10 Principles Rap

Hear the 10 Principles of Macroeconomics- Rap Version

Source :

Demand, Supply - Rhythm, Rhyme, Results ( Click for full version including all 10 Principles below)

10 Principles of Economics: Gregory Mankiw, Brief Principles of Macroeconomics 5th edition

1. People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another.

2. The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions.

3. Rational People Think at the Margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.

4. People Respond to Incentives. Behavior changes when costs or benefits change.

5. Trade Can Make Everyone Better Off. Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services.

6. Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government.

7. Governments Can Sometimes Improve Market Outcomes. When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.

8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income.

9. Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.

10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes,government spending and monetary policy.

Mankiw: H1N1 and the Spontaneous Order?

This post by Mankiw raises some questions I'm not sure I can answer.This involves allocating scarce resources(vaccine) given the constraints imposed by population genetics and epidemeology as they relate to the virus.

The following example ( although unrelated pathology) shows how markets work in the livestock industry in this regard. With beef cattle, a producer has every incentive to optimize vaccination of his calves prior to shipping ( to prevent shipping fever). Markets work. Typically calves preconditioned for health prior to shipping do better, and can often earn a price premium.

In crop production, there have historically been requirements for Bt biotech crops not to exceed 90% of total corn acreage. That implies leaving a 10% refuge. ( although there are some products out there that now meet the standards for a 5% refuge). This regulatory constraint was imposed to prevent selecting for Bt resistant pests.Without the constraint, enough producers might plant 100% Bt, selecting for resistant insects, leading to a population of resistent pests. This would create a negative externality imposed on producers in that area. Some literature has indicated that 10% could be to strict, or perhaps even a market based permit or quota system would work but the principle still holds. Would a producer have incentives without the regulatory constraint to plant the optimal acreage of Bt corn?

But what about controlling H1N1 in the human population? Would market prices ensure that people at the greatest risk ( determined by epidemiological evidence) get treated? For every low risk person that takes the vaccine, would the market price reflect the opportunity cost of a high risk person not getting it? Would the price rationed distribution of vaccine across the population also be the epidemiologically optimal distribution- would it result in minimizing the effects of H1N1 across the population?

I would say yes if A) those that were high risk were aware of the fact that they were high risk and they were able to outbid all low risk consumers. Eventually the price would reach a level that only informed high risk consumers would be willing to pay. High risk individuals would be identified via the price mechanism, and resources would be allocated accordingly.

Would it matter if people were poorly informed about their risk status and everyone assumed that they were high risk ( regardless of Media and public service announcements) and they bid for the vaccine accordingly? Wouldn't these people bid just as intensely as those that were truly high risk?

How would markets work in this instance?

(Sustainable) Food For Thought

When we think of sustainable food production, we may often think about niche markets like local or organic, although there is some bickering among producers about which is more sustainable. See the Marginal Revolution: for a look at this in terms of food miles, or here from Environmental Science and Technology, with more discussion about this research here in National Geographic.

While niche markets are emerging as one way to address the general public's concerns about sustainable food choices, we often forget about the technological improvements that family farmers depend upon for their livelihood, but also make our foods more sustainable. We often get the idea from the media that our food industry has been taken over by industrial farms, but the numbers just don't support those notions. Family farms make up 98% of all farms in the U.S. and according to the USDA ERS (2007) non family corporations make up less than 1% of the total number of farms in the U.S. and have accounted for only 6-7% of farm product sales in every census since 1978.

Family farms probably rely most heavily on products like biotech Bt corn and glyphosate resistant corn and soybeans. A good review of the environmental benefits of biotechnology in crop production can be found here. Many niche local and organic producers are catching on and are pushing for adoption of exceptions for biotechnology to be included in organic production ( See Science and the Boston Globe for more)

We've also seen great strides in the improved sustainability of milk ( video) and beef ( video). With a little better understanding at the farm gate level,I think many people will be surprised just how many sustainable food choices we really have!

Additional 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

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

MSN Health and Fitness Bovine Growth Hormone

Dr. Harlan Ritchie, Michigan State University. How safe is our product Beef?

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

Sandiego Center for Molecular Agriculture Foods from Genetically Modified Crops ( pdf)

Sustainable Milk

In a nutshell, buy your milk from Kroger and kill 25 trees, but buy your milk from Wal-Mart and that's like planting 25 trees!



Why is it that Kroger is OK with adopting modern technology like automated checkouts, but they deny their milk producers similar technological advancements?

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

Politics and Science

In a past post I made note of the following quote from an issue of Nature Biotechnology:

"Obama is clearly a science buff, and is really, honestly, into knowing the facts, having them laid out, and then making the best choices that can be mustered," says a policy watcher who was close to the transition team but is outside the federal government. "It is a whole different approach compared to the 'How can we spin this information?' approach of the [Bush administration]. Back to 'honest-to-goodness' curiosity, which is, yes, incredibly refreshing."

