Religiosity, Beef, and the Environment

Some years ago in his widely popular book, the Armchair Economist, Steve Landsburg included an essay entitled 'Why I Am Not An Environmentalist.' (you can find a copy of the essay here).  He states:

"Economics is the science of competing preferences. Environmentalism goes beyond science when it elevates matters of preference to matters of morality....The underlying need to sacrifice, and to compel others to sacrifice, is a fundamentally religious impulse"

Take for instance recent headlines here and here indicating that the USDA and HHS are considering changing federal dietary guidelines that include recommendations for less beef based on so called environmental concerns instead of setting science based guidelines based purely health and nutrition. You might say, well, making a choice that is less energy intensive and one with a lower carbon footprint or involves fewer industrial chemicals or inputs might seem better for the environment.  However, when it comes to environmental sustainability, the absolute amount of energy we use, or pollution we create is not necessarily the relevant metric. Sustainable choices are those that allow us to consume today without compromising the consumption set of future generations. This is an inter-temporal optimization problem that considers both costs and benefits, and the optimal allocation is based on a comparison of marginal costs and benefits across time vs. absolute levels. 

Rigorous science might tell us with some level of uncertainty some measurable impact of dietary changes or CO2 emissions on future generations. But, to know if what we are getting in the future is larger than what we are giving up today, we have to discount future benefits (put them in today's terms). Then we can compare benefits and costs and talk about some optimal quantity of beef. (a big unknown in this is forecasting future impacts and getting the correct discount rate- see Doing Nothing: A science based policy prescription for climate change mitigation). It may be true that rigorous science tells us about the absolute level of energy use or emissions differs across an array of consumer products and production processes, but it does not tell us so much about relative trade offs across time. 

And exactly how do we pin down the 'costs' of less beef consumption today? Its more than not getting a double cheeseburger or steak the next time you eat. Its more than fewer head of cattle going to slaughter or lost revenue from grain sales next year or the year after.  Over the years huge investments have been made in technologies that have improved the efficiency of beef production, leading to significantly lower levels of water, feed, energy consumption, and pollution; especially greenhouse gas emissions. If people took these guidelines seriously, what does that mean for future investments and technological progress? It might turn out that slightly lower levels of consumption now could mean lower trend but absolutely higher levels of consumption of beef tomorrow (as the population grows), but without the potential green innovations that are on track today if current policy discourages those investments. That means tomorrow's cheeseburger comes with a larger environmental footprint than otherwise even if we are all eating less beef overall than we otherwise would have.  Already government policies and attitudes toward beef are impacting these trends. The recent stigmatization of green technologies like finely textured beef (ignorantly maligned as 'pink slime'), as well as the use of sub-therapeutic antibiotics and growth hormones is leading to beef going to market that is less green than it other wise would have been. 

How do you net out the overall impact of this? I have no idea, but that is the great thing about markets. As individuals, no matter how informed we think we are, our knowledge is limited and incomplete. The purpose of markets is to exploit the collective knowledge of millions (billions) of people in order to get the 'correct' levels of production and consumption.  Even if we didn't have to properly discount future benefits to compare to current costs, the limited knowledge of a few economists, scientists, and policy makers is not sufficient to determine the optimal quantity of any good in a society, even if they imagine they can design a mechanism that accounts for the gaps or externalities that they think current prices are missing the mark on. 

So, what are environmentalists and state and local governments to do in the face of lacking empirical evidence to support their personal beliefs about environmental policies and positions? They are certainly free to evangelize as private citizens. They can evangelize about how recycling and eating less beef is necessary because it serves some unquantifiable greater good, and they can even lay guilt trips on non-believers. They can even take up collections and ask for donations.  Unfortunately they do a lot more. They can actually force you to pay to support certain quasi-religous practices or in the case of recycling may even force you to participate in their rituals or pay a penalty (or should I say penance ).  Your tax money might be required to pay for recycling bins, or your local school might spend extra to add local food to its menus, promote rituals like 'meatless Monday,' or they may simply post nutritional 'commandments' that we are all encouraged to follow, and that will impact multitudes of government programs and personal choices.  As Landsburg says:

"....we face no current threat of having Christianity imposed on us by petty tyrants; the same can not be said of environmentalism. My county government never tried to send me a New Testament, but it did send me a recycling bin."

