the legal basis for their inception after it has been passed. It also allows for granting special privileges.

“The entire federal budget,” “can be viewed as a gigantic rent up for grabs for those who can exert the most political muscle.” ( ‘The Public Choice Revolution.‘ Regulation Magazine)

I can't wait to see if there is any followup. I expect a very sophisticated argument dismissing the importance of the Constitution, liberty, and free markets. If they can work something in about how 'industrial agriculture' is destroying the planet I would not be surprised either.

House Passes Anti- Ag Healthcare Bill

A recent editorial in the Richmond Times Dispatch brings up the provision in the now passed house health care bill that regulates snack machines.

The snack machine provision certainly does characterize not only this bill, but the general condescending attitude that our leaders have towards science and evidence.

( there is no empirical link between snack foods and obesity i.e. health, while there are claims of a scientific consensus about global warming there are NO SCIENTIFIC forecasts supporting it, we just passed a stimulus package that flies in the face of 60 years of macroeconomic research)

It is one thing to attempt to help the less fortunate, but it should not require 111 new boards, commissions, and bureaucracies to provide people the means to pay for health care.

It is naive to think that these boards will not have a field day with the 1900+ pages of ambiguous language, and construe it to mean anything that serves their ends. It doesn't matter if the language 'death panels' is absent, it doesn't matter what president Obama, speaker Pelosi,or Sean Hannity says the bill means, what matters is the wild interpretation made of the 1900 pages of ambiguous language some judge makes 10 years from now.

Just look at the wild interpretations made of the commerce clause and 'general welfare' in our 'Iron Clad' constitution! Why we would want to grant congress 1900 more pages of leeway to run our lives is beyond me. It is obviously not about healthcare, it is about control.