Farmers, other business owners, and entrepreneurs, acting in their own self interest often promote the interests of society. Just think of the adoption of biotech crops as an example. This is often referred to as the 'invisible hand' or a 'spontaneous order' by economists. ( or often in the case of agriculture the 'invisible green hand') As a result, market decision makers are the one's that truly embrace science and make the best decisions based on an earnest effort to obtain all of the facts.

Most public choice economists will agree that like farmers, politicians also make decisions in their own self interest, typically maximizing their power and the influence of their ideology. The difference is that farmers have a vested interest in science. Yields and costs depend on it. Corn hybrids either yield or they don't.

Politicians on the other hand have a strong incentive to pick and choose their science. If embracing evidence tends to increase their power and serve to further their political ideology then they take an 'honest to goodness curious' approach. If their policies and ideology flies in the face of decades of evidence, then they shift gears to 'how can we spin this information.'

Public choice economists will hold that this is not a matter of being a republican or democrat, or a conservative or liberal, moderate, or independent. It is inherently a funcion of government. It is naive to think that democracy, or an election that replaces one set of politicians and bureaucrats with another will usher in a new age of enlightenment.

We have seen this most recently with the bailouts and stimulus policies that rejected over 60 years of macroeconomic research. Further examples in agriculture involve the infatuation politicians have with 'fat taxes' on soda, despite little scientific evidence connecting soft drinks with obesity, and the research that indicates that to be effective, these taxes would have to be in the range of 1200%.

Most recently we have heard that despite having any evidence to support their case, our current politicians are wanting to restrict antibiotic use in livestock. It's politics not science.

Constitution Day

It is Constitution Day, and considering the massive amount of spending we have seen in Washington, the confiscation of private enterprises, as well as the increasing amount of regulation and loss of personal liberty ( including our freedom to produce and consume the foods we want or drive the kinds of cars that we prefer) that seems to be on the horizon, we should consider the role and the importance of the Constitution.

Democracy is a very arbitrary form of government ( see The Public Choice Revolution- from the Cato Magazine Regulation here for more) , and is the perfect vehicle for tyranny and collectivism. That is why our founders rejected such a flawed form of government and proposed a Constitutional Republic, ‘if we can keep it.’

In Judicial Activism Reconsidered, Economist Thomas Sowell describes our Constitution:

“The federal Constitution is "the supreme law of the land," not because it is more moral than state constitutions or state or federal legislative enactments, but because it represents a larger and more enduring majority.107 Minorities receive their constitutional rights from that enduring majority to which transient majorities bow, not from whatever abstract moral rights are imagined to exist as a brooding omnipresence in the sky.”

Once we start making heroic ‘modern’ interpretations of words in the constitution like ‘general welfare’ or ‘regulate commerce,’ the constitution is weakened, and minorities are forced to give up their liberties to whatever transient majority takes power. The short term gain from being able to bypass the amendment process ( which requires obtaining the consent of the governed) in order to expand the power of the federal government in order to pass some much needed legislation to help some worthy cause comes at a long term cost to our liberty and national well being. Every step we take away from the limited role of government defined by the specifically enumerated powers of the Constitution, we concentrate more power and wealth in our central government. This increased the incentives for large corporations and special interests to influence our lawmakers, and provides the means for ever more concentration of power and the entrenchment of elites. As stated in the public choice article I have linked to above

“The entire federal budget,” writes Mueller, “can be viewed as a gigantic rent up for grabs for those who can exert the most political muscle.”

As a result, problems of an overbearing government ( which results in the much maligned concentration of wealth and power) are mistakenly attributed to free markets and capitalism. What is seen is businesses lobbying for special regulatory protections (like bailouts, cap and trade or the minimum wage) but what is not seen or often overlooked is the role of an intrusive, expansive, unconstitutional government.

What did our founders have to say about the role of government and the constitution?

An interesting thing I found just today, comes 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”

Wow! Even in the 1700’s our founders had the foresight to set up constitutional protections against an overbearing democracy and the evil it can bring. Think about the connection between paper money and the current financial crisis ( also blamed on capitalism), the abolition of debts and the bailouts, the equal division of property and our housing ( Fannie and Freddie) and our tax policies. Virtually all of the problems we are experiencing in today’s economy are related to our departure from constitutional principles.

More quotes from our founders:

“We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money.” – Davy Crockett

"I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on the objects of benevolence, the money of their constituents." – James Madison

"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."

“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”
—Thomas Jefferson

Happy Constitution Day!