Advocates of these new proposals to eat less beef might invoke the name and prestige of science to support their position, but the science is just not very good. Ultimately they are asking us to take their recommendations on faith. To the extent possible, government agencies should stick to clearly defined roles, and to the extent possible should make policy as a matter of sound science, not faith in some unquantifiable pie in the sky greater good.

Antarctic Melt And Calls For Action | On Point with Tom Ashbrook

http://onpoint.wbur.org/2014/05/20/antarctic-melt-carbon-tax

Ashbrook asks, if the market were the answer and not a carbon tax, then why aren't we seeing anything from the market? And that is the issue, we could have said the same thing about mail and parcel delivery before email and UPS, and who saw google, Wikipedia, and Netflix on the horizon? The hybrid cars, wind farms, and solar seem like obvious solutions that the government has poured lots of money into. But the market's solution will not be so blatant and obvious as a government tax or subsidy, and Ashbrook's question will never have an obvious answer. Modern hybrid corn with no subsidy or tax for instance has done more to combat climate change than hybrid cars in the US.

The Oregon GMO Ban: Who is really harming who?

“Was the government to prescribe to us our medicine and diet, our bodies would be in such keeping as our souls are now” - Thomas Jefferson Notes on the State of Virginia

This past May two counties in Oregon voted to ban the production of GMO crops. Was this good policy?

For a moment let’s sidestep the fact that modern molecular applications of crop improvement are just as safe if not safer than conventional and organic methods.  Let’s also forget that using a democratic process to override other people’s choices may not be the optimal strategy for making the most of imperfect information and limited resources.

Often, this law is discussed in the context of property rights, and rightly so:

“This local effort is important because it’s a way for local growers to protect their property rights from genetically engineered pollen contaminating their seed crops.”

-Ivan Maluski, Friends of Family Farmers

The assignment and protection of property rights is an important role of government, and definitely serves a key function in dealing with what economists refer to as negative externalities, and what most people would think of when they think of nuisances or environmental pollution.  However, the GMO bans represent a very narrow and restrictive assignment of property rights.

Property Rights and Externalities

Basically a negative externality occurs when  a second party is harmed from an activity without their consent or compensation. In the context of the Oregon law, we might view genetic contamination as a negative externality.  In these cases, the principle of polluter pays is often the basis used to require polluters to either stop their activity, pay a fine, or perhaps levy a tax related to the level of pollution.  However, in 1960 economist Ronald Coase brought new insight in his Journal of Law and Economics paper “The Problem of Social Cost.”  Coase stated that in many cases, the issue of pollution or negative externalities was in fact reciprocal.  This can easily be understood in the context of the Oregon case. While banning GMOs certainly protects organic and conventional producers from the harms of cross-pollination it reciprocally imposes significant harm on most family farmers by limiting their ability to grow food in a way that is both profitable and sustainable.  The question becomes, who may harm who?

Put another way, who should get the right to grow the kind of crops they want? The answer is that the right should be assigned to the party that values it the most. According to what has come to be known as the Coase Theorem, the initial assignment of rights does not matter. With clearly defined property rights, the optimal level of GMO vs. non-GMO crops planted as well as optimal levels of cross-pollination can be determined through cooperative processes.  Of course in this case, we may not be assigning physical rights to property so much as we are assigning liability.

 If liability goes to the organic producers, and they want to restrict the planting of GMO crops, then they have to find a way to compensate GMO growers to reduce planting . If liability falls on GMO growers and the economic and environmental benefits of growing GMO crops exceeds the value that organic producers place on uncontaminated crops, then GMO growers can pay for damages (or buy insurance for such purposes), or compensate organic producers for shifting their crops to another location. They may also alter their GMO planting decisions in highly susceptible areas.

