Green Inc. at the New York Times tells us that cheaper renewable energy is a bad thing

Because it's coming from China.  To be fair, they are careful not to explicitly pass judgment on the situation.  But still. Here's the story and the money quote: 

These [China's] efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China. 

Anyone over at Green Inc. see the difference between buying oil and buying capital equipment used to make energy from the wind and sun?  Actually, forget that difference.   Anyone over at Green Inc. think that we would be better off without Mideastern oil?  It would be nice if the folks over at Green Inc. would provide at least a hint that they understand the basic gains from trade and then explain that to their readers.

It gets worse:

“Most of the energy equipment will carry a brass plate, ‘Made in China,’ ” said K. K. Chan... President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy... “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,”...many Western and Chinese executives expect China to prevail in the energy-technology race.  Multinational corporations are responding to the rapid growth of China’s market by building big, state-of-the-art factories in China. Vestas of Denmark has just erected the world’s biggest wind turbine manufacturing complex ....

China’s commitment to renewable energy is expensive. Although costs are falling steeply through mass production, wind energy is still 20 to 40 percent more expensive than coal-fired power. Solar power is still at least twice as expensive as coal.

Excuse me.  I just fell off my chair.  Let me clarify: you're saying 20-40 percent more than coal is expensive?  You're not counting externalities like air pollution and probable climate change,  I presume?  Besides, wasn't coal like 100 percent more expensive just 18 months ago?  If that's right, wind looks inexpensive to me, but then you're telling me that my eyes deceive me and that wind is actually very expensive?  My eyes must really deceive me because then you tell me renewables are getting cheaper very quickly:

With prices tumbling, China’s wind and solar industries are increasingly looking to sell equipment abroad — and facing complaints by Western companies that they have unfair advantages. When a Chinese company reached a deal in November to supply turbines for a big wind farm in Texas, there were calls in Congress to halt federal spending on imported equipment.

“Every country, including the United States and in Europe, wants a low cost of renewable energy,” said Ma Lingjuan, deputy managing director of China’s renewable energy association. “Now China has reached that level, but it gets criticized by the rest of the world.”

I can appreciate arguments for more stimulus spending.  The first thing to do (so say a great majority of economists I've read) is give money to states so they don't have to continue cutting back on basic public services, laying people off, furloughs, and suffer all the associated negative multiplier effects.  They might also build better/larger interstate transmission grids.  Or repair our many dilapidated bridges.  But preventing trade of this strongly mutually advantageous sort seems like a really bad idea.

There are probably some other tough underlying tensions here, like the fact that China is keeping its exchange rate too low.  But there's no mention of that in this article, or in the linked article about Schumer.

I think the New York Times can and should do better.

The latest iThing

I feel I have to write something about this because I'm such a shameless mac lover.  People tease me in the halls about my iphone and I dropped a lot of cash on my macbook pro.  But I spend such an embarrassingly large amount of time on this thing--and love it thoroughly--that it was really worth it to me.

So. About the iPad.

I've long been a little tempted by the Kindle, especially the DX, but was obviously curious about what apple was cooking up.  I thought the Kindle would be nice for times when I want to get away from things a little and just read without distractions.  For this purpose there are two things I really like about the Kindle: (1) a very long battery life and (2) the paper-like screen that is not backlit and can be easily seen outdoors.  Free and inexpensive wireless connection to books, newspapers and magazines is nice too. 

Given what I really like about the Kindle, I'm not really tempted by the iPad.  It looks very cool but if I really want to get away from things to read then I don't need the internet and email.  And if I'm working or surfing or emailing, I'll probably have my laptop anyway.

Maybe I'll change my mind when I actually see and touch one but right now I'm not tempted.  I'm just hoping competition from the iPad will push down the price of Kindles.

But I can see how people who aren't geeks like me, who don't always have their laptops with them anyway, might really like the iPad.   Which makes me wonder: for all the people and tech companies in the world, why is Apple so much better at it than everyone else?  Why aren't more CEOs like Steve Jobs?  I'm pretty sure it's not because CEOs are paid too little.  I know it's sacrilegious for an economist to suggest, but I think there may be more to this than incentives.