Interview with TIME's Brian Walsh

The author ( Brain Walsh) of the highly scrutinized TIME magazine article "Getting Real About the High Price of Cheap Food" was recently interviewed on the radio program Agritalk ( audio) . The host of the program expressed concern that many readers might have had difficulty recognizing that the TIME article was an opinion piece. Walsh provides clarification that the article was never intended to represent an evidence based balanced assessment of the food industry. Instead he maintains that the purpose was only to start a conversation about food, starting with an article written solely from his one-sided perspective and intentionally excluding evidence to the contrary. He does state that after looking at more evidence, he favors a more sustainable model that combines both 'industrial' biotech and organic practices. ( an idea that seems to be catching on- see this from Science and this from the Boston Globe). He stands firm in his views regarding the use of growth enhancing pharmaceuticals.

He does write a follow up piece in TIME highlighting the benefits of a type of biotech cotton currently in the pipeline. It seems he could have written more about the environmental benefits of already proven technologies like Bt and Roundup Ready biotech crops.

It appears ( at least for now) that the 'invisible green hand' in production agriculture will remain unseen by readers of TIME.

Pollan's Big Ideas about Big Food

Pollan, in a lot of his writings tries to make connection between corn syrup and obesity and the connection between farm 'subsidies' and corn syrup. I would like to know exactly which 'subsidies' he is talking about. I'm not sure that countercyclical payment or loan deficiency payment type programs at the farm gate level really have an impact at the retail level great enough to create super savings and increased consumption of these 'bad' foods.

Even with these 'subsidies' in the past couple of years, we have seen some record high corn prices, having much to do with ethanol requirements and increased demand for corn, increased purchases by hedge funds, and increased world demand. We did see a rise in retail food prices, but much of those increases were likely due to increased fuel and processing costs. i.e. even large changes in commodity prices ( vs. other factors) had little effect on retail consumers, so eliminating subsidies probably would not elicit large changes in consumption. Or stated differently the connection between corn prices and retail prices ( subsidized or not) is weak. ( see here for an analysis from LECG).

'Increases in energy prices for example exert a greater impact on food prices than does the price of corn. A 33 percent increase in crude oil prices –
which translates into a $1.00 per gallon increase in the price of conventional regular gasoline – results in a 0.6 percent to 0.9 percent increase in the CPI for food while an equivalent increase in corn prices ($1.00 per bushel) would cause the CPI for food to increase only 0.3 percent.'

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

"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."

Pollan also proposes a food tax to curb consumption. Again, 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."

To coin a phrase 'what's obesity got to do with the price of corn in Iowa'?- not much

Clean Water Restoration Act: A Paradigm for Regulatory Burdens

Back in 2002 Economist Walter Williams wrote a review (link) of a book entitled 'The Mystery of Capital.

The following is an excerpt from that review:

"It takes 168 steps and 13 to 25 years to gain a formal title to urban property inthe Philippines; 77 steps and 6 to 14 years to do the same in the desert lands in Egypt; and 111 steps and 19 years in Haiti. If you wanted to open a one-worker garment shop legally in Lima, Peru, it would take you 289
days, working 6 hours a day, to obtain the business license."

The main point of the book 'The Mystery of Capital' by Hernando de Soto is that one reason many countries have not prospered from capitalism is not because they were exploited by Europeans, or because they are currently being exploited by multinational Western corporations. The reasons have more to do with institutional arrangements that fail to recognize or protect property rights and a burdensome regulatory environment.

Compare this to some information reported in a recent AgWeb News post entitled 'Producers Testify on Burdensome Implications of Clean Water Restoration Act':

"The federal government is already struggling to handle a backlog of 15,000 to 20,000 existing section 404 permit requests. According to the U.S. Supreme Court, the average applicant for an individual Clean Water Act permit spends 788 days and $271,596 in complying with the current process, and the average applicant for a nationwide permit currently spends 313 days and $28,915 - not counting the substantial costs of mitigation or design changes (Rapanos, 447 U.S. at 719, plurality opinion). Considering U.S. farmers and ranchers own and manage approximately 666.4 million acres of the 1.938 billion acres of the contiguous U.S. land mass, the massive new permitting requirements under this Act would be an unmanageable burden for the government, and could literally bring farming operations to a standstill."

"Chilton shared from personal experience about a time his family ranch had to apply for a 404 permit to construct a road across a dry wash on their private property. The regulatory approval process took over a year and cost his family nearly $40,000."


In past posts I have expressed a lot of concern about the effects of the regulatory environment on stifling innovation and production in agriculture. This is just another illustration of the impact of government controls on individuals. Often the results could lead to worse environmental consequences than those the regulations intend to prevent, and also could lead to producer losses. We don't want our industry to end up like the financial or auto industry, and worse, we don't want to operate in a regulatory environment edging closer and closer to the standards of developing countries. Unfortunately many policy makers have more to gain from special interests and ideological victories than sound policies.