The assignment of property rights and the potential for bargaining results in behavior that is changed or altered to account for the negative impact our choices have on others, regardless of who holds the rights. This is the essence of what is known as the ‘Coase Theorem and sets a standard of morality and efficiency that the Oregon law falls tragically short of meeting and in fact egregiously preempts.

Positive Externalities

Positive externalities occur when one or more parties engage in some activity and actually benefit another party without getting compensated for it.  An example of a positive externality is the concept of herd immunity that can occur when most people are vaccinated for things like measles.  Government funding of vaccination programs is often justified on the grounds of positive externalities. An unintended side effect of the Oregon law banning GMOs is the elimination of positive externalities associated with the planting of GMO crops. Research has shown that genetically modified crops have improved the genetic diversity of beneficial pest populations and have provided external pest protection benefits to non-gmo crops worth billions of dollars annually. In addition, biotechnology has contributed to significant reductions in greenhouse gas emissions and reduced the use of toxic chemicals and pesticides.  The Oregon laws eliminate all of these positive externalities associated with GMO crops in effect harming organic producers and all consumers.

Are these options practical or realistic? Nothing I could put in print likely would be. Policy makers and economists are not in a situation to know exactly all of the margins that individuals consider in their decision making and the options available, which is another flaw in the Oregon laws which make this assumption.  Some assignment of property rights or liability that accommodates a cooperative space for individuals to live their lives would be superior to both no law at all, or one as draconian as the two counties in Oregon have adopted.

References:

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

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

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

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

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics reportOctober 2010:Vol. 330. no. 6001, pp. 189 - 190DOI: 10.1126/science.1196864

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

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

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

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

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

Elinor Ostrom on Defining Common Property

"Scholars who have designed taxonomies to point out the difference between open access arrangements and common property have sometimes distinguished four very general "types" of property: public, private, common and open access. This classification unfortunately creates the erroneous impression that common property is not private property and thus does not share in the desirable attributes of private property. It is crucial to recognize that common property is shared private property and should be considered alongside business partnerships, joint-stock corporations and cooperatives."

McKean, M. and E. Ostrom (1995) ‘Common Property Regimes in the Forest: Just a Relic from the
Past?’, Unasylva, 46 (180): 3-15;

Hybrid Corn vs. Hybrid Cars

Which is better for the environment, hybrid corn (with biotech traits) or hybrid cars? Which is most easily adaptable and consumable on a scale large enough to have any meaningful impact on the environment? Which can be achieved most easily through social cooperation vs. manipulation and coercion?  I’ll answer these questions and more below. 

According to research from PG Economics, in 2009 alone,  greenhouse gas reductions associated with biotechnology were equivalent to removing 7.8 million cars from the road. I like to contrast this with the stats related to the much beloved hybrid car. Worldwide there have been only about 1.6 million hybrid cars sold as of 2009.  As far as cars on the road, the US and Japan have about 600,000.  And, I understand that the Obama Administration is calling for  1 million plug in hybrids on the highway by 2015. 

 So with hybrids we are talking a few million cars at most, that  are still on the road, and still one way or another require electricity, coal, or gasoline, which still creates pollution.  And there is all of this hype and interest in government setting mandates or creating subsidies to coerce consumers into buying hybrids. 

 Of course, if we all drove hybrids the impact might dwarf the 7.8 million figure above, but we would still have to net out the effects of driving hybrids.  It would take more than 7.8 million hybrids to match the green impact of biotech!  And it might take a lot of coercion and incentivization by government. We don't have to make a huge change in our lifestyle to consume biotech foods! 

That's not counting the positive impact of biotech and pharmaceutical technologies in beef and dairy  production.

" the carbon footprint for a gallon of milk produced in 2007 was only 37 percent of that produced in 1944. Improved efficiency has enabled the U.S. dairy industry to produce 186 billion pounds of milk from 9.2 million cows in 2007, compared to only 117 billion pounds of milk from 25.6 million cows in 1944. This has resulted in a 41 percent decrease in the total carbon footprint for U.S. milk production." 