The U.S. Biofuel Mandate and the Supply and Demand for Calories

I'm buried with teaching and research and travel these days, so even fewer postings than usual.

Here are my slides for my talk today at Cornell.  This is stuff I've been working on for awhile with Wolfram Schlenker at Columbia.  The key conceptual contribution is showing how to use weather shocks to estimate the supply of agricultural commodities.  We also estimate demand using the weather, which isn't new in concept, but surprisingly hasn't been done on a large scale.

We use our estimates to consider the effect of U.S. ethanol policy:

(1) about a one-third increase in the price of calories from raw commodities: corn, soybeans, wheat and rice.

(2) an annual reduction in calories used for food production equal to the annual caloric requirements of over 200 million people.(*)

While we do not yet estimate where the calories in (2) are coming from, we expect most of the demand response comes from poor countries due to a larger income effect.

(*) For rich people eating meat one calorie not used in food production is about five to 10 times the calories consumed by people; for poorer people living mainly on grains the ratio of calories produced to consumed is much closer to one.

Update: Sorry, these slides translated terribly when I uploaded to Zoho. I'll see if I can fix that.  And I'll try to post a copy of the working paper too.  I expect I'll be juggling a lot today so we'll see how it goes.

Update 2: Most of my day was filled with meetings so I didn't figure out a way to post the slides until very late.  But I think this alternative works better than zoho.  You can find a copy of the working paper on my personal website (here).  That's not quotable yet, but this earlier meetings paper is.



Update 3: It seems the largest question/concern people have about this research is aggregation: we estimate supply and demand for the whole world and for the caloric content of all four key crops combined.

Why aggregate? Several reasons:

1. By aggregating we can cut directly to the questions that are most interesting and most important.

2. By aggregating we can show in a very clear and transparent manner the variations that allow us to identify supply and demand.

3. By aggregating we increase statistical power a lot.

4. If we disaggregate countries or crops, identification becomes difficult or impossible, and far less transparent. We have more intrumental variables (so more bias), fewer degrees of freedom (bigger standard errors and more bias), and far less transparency.

In short, aggregation allows us to simplify the problem to the point where we can get clear, defensible answers to the biggest questions.

What are the costs of aggregation?

Well, we cannot identify heterogeneity in supply response across crops and countries. This would be nice, and we do plan to try this in the future, but we're not going to have much statistical precision.  And I don't see how it would change the aggregate numbers that are most interesting and most important.

Haiti and U.S. Sugar Policy

The tragic earthquake in Haiti has had me wondering about U.S. Sugar policy.  I should warn readers in advance that both Haiti and sugar policy are topics I know little about.  All I really know about Haiti is that it shares a history with many similarities to other struggling Caribbean islands, with roots in colonial sugar plantations, rum and slavery, only much, much worse.  And my knowledge of U.S. Sugar policy is somewhat superficial.

So, here's the basics of U.S. sugar policy.  Like other agricultural policies, U.S. sugar policy got its start in 1934 during the Great Depression.  With prices of agricultural commodities (and everything else) plummeting, the government wanted to support prices in an effort to support farmers' incomes.  After all, back then, a lot more of us were farmers, and unlike today, most farmers were poor.  A lot of what the government did back then, even if it had good intentions, probably did more harm than good.  People were hungry too, and one thing they did was destroy crops and limit agricultural production in an effort to support prices, which didn't help people to eat.  But these policies probably did help to support farm incomes.  And to some extent they still do.

But an important thing to realize is that sugar was different.  It was (and is) different from the other commodities because the U.S. imports a lot of it.  Thus, to support prices, the government did not need to limit domestic production as much as it needed to limit imports.  So, ever since the 1930s, the U.S. has supported a minimum price for sugar by placing a quota on the amount of sugar imports.  (Two short-lived exceptions were in the early 70s and early 80s, when world prices spiked and the quota was lifted.) Restricting imports has kept domestic sugar prices higher and less variable than world prices, which has created considerable rents to the favored exporting nations with large quotas.