Time : Get Real

In a recent article in Time Magazine, ( Getting Real About the High Price of Cheap Food) I think that I have witnessed one of the worst pieces of pseudo science I've seen in a long time.

Isn't obesity the result of diet, genetics, and exercise? Personal choice and genetics are the drivers, not agricultural production practices as the author seems to claim. There are some other 'unbalanced' assertions made in the article as well:

'He's fed on American corn that was grown with the help of government subsidies and millions of tons of chemical fertilizer. '

>From this statement one might thing that 'subsidies' are leading farmers to produce corn instead of healthy apples and spinach. The reason we produce so much corn is not due to the subsidies, the reason we have the subsidies is that we produce so much corn ( and thus have strong lobbying arms for production and processing industries). Grains are a worldwide food staple. They would be produced with or without government programs.

A main assertion made in the article is that modern science based agriculture ( or 'industrial agriculture' if you prefer the more negative connotation) is leading to ever more use of ever more toxic chemicals and environmental degradation. On the contrary modern agriculture is becoming more sustainable every day. Biotechnology, a key factor in modern agriculture, is not mentioned at all in the entire article. The adoption of biotechnology has led to decreased levels of chemical applications and in some cases the elimination of certain pesticides completely. 1.04 million fewer pounds of insecticide are applied each year as a result of biotech Bt cotton alone. With Bt cotton, 4 million gallons of fuel and 93.7 million gallons of water are saved on the farm each year from fewer insecticide applications.In addition, Bt corn also has reduced levels of carcinogenic toxins produced by fumonisin . Last year, in Britain, two organic corn meal products were recalled because testing showed that they had unacceptably high levels of fumonisin. 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.There are also economies of scope or synergies between sustainable production practices such as crop rotation and reduced or no tillage farming and biotech plantings. As a result biotechnology has also contributed to increased biodiversity among pest populations while maintaining yield gains. Further, with fewer chemical applications and less tillage, energy inputs to grain production are down, while yields continue to increase, reducing the overall environmental impact and carbon foot print. 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 percent while carbon emissions per unit of output have dropped by about one-third in the three crops. In addition to the lower carbon and water foot print, these practices have decreased groundwater pollution as well. The use of biotechnology in the livestock industry has demonstrated similar environmental gains.
( see here, here, here for more examples. )


'The UCS estimates that about 70% of antimicrobial drugs used in America are given not to people but to animals, which means we're breeding more of those deadly organisms every day.'

This is meaningless. 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. This policy results in increased selection pressure for antibiotic resistance among pathogens dangerous to humans and should be avoided. The article also avoids to mention the environmental benefits of antimicrobials as well as the benefits of other pharmaceutical products such as growth enhancing hormones. 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.


'Worldwide, organic food — a sometimes slippery term but on the whole a practice more sustainable than conventional food '

There is little scientific consensus on this conclusion. There is certainly evidence to the contrary, and while there are very desirable qualities associated with organic food ( some of my favorite frozen foods are Amy's brand of organics) organic should not be sold as a panacea in contrast to modern agriculture. The fact that many organic producers are now ( see here) considering adopting biotech options indicates that organic alone as it stands today is not a solution. Reduced yields as a result of organic practices imply a larger carbon footprint and decreased biodiversity compared to biotech crops. No where in the article did I find the author mention any of the downsides of organic production such as toxic biological controls used in organic production including nicotine* sulfur, pyrethrum, neem, sabadilla, and rotenone* that government regulators don’t even track data for.These can be just as persistent in the environment and detrimental to biological diversity as some conventional products. Nor does the author mention increased risks of E coli contamination ( which the author of the Time piece attributes to conventional agriculture).

Notes and References:

*Nicotine, one of the more toxic organic insecticides, has a rat LD50 (lethal dose in 50% of animals tested)of 55mg/kg. The newest synthetic insecticide, imidacloprid, has a rat LD50 of 425mg/kg, making imidacloprid nearly 10 times less toxic than nicotine. Rotenone has an LD50 of 60-1500 mg/kg and is more acutely toxic than Malathion or Sevin. Cats are highly susceptible to pyrethrum.

Science 31 May 2002:
Vol. 296. no. 5573, pp. 1694 - 1697
DOI: 10.1126/science.1071148

Munkvold, G.P. et al . Plant Disease 83, 130-138 1999.

Dowd, p.J. Economic Entomology. 93 1669-1679 2000.

Miller, Henry I, Conko, Gregory, & Drew L. Kershe. Nature Biotechnology Volume 24 Number 9 September 2006.

Agricultural Outlook ERS/USDA Aug 2006.