And

“Grain feeding combined with growth promotants also results in a nearly 40 percent reduction in greenhouse gases (GHGs) per pound of beef compared to grass feeding (excluding nitrous oxides), with growth promotants accounting for fully 25 percent of the emissions reductions”

References:

GM crops: global socio-economicand environmental impacts 1996-2009. Brookes and Barfoot.

http://www.tech-faq.com/hybrid-cars.html

http://greenliving.lovetoknow.com/How_Many_Hybrid_Cars_Are_on_the_Road

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.

Organic, Natural and Grass-Fed Beef: Profitability and constraints to Production in the Midwestern U.S. Nicolas Acevedo John D. Lawrence Margaret Smith August, 2006. Leopold Center for Sustainable Agriculture)

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

Rand Paul's Pro Choice Agenda

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

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

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

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

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

Biotech Alfalfa: Who May Harm Who

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

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

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

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

The economist Ronald Coase brought additional insight to this issue. 

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

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

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

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

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

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

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

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

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

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.

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.

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?

Green Jobs

Recently there has been a lot of hype created regarding the creation of 'green jobs' and even excitement that the creation of green jobs may help stimulate the economy. This may be counter to what we would expect given basic economic theory.

Recent research by Gabriel Calzada Álvarez (link) indicates that job losses may result from what economists refer to as the broken window fallacy.

'we find that for every renewable energy job that the State manages to finance...that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.'
'Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.'

With the broken window fallacy, as the analogy goes, breaking the baker's window leads to jobs for glass repair workers, and thus acts like a stimulus to the economy. It is a fallacy in that it does not consider the jobs that other wise would have been created had the baker not had to fix his window, but expanded his business or invested the funds. Jobs may be created on both accounts, but who is to say which jobs create the most value for the economy.

If green jobs are created by taking money and resources away from other businesses to subsidize green enterprises (breaking windows) then they are not created without consequence.

Green jobs created by government are not equivalent to those created by the free market. A recent story from the Charlotte Observer points out that according to a study by Pew Charitable Trusts "Green-jobs growth has occurred without consistent regulatory support... "All the states that grew were responding directly to consumer demand."

A prime example of green job creation via the free market can be found when we look at modern agriculture. As pointed out in a recent AgWeb blog post 'Biotechnology: An Agriculture Success Story' recent research from PG Economics indicates that biotech crops have greatly reduced agriculture's carbon footprint and reduced pesticide applications. For additional peer reviewed research related to the 'greening' of the ag industry see the references below.

Green jobs created by the biotech industry are created voluntarily. Investors and entrepreneurs recognized that the money they invested in biotech would yield more benefits to society than any alternative at the margin. Otherwise they would have invested their money elsewhere.

When government tries to create green jobs, it has to arbitrarily take money from one place and put it somewhere else. Because they base their decision on the limited knowledge and preferences of at most a few voters, politicians, and bureaucrats instead of market returns, they have no way of knowing whether the additional benefits to society from their program are greater than the costs. ( and they risk destroying more jobs than they create).

If we truly want increased growth, decreased poverty, and improved environmental quality, our best chance is going to be to leverage the power of the 'invisible green hand' and let the market create green jobs where they are needed most. The ag industry has already set the example.


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

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

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

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.

Dr. Roger Leonard, LSU Agricultural Center and Dr. Ronald Smith, Auburn University. Research in Bt Cotton


http://www.beefusa.org/uDocs/cattlenumbersandbeefproduction347.pdf

Gregory Conko “The Benefits of Biotech” Regulation. Spring 2003

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

ABANDONING FUEL TAXES: CHANGE I CAN BELIEVE IN

Recently it has came out that Barak Obama plans to take the idea of rasing gasoline taxes off the table. This is a great call, and may show testament that we have elected a leader that will bring real ‘change’ to the Whitehouse. Genuine change would mean that he is going to have to ruffle some feathers among those members of his party that have so long ridiculed free markets, the auto industry, and thrash and burn environmental policies. This blog post from the Washington Post/Newsweek is testament to the feather ruffling that will be required if we are going to see more ‘change’ from the democratic party. The author starts off by stating:

“But by failing to raise the gasoline tax, the president-elect risks complicating another problem: Fixing the U.S. automobile industry.”