The price supports led to much greater domestic sugar production than there would have been otherwise, a lot of it around the Everglades in Florida, with some significant environmental problems as a consequence.  The quotas and price supports also spurred the development of corn syrup which could be made from domestically produced corn.

Here's a picture showing U.S. and world sugar prices, adjusted for inflation:

Europe has also supported sugar prices by limiting imports.  In fact, the support prices in Europe have been similar or greater than those in the U.S.  Many of the Caribbean islands have been beneficiaries of this quota-generated largess, with other less or unfavored nations left to market their sugarcane at world prices, which could be as little as one-third U.S. and European prices.

But beginning in 2005, Europe began winding down its sugar import restrictions.  This has caused production to decline in Europe and those Caribbean nations that had favored export status to Europe at their elevated prices.   It has also caused world sugar prices to rise.  While U.S. sugar policy is alive and well it is under increasing pressure, in part due to rising sugar prices, pressure from food producers, but probably also due to trade liberalization in Europe.

So what does all of this have to do with Haiti?  Well, one of the most fascinating and tragic dichotomies is that between the Dominican Republic and Haiti.  By Caribbean standards, the Dominican Republic comparatively modern and wealthy while Haiti, in contrast, is one of Caribbean's and world's poorest nations.  Yet the Dominican Republic and Haiti share the same island.

The Dominican Republic also possesses the largest share of U.S. sugar quota, equal to well over 20 times that of Haiti's. (See here)

And so I wonder: How much of the Dominican Republic's success relative to that of Haiti has to do with the fact that it received a much larger share of the U.S. sugar quota? 

There's probably not a clear answer to this question.  But it stands to reason that U.S. policy has at least something do with Haiti's larger challenges, which have, in turn, made them so vulnerable to natural disasters.

Update: Here is some background reading on sugar policy

Three blogs I'd like to write but don't have the time

1.  Fake Scandal Real Scandal: It is the greatest American pastime to be cynical about big bureaucracies and individuals in power.  Much of this cynicism is well justified.  A lot of it isn't.  Scandals about abuse of power, money or position sell newspapers and increase viewership and listenership.  These stories pander to an illusive human characteristic that makes us skeptical of others, especially others of a different social, racial or ethnic class--an "us vs. them" mentality.  This is why 60 Minutes, which has historically exposed some great scandals, is probably the most successful TV show in history.  But the excess demand for scandalous stories combined with strategic political gamesmanship means that many so-called scandals are fake.  Some news outlets are better at selling fake scandals than others and some people are more susceptible to falling for fake scandals than others.  Then, of course, there are the real scandals, some of which never do get reported.  If I had infinite time and infinite resources I would love to write a blog that dug into scandals to discern which ones are real, which ones are fake, and uncover the real scandals that get too little attention.

 2.  Who's Got the Inside Scoup: In Washington journalism, it's all about getting the salacious details about the lives and dealings of the politically powerful.  Status is measured by how close one gets to the West Wing.  Since access is valuable to journalists it usually comes at a price.  For big time journalists from big-time venues and audiences, politicians/insiders may value of the exposure more than the journalist values the access, but this is rare.  In most cases journalists must tacitly or explicitly offer something in return for access, like selling the insider's viewpoint or personal agenda.  This tit for tat biases the news in ways that can be difficult to see.  If I had infinite time and infinite resources I would love to write a blog that kept track of individual Washington journalists to trace their tit-for-tat trading of access for storyline.  There would be an index for each major Washington journalist with a full history of their stories and a score assigned to each one ranking the extent to which they sell the spin of their stories for access to powerful people.

3.  Greed Green and Grains: This would be a blog about policy issues surrounding economics, the environment and agriculture.  It would summarize policy news as well as analysis and research findings from the academic literature in clear and thorough detail.  An emphasis would be placed on developing vivid graphics that present the weight of the evidence in a compelling way.  Since this is my area of greatest expertise it therefore has the least cost and greatest professional benefit, so it would be my first priority.  If I had infinite time and resources this is the blog I'd write.  Unfortunately scarcity prevents me from writing the quantity and quality I'd like to.

Sigh...

I will write something somewhat substantive relatively soon.  I hope.