Science 8 June 2007:
Vol. 316. no. 5830, pp. 1475 - 1477
DOI: 10.1126/science.1139208

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

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

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.

Government and Public Choice

Our founders certainly had a good idea of the things that Government may be more effective at, as indicated in the specifically enumerated powers of A1S8 of the constitution.

There are cases, in general where, government may have a role ( when goods are non rival and nonexclusive- education, national defense). Or when there are external effects, example: you and I engage in voluntary exchange and harm a 3rd party. However, the existence of 'public goods' or 'externalities' alone does not guarantee that government will offer any improvement.

Past posts related to the function of government:

Type I and Type II Errors

Type II Error Bias -the FDA

Type II Error Bias and Hurricane Katrina

The Tragedy of The Commons

Our Commons Our Choice

Public Choice

Public Choice Theory

Voting Paradoxes

The Median Voter Theorem

The Coase Theorem

Knowledge Problem

Tragedy of the Anticommons

Public Choice Recapitulation

Public Choice and the Constitution

Government and Capitalism

Governments allocate resources in a fundamentally different way than free individuals behaving cooperatively in voluntary exchange via market capitalism. Individuals acting in their own interest results in a spontanous order guided by prices which reflect tradeoffs based on the knowledge and preferences of millions of individuals. Governments allocate resources based on the limited knowledge and preferences of a few voters, elected officials, or appointed bureaucrats. The fundamental problem facing government is that it never has enough information ( or incentives) to carry out plans effectively. As Economist F.A. Hayek (1945) said:

'the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all separate individuals possess'

We must also recognize that there is a moral difference between the two processes as well. With government, resources are coercively taken from one individual and given to another. Through the voting and legislative process, government picks winners and losers ( this would not be so bad if we limited government to a few basic functions but becomes problematic with greater intrusion into our lives). Markets do not pick winners and losers. For voluntary exchange to take place, all parties must gain ( although some may gain more than others). Again, as F.A. Hayek (1973)noted :

'the particulars of a spontaneous order cannot be just or unjust'

Certainly there are situations where government has a role in our lives. Our founders outlined many of these in the constitution and explained them well in the federalist papers. While government may provide a necessary mechanism to achieve certain societal goals, we must also be aware of it's weaknesses and its threats.

We should especially be on guard when we hear political leaders justifying some policy or condemning capitalism because the current system has 'benefited the wealthy and well-connected at the expense of the vast majority of Americans.' They are likely staking the deck to take what you have and give it to someone else, or pass some law that benefits a corporate competitor over your small business in the name of some lofty social goal. Ironically, the effect of their policy will likely be to benefit the wealthy and well connected and will likely be at the expense of the majority of Americans.

Instead of just changing who the government picks as winners and losers, it is time that we inform our leaders that we want a change from these collectivist polices, because 'those theories have been tested, and they have failed.'

References:

F.A. Hayek.The Use of Knowledge in Society. American Economic Review (1945)
F.A. Hayek. The Mirage of Social Justice (1973)

The Dairy Crisis

I'm still looking into the economics of this issue, but here are various related links I've looked at so far:


From the New York Times :

Of course, I should have known, government intervention in the financial markets via the federal reserve fixing interest rates led to malinvestment and a boom in the dairy industry. Because of fixed resources ( it takes years to develop the genetics necessary for an optimal operation) there continues to be a glut of production on the market. Culling poor performing cows isn't enough, and high end dairy genetics don't translate into high quality beef. It would be like trading in your i-phone for a telegraph.

From: The Food Renegade Blog

"MPCs are basically a cheaper, foreign alternative to non-fat dry milk (NFDM) usually coming from water buffalos or yaks in places like China, India, Poland, and Ukraine. MPCs are created when milk is ultra-filtered through a process which drains out the lactose and keeps the milk proteins and other large molecules intact. Unbelievably (or believably, depending on the level of your lack of trust in the FDA), MPCs are not in the FDA’s Generally Recognized As Safe category and are therefore not approved as a food ingredient in the US. (source) - and it's in everything"


"In one interesting turn of events after the National Family Farm Coalition’s press conference of March 4th, State Senator Darrel J. Aubertine of NY introduced legislation requiring a product to be made with milk — not MPCs — if it wants to be labled a “dairy product.”

I may be able to go along with that. I don't like too much government, and oppose mandatory labeling on fast food and GM foods, but I don't even like 2% milk. I want the real thing whole milk. If it's dairy it better be milk in my opinion- truth in labeling. Let consumer's choose at what level of purity they want to consume.

A final quote:

"Once again, our insistence on finding the absolutely cheapest way to manufacture “food,” coupled with a healthy dose of government interference in the market, is causing farmers everywhere to watch their already meager incomes fall a dramatic 50% in the last quarter alone!"

