A Picture of The Minimum Wage

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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

 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?

"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?

"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

The best ap I've ever used.

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

Regulating Commerce

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

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

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 and should we really price carbon?

“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 think 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?

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. A centralized approach to rationing carbon requires resources to be invested in two major ways: 1) lobbying lawmakers to tweak the proposed rules and regulations 2) complying with the burdens of a centrally planned price or quantity. Should we assume that the use of resources in this way have a higher valued use than mitigating climate change in other ways (like market driven investment in green technologies like biotech)? The best approach to dealing with climate change or any environmental problem may be 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”

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

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

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

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

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?)

"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...

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

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?

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.