Actually he doesn’t. The author ( and many in the media and politicians) want to perpetuate the myth that the market, or the automobile industry has something inherently wrong with it that needs fixing. Really, all that needs to be done is for government to get out of the way and let them do what they do best.


“Here's the problem. Obama and leading members of Congress keep saying they want ailing automakers to make more fuel-efficient vehicles. But the automakers in the past made more money on the guzzlers”

Well let’s ask why they make more money on gas guzzlers? Could it be that these are the cars that American’s want to buy? Over the last 10 years what were the top selling models? – TRUCKS and SUV’s. Even with increased gas prices ( which had a lot of help from Congress by the way, ) the top 2 selling vehicles in the US for 2008 were trucks.

“in the future, they will have trouble charging enough to make money on new cars using costly new technologies for plug-in or hybrid cars. So the car company of the future may be a money-losing operation, just like the car company of the present.”

Well, the author may be correct, but for the wrong reasons.
A company fails to make money when they fail to provide products or services that consumers want. ( like TRUCKS &SUV’s). Why have the automakers been losing money? Because (harmful and deadly) fuel economy standards have forced automakers to make a lot of small fuel efficient cars that no one wants to buy. Resources that could have went into the costly engineering problem of developing more fuel efficient TRUCKS and SUV’s over time have hastily been funneled to meet immediate regulatory demands. Further, automakers not only had to waste resources building these low quality cars that no one wants to drive, but they had to absorb heavy losses because they don’t sell. Were it not for the regulatory requirements imposed ‘yesterday’ it is likely that we would have more fuel efficient options in TRUCKS & SUV’s for the higher gas prices ‘today.’

So yes, forcing automakers to produce more cars using costly new technologies for plug-in or hybrid cars that most people don’t want to drive will likely lead to a car company of the future that is a money losing operation, ‘just like the present.’


‘Raising the gasoline tax would increase consumer demand for more fuel-efficient vehicles. That could help automakers charge more for them and make more money on sales of plug-ins, hybrids or more efficient conventional engines.’

Well, it is true that if we use the force and coercion of government to get people to buy cars they don’t want, those selling the cars will benefit. Most environmental legislation and government regulation in general involves taking from one party and giving to another in some way shape or form by using government. There is always a disingenuous justification that it will be ‘good’ for the 'consumer' or the environment. It is what economists refer to as ‘rent seeking’.

‘Not surprisingly, Ford and General Motors both belong to the U.S. Climate Action Partnership, which this week proposed a detailed blueprint for a cap-and-trade system for carbon dioxide emissions. Such a system would put a price on carbon and would effectively tax gasoline and all other fossil fuels.’


Yeah, ‘not surprisingly’ big business is engaging in rent seeking behavior. The problem however, is that while there may be some consensus on the causes of ‘global warming’ there is NO CONSESUS on the actual effects, or what an optimal carbon tax should be to prevent it without doing more harm to the economy, public health, the environment, or the poor.

“After being burned last summer by sky-high gasoline prices, do Americans really need higher gasoline taxes to get them to buy fuel-efficient cars? Yes, actually. Americans have an astonishingly short memory about gasoline prices. Sales of the Toyota Prius have hit the skids now that gasoline prices are back below $2 a gallon. And sales of SUVs are relatively strong compared to many other models.”