I'm all for cheap food, but again let's be honest about what we are marketing, and get the government out of the way from there.

Can Somone Tell Me What Duck's Unlimited is All About

On the Duck's Unlimited Web page I found the following information about their support of the Clean Water Restoration Act.

See related stories & Opinions :

From cattlenetwork here and the National Cattleman's Beef Association here.

The Heritage Foundation Blog

The Ohio Environmental Law Blog



This is the letter I wrote questioning their support and asking for clarification about their principles. I may have just had the wrong impression about what this organization stands for. I thought they were a free market conservation group.

************


Although I can see how this legislation may benefit Wetlands, I must have gotten the wrong impression about Ducks Unlimited. I thought this was an organization based on private efforts by private citizens, landowners, and hunters exercising free choice to donate and contribute to conservation efforts while respecting private property rights.

I thought that the name 'Ducks Unlimited' implied that with private property, markets, and caring support from members we could maintain a sustainable and unlimited waterfowl population.

Is it the philosophy of Duck's Unlimited to take a 2 pronged approach of a regulatory and a private market solution? If so, what does the organization value most, private property rights, markets, and constitutional government, or expansion of federal government. If a government power grab helps wetlands ( which I am skeptical) at the expense of private property and individual liberty it appears by supporting the CWRA Ducks's Unlimited has come down on the side of more government.

Shouldn't this organization favor cooperative solutions over the use of force?

A Second Stimulus

I have yet to hear a discussion from our leaders about how a fiscal (spending) stimulus will work now when similar policies failed during the great depression under Roosevelt and Hoover. The first $787 stimulus was passed despite numerous warnings from some of the worlds best and most prominent economists, including Cole & Ohanion, Prescott, Barro, Becker, Rizzo, Mankiw, Sargent, and almost 200 more. When the Michael Jordans and Tiger Woods of the field are stating that the stimulus package flies in the face of over 60 years of macroeconomic research, the supporters of the policy, or the media, or someone needs to be discussing this as a debatable idea.

Current evidence indicates that the first stimulus has not worked as it appears to have had no influence on unemployment - see graph below or link here.



Source here via Greg Mankiw


So now, supporters of a second stimulus have to explain, after the New Deal stimulus spending failed in the 30's, and the first $787 stimulus failed , why do we expect a 2nd stimulus will work? I aknowledge that there is a lag time for stimulus spending, but that only strengthens the argument AGAINST a second stimulus. If we have not had enough time for this to work, then we don't know if we truly need a second stimulus or not. If we need more spending now on infrastructure to create more jobs as Pennsylvania Governor Rendell says ( from TheHill.com) , then why didn't we spend more of the $787 billion on things that would create jobs the first time. Why not reallocate what we have already committed in the $787 billion to these ends?
Instead of ‘returning to the failed policies that got us where we are today’ perhaps we should consider other policies that have shown success in the past. I’m referring to lowering marginal tax rates and reducing the corporate tax rate.


The basic argument for cuts in marginal taxes is that lower tax rates provide an incentive for increased economic activity. In addition, lower taxes reduce the incentive for the wealthiest Americans to engage in activities to avoid paying taxes . Why pay high management fees, and risk lower returns if a reduction in taxes will lead to higher after tax returns than what you will get in a tax shelter?

Is there any evidence for these supply side effects? Do we actually see increases in economic activity and increases in revenue in the face of cuts in marginal tax rates?

In his book 'Vision of the Annointed,' Thomas Sowell provides data from the US Budget Historical tables ( I checked these ) indicating that with the Regan tax cuts, we saw revenue increases.

This is corroborated by Lawrence Lindsey ( 1987) who found that for those earning > $200K per year, we saw the following increases in collections:

1982 – 3%
1983 – 9%
1984 – 23%

( see Lindsey, Lawrence B. 1987. “Individual Taxpayer Response to Taxcuts, 1982-1984.” J. of Public Economics 33 (July) 173-206 , also noted in: Robert Barrow. Macroeconomics- 5th Edition MIT Press 1997 )

And for the recent Bush tax cuts: ( see this from the Wall Street Journal )

"Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts. These tax payments from the rich explain the very rapid reduction in the budget deficit to 1.9% of GDP in 2006 from 3.5% in 2003." ( see historical tables link above )

Also, straight from the historical tables provided by the office of management and budget you will see that from 2004-2007 there was a 25% surge in tax revenues, ( in face of tax cuts) which was the largest 3 yr surge since 1966.

Further evidence is given by President Obama's chief of the council of economic advisers, Christina Romer. She finds that a dollar of tax cuts raises the G.D.P. by about $3. According to this research the benefit from tax cuts is more than twice what other researchers say we get from spending increases.