Mortgage walkaways, good or bad?

We economists are indoctrinated into thinking first in positive rather than normative terms.  That is, how DO people and markets behave, not how SHOULD they behave.

So.  Should you walk away from your underwater mortgage?

I don't know.  All I know is that if you're a rational economic agent you WILL walk away from your mortgage if the benefits outweigh the costs.

Or maybe not...

You see, the mortgage business seems to be counting hard on the idea that maybe you won't walk away from your mortgage even if you're hundreds of thousands underwater and it is in your material self interest to walk away.  Not walking away saves the investment banks tons of money if you valiantly pay you mortgage even though it serves their profits over your economic interest.  These are the same banks (and mortgage-backed securities holders, including the Fed) that took huge risks in lending to you in the first place, and had assumed you would walk away if things got as ugly as they currently are.  Oh, did I mention those guys are still making gazillions?

It's kinda funny how the financial business plays the morality card when it suits their pocketbooks, no?

Anyway. I think it is true that many people go on paying their mortgage even when it is not in their material self interest.  People do this mainly because they feel it is morally correct to do so.  It's a little like taxes: cheating on taxes would pay for many people but they don't, just because they think it's the wrong thing to do.

What I'm really wondering is whether this phenomenon of people sticking it out with an underwater mortgage is is a good thing or a bad thing for broader economic recovery.   You see, I think many banks are reticent to workout mortgages for people who are underwater and struggling because they feel if they lower the principal for some it will weaken the moral suasion they currently have over underwater mortgage holders who can go on paying, but probably shouldn't.  This general reticence then keeps lots of people underwater and, more importantly, stuck in homes that are suboptimal for their particular circumstances.  And this helps to keep the economy generally stuck in a rut.  People simply cannot move to the locations, living situations and jobs that align best with their current circumstances.

Without attaching any morality to the situation, it seems to me that the general situation where people are unwilling to walk away from mortgages is slowing general economic recovery. It is adding a lot of nominal rigidity that we really could do without.

Like always, if I'm wrong about this someone please tell me why I'm wrong.

Update:  Roger Lowenstein beat me to this storyline.

Ron Lieber of the NYT says maybe the naughts weren't really naughts

But I think he takes his contrarianism too far.

He writes:

If you invested $100,000 on Jan. 1, 2000, in the Vanguard index fund that tracks the Standard & Poor’s 500, you would have ended up with $89,072 by mid-December of 2009. Adjust that for inflation by putting it in January 2000 dollars and you’re left with $69,114.

That's the right way to look at it. 

But then he goes on:

But that is not how most real people invest. They don’t pour everything they have into just one type of asset and then add nothing to it for 10 years. Instead, they buy stocks of all sorts, and bonds and perhaps other things, too. And many millions of them dutifully add more money regularly, usually into a retirement account that they won’t touch for longer than a decade.

For those people, it was not a lost decade at all. Even those who started with a low six-figure balance could have doubled their total savings in the last 10 years.

Wow!  How does Rob Lieber say one could have doubled their savings?  Well, he's not very clear about it, but essentially he says this could have been done by doubling the amount one has saved.  You see, if one adds $120,000 to the $100,000 one already has, one has more than doubled their savings.

No, this isn't a 2nd-grade math class, it's the "Your Money" column at the New York Times.

Here's the graph:

What is not made explicit is that most of the gain in the yellow line is just added savings.

If Lieber really wanted to show the benefits of diversifying through staggered purchases and re-balancing each year, then he should have plotted rates of return, not total balances.  I find the way he's presented it misleading.

Yes, bonds did better than stocks this decade, partly because interest rates fell and bond prices move oppositely from interest rates.  It would have been really nice if he at least showed the returns to bonds separately, because besides the adding of investment dollars, the biggest thing that separates the different lines is the fact that bonds did a lot better than stocks, a truly rare event.

The gains from diversifying purchases over time is, like the return to balance portfolio, almost naught this decade.  That is also kind of unusual.  But then Lieber doesn't really tell us that, does he?  In fact, he kind of implies the opposite.

To steal a line from Brad Delong: Why can't we have a better press corps?