Frankly this is a very condescending view of the American consumer. The fact that Americans prefer to drive TRUCKS & SUVs over GO-CARTs like the PRIUS does not mean they have a short memory. Sales of SUVs have been relatively strong over the last 10 years, and automakers have done the right thing to continue to make cars that Americans want to buy. Gasoline at $4 /gallon reflected a strong economy, uncertainty in the Middle East, and lack of commitment to developing existing fossil fuel resources. $2 / gallon fuel today reflects the collapse of the financial market ( again due to mis-priced risk via government distortions)



"If Obama did want to raise gasoline taxes without imposing a hardship on Americans at a time of economic duress, there are (at least) two ways of going about it other than throwing it out the car window. First, he could cut other taxes to compensate people for the fuel tax. Second, he could delay the effective date of the tax, or increase it in small steps over time. A phased-in tax increase would still have a big impact on the choices people make when purchasing cars, which tend to stay on the road for 10 years or so. "

These may actually be great ideas. Taxing carbon actually makes a lot more sense than fuel economy standards and emissions standards.( the author actually goes on to say this) But again we are way too uncertain about what the price of carbon should be, and so we don’t know how much the tax should be. The harm done could be greater than the benefit.

The best solution would be to strike down corporate fuel economy standards, relax emissions standards ( which make the engineering for fuel economy so difficult) forget about a tax, and let the automakers plow that money into making better TRUCKS & SUVs. Over time, if fuel becomes more scarce and gasoline prices increase, automakers will be forced to make more fuel efficient TRUCKS & SUVs or consumers will adapt their choices to other vehicles that are more fuel efficient.

Of course, to prevent huge spikes in energy prices ( which hurt consumers and automakers severely this past year )we need continued commitment to developing existing energy sources including ethanol, wind, natural gas etc. and keep government out of the housing and financial markets ( recall, after financial stocks took a beating once they started correcting for government distortions, many investors took on commodities driving up the cost of oil).

EXTERNALITIES: Holes in Markets

In previous posts I’ve discussed that when resources become scarce prices rise and they are used in a way that is more sustainable. I also noted how free markets incorporate the consideration of future generations when resources are used. The conclusion is that free markets are consistent with the optimal use of resources, and the crisis mentality that calls for massive government intervention is unfounded. Many critics of this position claim that there are many ‘holes’ in markets that call for government action.

Theoretically, many holes in arguments for markets have been described as negative externalities or commons problems. An example would be the consumption of pork. In producing and consuming pork, the producer and consumer may not take into account the impact that a concentrated animal feeding operation may have on air or groundwater pollution. It would appear that in this case a negative externality exists because there is a divergence between the private and social costs of producing and consuming pork.

Whenever the cost of one’s behavior is not factored into a price by which a choice can be valued, a commons problem or negative externality exists. As Coase (1960) and Demsetz (1967) point out, with the establishment of property rights and markets (bargaining) the externality of the commons can be internalized. Behavior is changed or altered to account for the negative impact our choices impose on others. This framework, part of what is known as the Coase Theorem, closes many of the holes in arguments for free markets.

Relating to our pork example, if negative externalities exist, it is due to the fact that there are poorly designed property rights to water and air. Groups like Ducks Unlimited and the USDA have caught on to this and are using market incentives to mitigate such pollution problems. Recently the USDA implemented a Water Quality Credit/Trading program. Even the KYOTO Treaty is based loosely on this logic with CO2Cap and Trade provisions.


SOURCES:

CONSIDERING MARKET-BASED ALTERNATIVES TO IMPROVE THE MANAGEMENT OF CAFOs
Jerry R. Skees
J. Roy Black
Ben M. Gramig
American Agricultural Economics Association, 2003
http://agecon.lib.umn.edu/cgi-bin/pdf_view.pl?paperid=9164&ftype=.pdf

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

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

CONSIDERING FUTURE GENERATIONS IN RESOURCE USE

In a previous post, I mentioned that policies can be evaluated by the net benefits that they produce. Does this analysis consider the impact on future generations? How do we deal with situations in which costs are imposed on people in the future as a result of our actions today. Alternatively, how do we justify incurring costs today, for the benefit of future generations. ( both of these questions are relevant in the case of global warming).

The benefits of future generations are compared to the costs of current generations via the present value concept.