Dr. Rand Paul on the Glenn Beck Show

ADDITIONAL LINKS ON NATIONAL HEALTH CARE

Sarah Palin Inarticulate?

Is Sarah Palin inarticulate? On what basis of comparison? Would this be an issue if she were to actually run for president?

Maybe not. Despite both President Obama's confusion about basic economics, gaffs, and inarticulate mishaps, he was quite successful in his campaign.
For example see here, here, and here. This is not to bash or disrespect the POTUS, but to illustrate how unfair or biased this criticism of Sarah Palin has been.


As far as Palin- what happened to all of the interviews like this( On Larry Kudlow)- where are the gaffs? This is inarticulate? ( this is prior to Governor Palin joining the ticket- so no tricks)

If all you saw of the campaign were the above videos of President Obama and the above video of Governor Palin, who would you judge as being 'inarticulate'? This is exactly the flavor of the campaign coverage provided by the national media, and illustrates exactly why so many Americans have such a poor perception of who is or isn't 'articulate.'

To continue with this criticism of Sarah Palin, while dodging the issues like taxes, spending,the stimulus, regulation, inflation, and natural resources is intellectually dishonest on the part of all of her critics, political opponents, and anyone in the media that continues to play this game.

The Road to Serfdom And The Car That Will Take Us There

See The Environmental Motor Company Making Detroit a subsidiary of the Sierra Club ( Wall Street Journal)

Freedom Rallies: What are they about?

Freedom rallies, also known as tea parties by some, have been proliferate these past few months. What are they all about?

One of the first criticisms that comes to mind is 'where were all of these protesters under Bush'? No one was happy about the expansion of medicare and entitlement spending under Bush, and who can deny that the 1st round of lump sum tax cuts were poorly structured- although the the later cut in marginal taxes did work well- nor were very many of the tea party protesters likely very happy about the tariffs that came and went under Bush. Bush was not successful in reforming social security, and he should have vetoed the job and opportunity crushing minimum wage increases- if only to take a symbolic stance against poorly designed policies. For many of the protesters, I assume that president Bush left a lot to be desired. We too often forget the outrage over Bush starting the bailouts.

Unfortunately, I think many of them came to accept this brand of 'compassionate conservatism' or 'bipartisanship' to be a reality under the two party system. Electing John McCain would have meant more of these bipartisan ('maverick' as he called it) policies - like McCain- Feingold, cap and trade, and taxing our healthcare benefits. Sarah Palin was popular only because she was truly a Washington outsider, and seemed to bring balance to the ticket as someone willing to stand up to business as usual in DC. Unfortunately (or maybe fortunately) for her, McCain lost.

I think these parties represent a referendum on all parties, they are sending the message to everyone that many Americans are tired of bailouts, and hearing that the financial crisis is the result of deregulation under Bush ( even though they have not cited a single act of deregulation by congress since Gramm-Leach-Bliley in the 90's) or that it is a crisis of capitalism (basically our own fault).The participants are outraged to be punished for it with higher taxes, bigger government, inflation, and unprecedented deficits.

I think many of the participants are tired of having their intelligence insulted in this manner. They are looking for leadership- from whatever party- that is willing to look at the facts, and provide a solution as the result of carefully weighing and considering all of the evidence. They are sick of the big government ideology and bipartisanship that has brought us to where we are today.

I think the last straw may have been with the passage of the $787 billion stimulus package. We were told that it was necessary, as we faced the greatest financial crisis since the great depression. It may have been more accepted if those favoring this massive increase in spending could have offered some reasoning as to why this would work today, even though similar policies failed us during the great depression under Roosevelt and Hoover. This was passed despite numerous warnings from some of the worlds best and most prominent economists, including Cole & Ohanion, Prescott, Barro, Becker, Rizzo, Mankiw, Sargent, and almost 200 more. When the Michael Jordans and Tiger Woods of the field are stating that the stimulus package flies in the face of over 60 years of macroeconomic research, the supporters of the policy, or the media,or someone needs to be discussing this as a debatable idea. It is the burden of the supporters and the media to explain why this will work, and while all of the other evidence is flawed. I don't recall any of the supporters of the legislation having a discussion like this- I don't remember seeing or hearing mention of any of these economists' research being discussed or debated on the news in relation to the stimulus. In short, I think the protesters probably feel like they have been lied to to a great extent about the stimulus and current budget deficits, or greatly insulted by the arrogance of its supporters. Not only are they likely upset with the republicans and democrats that have supported these policies, but they are also growing more and more impatient with a national media that has failed to ask tough questions.

To add insult to injury, evidence indicates that the projections of how much better off we would be under passage of the stimulus have turned out to be wrong. Unemployment has surpassed what it was projected to have been without passing a $787 billion stimulus package.



