Kudos to Monsanto: Forbes Company of the Year

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

Excerpts:

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

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

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

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

Read the entire article in Forbes (link)

Soft Drink Video: Insulting Our Intelligence

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

( link)

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

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

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

This corroborates previous findings from the journal Nutrition:

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

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

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

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

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

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

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

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

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

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

References:

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

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

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

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

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

Family Farmers Stand Up Against Elites

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

The Omnivore’s Delusion: Against the Agri-intellectuals

By Blake Hurst- The American July 30 2009

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

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

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

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

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

Food, Inc., discussion draws 50 in Fergus Falls

Agrinews- Dec 10,2009

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

Farmer Cynthia Johnson agreed.

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

Rush is Right- No Rush to Innovate in this Climate

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

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

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

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

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

"the magnitude of the response of U.S. business to the war is in itself refutation of the thesis that in the thirties businessmen simply sat on thier hands"

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

"it simply would not have been able to produce the new type of goods when the war button was pressed"

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

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

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

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


Reference:

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

The Real Farmville

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


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

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

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

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

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

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

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

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

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

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

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

Agricultural Outlook ERS/USDA Aug 2006.

Jobs Summit: 20% Unemployment- No Surprise

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

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

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

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

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

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

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

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

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

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

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

References:

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

Nov. 23 (Bloomberg)

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

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

Behrman, Jere R.; Sickles, Robin C.; and Taubman, Paul. 1983. The Impact of Minimum Wages on the Distributions of Earnings for Major Race-Sex Groups: A Dynamic Analysis. American Economic Review, vol. 73 (September): 766-778.

Linneman, Peter. 1982. The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question. Journal of Political Economy, vol. 90 (June): 443-469.

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

Thanksgiving or Ingratitutde

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

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

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

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

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

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

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

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

For More Information:

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

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

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

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

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

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

The First Thanksgiving: A Lesson in Free Market Agriculture

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

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

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

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

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

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

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

Why Agricultural (Applied) Economics?

Why study Agricultural Economics?

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

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

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

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

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

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

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

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

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

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

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

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

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

Greed, Envy, and Compensation

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

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

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

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

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

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

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

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

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

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

References:

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

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

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

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

Earth Liberation Front: Resistance Part II

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

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

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

Let's start here:

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

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

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

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

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

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

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

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

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

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

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

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


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

Earth Liberation Front: Resistance ( or Obstinance)

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

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

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

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

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

Richmond Times Dispatch- Back and Forth

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

Someone responded to my comments as follows:

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

...

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

My Response:

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

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

Also by Madison in Federalist # 41:

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

In Federalist # 45:

“The powers delegated by the proposed constitution to the federal government are few and defined. Those which are to remain in the state governments are numerous and indefinite.“

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

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

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

As stated:

from Federalist # 10. Madison states:

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

What are these diseases? Again from #10:

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

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

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

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

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

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

House Passes Anti- Ag Healthcare Bill

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

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

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

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

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

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

Resistance : The Politics of Green

The politics of green: (link)

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


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

More to come....but these ideas are scary, and represent a gross misunderstanding of freedom, capitalism, democracy, and our constitutional republic. A common thread among the ani-agricultural activists.

Buy 100% Biotech Cotton to Reduce Pesticides!

The Center For Consumer Freedom picked up on my AgWeb post.

See Here

Think organic cotton saves on pesticide use? Take a look at biotech cotton http://is.gd/4IaXA #gmo #biotech9:32 AM Oct 30th from web

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.