Example: If a policy implemented today (such as CO2 emissions caps) produces benefits equal to ‘x’ trillion dollars in the future, then we take the present value of ‘x’ billion dollars and compare it to the costs of the policy today. If the policy produces net benefits in present value terms then it may be a favorable pursuit.

Note, discounting future benefits back to today’s dollars does not imply that we are giving greater weight to our well being today vs. the well being of future generations. PV discounting only allows us to compare costs today with benefits tomorrow in ‘common units.’ It also recognizes that there are opportunity costs to devoting resources today to certain policy ends. ( i.e. often the appropriate discount rate used in PV analysis for public policy may be reflect the opportunity cost of capital. This is relevant because productive capital itself can have a mitigating effect on environmental problems such as global warming).

COST BENEFIT ANALYSIS AND MARKET PRICES

In most all cases, benefits and costs used to evaluate the efficiency of a policy are measured in dollar terms. Dollar prices are often used in this estimation because they reveal how people value scarce resources. This is what may be referred to as ‘use value.’ Economists also recognize ‘non-use value,’ or the value or benefit that people conceive from simply knowing that resources exist. ( ex: you may get non-use value from simply knowing that bald eagles have not become extinct etc. regardless if you ever benefit from their existence in some direct financial way.) Of course, these values are much more difficult to quantify.

Without market prices, economists often rely on survey data or data provided by the physical and natural sciences. Both revealed ‘use-value’ and approximated ‘non-use’ value are converted into monetary terms to provide a common unit of measure. This is not to say that we can put a price on everything, and this does not give greater weight to ‘markets vs. nature,’ it just provides a common unit of measure. This is no different than converting from meters to feet etc.

In the end, if total benefits translated into monetary terms exceed costs, ( the policy produces positive net benefits) then the policy is said to have a favorable cost/benefit analysis, at least from a pareto-potential perspective.

This does not mean that the policy should be undertaken, just that it may be favored over an alternative with negative net benefits. There are plenty of other criteria that must be considered such as constitutionality, distribution, rent seeking, etc. ( see ‘Public Choice’ under selected topics)

A SHORT ASIDE ON COST BENEFIT ANALYSIS

The ongoing theme for some of my recent posts has been tools used by economists in studying the environment. In this post I am going to discuss the concept of efficiency and methods of cost benefit analysis.

Pareto Efficiency: A state is pareto efficient if it is impossible to make someone better off without harming another. In other words, if you can only make someone better off by making someone else worse off, you should do nothing. This state of rest is ‘pareto efficient.’

Cost Benefit Analysis: Cost benefit analysis is based largely on ‘pareto –potential' efficiency. In this case the benefits of a policy must exceed the costs imposed on society to achieve those benefits. It is pareto-potential because, if the benefits generated by a policy exceed the costs, beneficiaries could theoretically or potentially compensate others who may be harmed by the policy.

In the next post, I will discuss how costs and benefits are measured, an important exercise for public policy analysis.

NATURAL RESOURCE ECONOMICS: DEALING WITH SCARCITY

When resources become scarce in market economies with relevant price systems, prices increase. This price increase which reflects the increase in scarcity leads to land, capital, labor, and natural resources being used in different proportions. The higher price motivates users to reduce consumption or increase the use of substitutes. It motivates producers to increase the supply of resources if possible, or to invest in technology that better utilizes resources or leads to substitutes. The result of higher prices, substitution, and technological change is that scarce resources are used more efficiently or less intensely. It is then possible for economic growth to continue in the face of diminishing or degrading of natural resources.

Drastic changes in regulations or tax policy that stifle this process could leave us without the technological means to deal with future scarcity. This is something to be considered when dealing with climate change policy.

Environmental Economics

I've just recently wrapped up a series of posts related to public choice economics. Public choice is useful because the analytical framework it provides is necessary for understanding agricultural and natural resource issues in the context of government decision making.

The next series of posts will focus on theory related to environmental economics. They will focus on how we deal with scarcity of natural resources, pollution, etc.