Source here.


The excuse seems to be 'we didn't know how bad it really was.' This excuse might be acceptable, were it not for the big I told you so coming from the hundreds of economists listed above. And the original projections did account for the lag we would expect from fiscal policy, so the excuse of 'giving it more time' isn't really much more acceptable.

Given what we have experienced through the bailouts and the stimulus package, many of the participants in the freedom rallies are even more skeptical of the policies to come such as national healthcare and cap and trade.


Those participating in the freedom rallies across the country this past independence day weekend have a lot grievances on their plate, and a lot of questions they want answered. Will they get answers, or will they be arrogantly dismissed as fringe radicals, closed minded, anti-progressive sore losers? Will they be answered by an offer to have a serious discussion? Will they be offered evidence, or cowboy style ideological shots from the hip?

Agriculture, Obesity, and Poverty

The agriculture industry has and will continue to come under attach for contributing to obesity. These attacks are based on narrow special interests and ideology, but they will be used to justify more regulation and an attack on the personal liberties of millions of Americans. It will be done in the name of protecting the poor from themselves and the greed of agribusiness.

Back in 2007 in the New York Times Micahel Pollan makes the following comment:

"So how is it that today the people with the least amount of money to spend on food are the ones most likely to be overweight?

This perverse state of affairs is not, as you might think, the inevitable result of the free market.

Like most processed foods, the Twinkie is basically a clever arrangement of carbohydrates and fats teased out of corn, soybeans and wheat — three of the five commodity crops that the farm bill supports, to the tune of some $25 billion a year. (Rice and cotton are the others.) For the last several decades — indeed, for about as long as the American waistline has been ballooning — U.S. agricultural policy has been designed in such a way as to promote the overproduction of these five commodities, especially corn and soy."

Mr. Pollan has it all wrong on a number of accounts. I'm not here to argue about the distortions created by this or that component of any particular farm bill, but the farm bills are structured around these crops because that is what we grow, they are the staples that feed the world. We don't grow these crops because they are included in the farm bill, they are included in the farm bill because we grow these crops. Eliminate the farm bill, and yes the free market will still call for American farmers to grow the staples that feed the world.

Mr. Pollan and many of his adherents are not interested in what foods free markets ( or lets be more precise- the foods that free people) dictate. Most of these food activists would love to see a farm bill or other legislation that penalizes our efforts to feed the world with the environmentally superior technologies and science based techniques we are using today, and subsidize the production of fruits and vegetables and politically correct foods.

Also is the concern that the 'poor' are choosing to eat these unhealthy fast foods and processed foods. That may certainly be the case, but we should really be concerned with overall health, not just obesity. While the poor may be dealing with some issues of obesity, research ( from the national bureau of economic research) indicates that the relationship between socioeconomic status and health is weak. Still, if we are going to be concerned with obesity, we should be concerned with all factors contribute to obesity, not just the hand that feeds us. As indicated in a recent piece in the Rocky Mountain News, a study from the 2007 International Journal of Obesity concludes, “The obesity epidemic is often speculatively blamed on fast food, when the actual evidence shows very little, if any, association of fast food with weight gain.”

To concentrate on diet alone, and omit exercise will lead to perverse results, but it can justify a lot of government intrusion on our valued freedoms.

One approach is to inadvertandly tax small businesses and consumers with labeling requirements as done recently in Tennessee. ( See the Tennessean)

"Providing consumers with accurate, easy to understand nutritional information about the content of the food they are purchasing is a common-sense measure that could help Tennessee address its obesity epidemic" Bredesen wrote.

Governor Bredessen, common sense tells us that the gravy and fried chicken at the local diner or national franchise probably is loaded with calories and fat, labeled or not. Will this change the habits of a marginal number of people? Maybe, but at great costs with minimal benefit.

The case is similar with fat taxes. 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."

Taking on the challenge of 'fighting obesity' in the name of helping the poor ( or reducing climate change) is likely misguided, or for some activists maybe even disingenuous. In the words of economist Thomas Sowell, many of the arguments for these policies 'invoke the name and mystique of science in order to override other people's choices."

We should be thankful that we live in a country were people of modest means have access affordable energy dense foods. We can't forget that fast food provides jobs and opportunities for advancement for millions! In producing staples like corn, soybeans, wheat, beef, pork, and chicken our farmers are utilizing modern science and technology ( like biotech) to improve nutritional quality and minimize our impact on the environment.

Many of the ideas being proposed by food activists and righteous eaters if ever implemented will truly bite the hand that feeds us.

The best approach is to maintain policies that support rather than hinder the spontaneous order of the market that allocates resources and provides incentives to produce the necessary technologies for better food, a better environment, and the economic growth that reduces poverty.