Greed, Green & Grains

This is similar to something I put up the other day, except with just three states: Iowa, Missouri and Minnesota.  That makes it a little easier to see.  Also, David Lobell suggested my remarks about Kansas may be a little off since Kansas is so heavily irrigated.  It might be better to draw comparisons between non-irrigated states with different temperature profiles. So these three states are about the same latitude.  Iowa is the nations sweet spot--the best soils and the best climate.  Minnesota tends to be a bit cooler than ideal; Missouri is too hot.  I've also added a scatter plot to show the strong association between extreme heat and yield.  The outliers in the bottom left of the scatter (cool years with low yields) are from the Great Flood of 1993 . I've added regression lines that fit the relationship separately for each state, one for 1980-1995 and one for 1996-2010.  While Iowa seems to show more heat tolerance in the more recent period, Missouri looks less hea

Way back in the early days following the financial crisis, I complained a lot about there not being enough talk of inflation targeting and unconventional monetary policy.  At the time I imagined that not doing enough on monetary policy in response to the  crisis would give rise to future monetarists who would claim, much as Milton Friedman did about the Great Depression, that all could have been avoided if only the central bank had done its job correctly.  I really thought vigorous monetary policy was the best hope for quelling the Great Recession.  I was particularly disappointed in Paul Krugman for not pushing the idea of inflation targeting or other unconventional monetary policies more forcefully. (He clearly supported the idea, but said very little about it.)  After all, he had long been the main force underpinning this idea for Japan a decade earlier. In hindsight, mine was a rather foolish prognostication.  Today's conservatives are nothing like Milton Friedman.  They ar

Orwellian indeed.  Maybe Ayn Randers should be more inspired by Orwell's Animal Farm than by 1984 . Via Catherine Rampel we have Kris Hundley: A conservative billionaire who opposes government meddling in business has bought a rare commodity: the right to interfere in faculty hiring at a publicly funded university. A foundation bankrolled by Libertarian businessman Charles G. Koch has pledged $1.5 million for positions in Florida State University's economics department. In return, his representatives get to screen and sign off on any hires for a new program promoting "political economy and free enterprise." Traditionally, university donors have little official input into choosing the person who fills a chair they've funded. The power of university faculty and officials to choose professors without outside interference is considered a hallmark of academic freedom. Under the agreement with the Charles G. Koch Charitable Foundation,

While Paul Krugman and Greg Mankiw both explain that inflation is no threat, allow me to follow Brad Delong by listing all the reasons I know for why the Fed's current nominal inflation target of two percent (one percent in practice) is too low. 1) To maximize long run stability, the Fed should target a long-run price leve l, not a long run inflation rate.  This way long-run investors can be reasonably assured of a particular long-run real rate of return for any given investment paying nominal dividends.  The idea is that the Fed would thereby promise to correct short-run variations in inflation leading to less long-run mis-pricing of expectations and assets.  Now, since inflation of the last few years has been well below target, it would therefore help restore pre-recession expectations if the Fed were to pursue higher inflation for at least a few years. 2) A higher inflation target will reduce odds of hitting the zero lower bound in future crises and recessions, thereby r

I haven't been, and will not be able to, respond to this silly article in Foreign Policy (no link--they don't deserve it). So, let's just make this a place holder for now: Goldman Sachs, as evil as they may have been in facilitating the demise of AIG and causing the financial crisis, did not cause the food crisis. Somehow, some way, we economists need to educate the public about when speculation is good (most of the time) and when it is bad (e.g., the 90s tech boom and the housing bubble). At least so far, we haven't seen the bad kind of speculation when it comes to food commodities. Maybe it will happen in the future--in fact, I kind of worry we may have a problem in the coming years.  But so far, no. The basic fact is the following: If prices are high when inventories are low, it is not a bubble.  End of story. The tough call is going to be when prices are high and inventories are high.  That's not happening right now. But if it happens in the future the

Two words: Climate Change   Global Warming. Well, there may be more to it.  Like reduced public research and pathogens like wheat stem rust. But new research by my colleagues David Lobell and Wolfram Schlenker, along with Justin Costa-Roberts shows that warming has hurt corn and wheat yields on all continents except North America: Farms across the planet produced 3.8 percent less corn and 5.5 percent less wheat than they could have between 1980 and 2008 thanks to rising temperatures, a new analysis estimates. These wilting yields may have contributed to the current sky-high price of food, a team of U.S. researchers reports online May 5 in Science . Climate-induced losses could have driven up prices of corn by 6.4 percent and wheat by 18.9 percent since 1980. The article was embargoed until 2pm today, but it's already circulating. A few other links: Science News Washington Post UK Gaurdian New Scientist In my view, what's ominous here is that we're prob

So we finally have an update of our weather data, following from the hard work of an NCSU graduate student, Jon Eyer. Here's a preview of what that data shows (click for a larger version): The left panel shows degree days above 29C, measured continuously over time and space and averaged over growing areas.  The right panel shows corn yields, in bushels per acre.  The inverse relationship between extreme heat and yields is fairly clear.  The one big exception is 1993 when a flood damaged yields severely even though it wasn't very hot. Three things to note: First, 2010 was hot, but not nearly as hot as it has been.  Given how bad things were relative to expectations, I was expecting a much higher extreme heat measure.  Our basic regression model pretty much hit the 2010 yield on the nose, so markets (and the USDA) shouldn't have been surprised conditional on the heat. Second, projections under most climate change scenarios are a lot worse in the coming years.  Overa

There are many reasons for high commodity prices.  But recent data from FAO shows a pretty rapid slowdown in productivity growth.  The price spike in 2008 occurred in a particularly bad year in which yields declined on a worldwide basis for three of the four largest food commodities.  In 2009 all four of the majors saw yield declines, something that hasn't happened since 1974.  2010 couldn't have been much better and was probably worse, given how bad things were in the U.S, the world's largest producer and exporter (worldwide data for 2010 isn't available yet). Here's the picture: The yield slowdown comes at a particularly unfortunate time, with accelerating demand from emerging economies like China and subsidy-driven expansion of ethanol.  Keep in mind: we need productivity growth to accelerate considerably to keep up with projected demand growth.  FAO says we need 70 percent higher yields by 2050.  (Although I'd like to do my own projections, and will one