Showing posts from September, 2009

Fiscal stimulus vs. quantitative easing

I've been puzzled by many things surrounding the rancorous macroeconomic debate.  One has been the relatively subdued debate on the optimal balance between fiscal stimulus and unconventional monetary policy (aka, quantitative easing).  Long ago I expected a modern revival of Keynes vs. Friedman monetarist debate.  There was some discussion but it has seemed subdued relative to what I would have expected.  My impression was that this didn't happen because it seems most conservatives don't like either fiscal policy or aggressive monetary policy (yet another puzzle).  I also thought that, maybe, the liberal-moderate wing of economists preferred fiscal stimulus because they thought the size of government was probably a little too small anyway. But now I think the truth is we know little about quantitative easing and this makes economists of all stripes nervous.  And what little is known isn't especially encouraging.  In any case, I like the fact that Krugman has responded

Costs of cap and trade, a few links

I'm not super current on the details of the Waxman-Markey bill.  But here are a few must read links: CBO analysis of costs (CBO is reasonably objective, in my view) Heritage foundation analysis (what you can always expect from Heritage) EPA analysis Review of McKinsey research Krugman:  It's easy being green Krugman: Pigou, Glenn Beck, and the false case against cap-and-trade Krugman: The textbook economics of cap-and-trade A series of nice posts by Robert Stavins Something I really need to understand better:  how emissions permits allocated to electricity companies are passed through to consumers in the form of lower electricity prices.  This doesn't seem to get all the incentives right.  I really wish (hope?) they somehow impose multi-tiered pricing wherein the marginal price increases sharply with level of use.  This could keep the burden low while providing strong incentives for energy efficiency.  

Implications of Climate Change on Food Crops

Last week Food Technology Magazine asked me to do a little write up for their blog. If you've read my earlier posts about my work with Wolfram Schlenker on potential climate change impacts on crop yields, there isn't much new here.  But since I'm swamped and don't have time to post anything else right now, here it is : In a recent study, Wolfram Schlenker and I set out to develop a better statistical model linking weather and U.S. crop yields for corn, soybeans, and cotton—the largest three crops in the U.S. in production value. Corn and soybeans are of particular interest because they are really important for global food prices and the U.S. contributes about 40% of the world’s production of these crops, and a much larger share of world exports for these crops. The goal was to find the causal links between observed climate and yields so that we might predict how yields will change as the climate changes. The novelty of our work is that it carefully accounts for varia

A proposed new definition of macroeconomics

Krugman on Skidelsky's proposed definition of macro : [M]acroeconomics should be defined as the field that studies those areas of economic life in which irreducible uncertainty, uncertainty that cannot be tamed with statistics, dominates. Krugman gives the impression that he disagrees with this definition.  I hope he disagrees.  Sheesh.  This definition could apply to almost any field of economics. Although an increasing number of economists are becoming wedded to the idea that the only kind of empiricism that should be done in economics involves randomized controlled experiments or nearly ideal natural experiments, for which uncertainty can more-or-less be statistically quantified in an objective manner ( Heckman might disagree ), this is still the minority.  While I appreciate experiments and natural experiments, I find other kinds of modeling and empiricism valuable, and so do, I suspect, most economists of all stripes. Still, this looks like an interesting book.  Let'

Toxic waters

The New York Times is doing a nice series on water pollution .  In my circles the problems with agricultural waste have been well known for a long time.  See, for example, these reports from USDA-ERS from a few years back [ 1 , 2 , 3 ]. It's become more of a concern as the livestock industry has rapidly become more concentrated.  With lots of animals in a small area it effectively creates a pretty serious sewage problem.  North Carolina was on the front lines of the rapidly concentrating hog industry so these problems have been around here for awhile.  The Times seems to focus on dairy, which has become concentrated more recently.  My understanding (I haven't looked at the data) is that Idaho--the focus of one of the Times videos--is getting more dairy because their regulations are less strict. Anyway, it's nice to see some national attention given to this problem.  My impression is that most do not realize how important agriculture is for water quality. There are zill

Fine scale weather data for the continguous United States

My coauthor Wolfram Schlenker and I are making our fine-scale weather data publicly available for all who want to use it.  These are the data we used in our PNAS study of crop yields . The raw data files give daily minimum and maximum temperatures and total precipitation on a 2.5x2.5 mile grid for the contiguous United States from 1950-2005. The data set is massive (60GB as zipped files, approximately 300GB unzipped).  We had hoped to post all the data on a website but it's just too big.  Instead, we have put the data onto 8 DVDs and we are happy to ship them to you.  Just send one of us an email. A website documenting the raw data and how to use them is located here .  The site includes STATA computer code that can be used to transform the raw temperature data into degree day measures with bounds of your own choosing. We hope many find these data useful.

About the Great Marcoeconomic Debate

The increasingly snarky debate between so-called saltwater and freshwater macroeconomists seems to be drawing the irk of some of my colleagues walking the halls of my institution.   The public airing of our dirty laundry seems to make some uncomfortable. For context, here's my earlier short post and a great compilation of the Great Debate by Mark Thoma . I sympathize with my colleagues, but feel differently.  I actually find it all fun and interesting, even if the snark is too thick.  (Maybe this is easier for me to stomach as a non-macro specialist.)  In the long run we'll remember the substance as much as the snark, and the substance will stick.  Airing dirty laundry is good for the profession because it provides full transparency.  With full transparency and the lightning-quick back-and-forth of the internet, no longer will it be possible for economics students to be indoctrinated into any particular school of thought without easily checking out what the other side has

Mark Thoma points us to Famine

I really need read this book. Mark Thoma: "Could it Happen Again" I've been reading a book called Famine , and they were far more common in the past than I realized. It notes that, historically, societies have been able to deal with one year of bad harvest. It's not costless, and sometimes markets or governments do not deliver the food where it is needed, but there is generally enough food in reserve to augment the poor harvest sufficiently to avoid widespread hunger (this was no accident historically, governments kept food in reserve to smooth variations is supply). But when there are poor harvests two years in a row, whether it be from natural disasters such as weather problems or human caused problems such as war, then the problems become severe. No matter how well markets or governments work, there aren't generally enough supplies in reserve to withstand two consecutive years of substantially reduced harvests. This book, together with the financial crisis, m

I really don't get tire tarriffs

Brad delong is right.   I'm really confused by this move.  But then political economy continues to baffle me.  Maybe this is intended to buy a vote or two in the senate for the health care bill?  I could imagine that such a policy might buy a blue dog vote or two, and that could make a difference. But on its own merits, this is a really bad idea.

Norman Borlaug--man responsible for the Green Revolution--dies at 95

What an amazing life.  I cannot think of another individual who has done more for humankind.  To say he saved a billion people could be an understatement.  Yet few even know who the guy was.  Maybe that will change now that he has died.

Michael Pollan says health care reform will pit insurance companies against agribusiness (in a good way)

To budding agricultural economists looking for interesting questions to dig into, read Michael Pollan. This piece in the New York Times touches on some interesting economics: No one disputes that the $2.3 trillion we devote to the health care industry is often spent unwisely, but the fact that the United States spends twice as much per person as most European countries on health care can be substantially explained, as a study released last month says, by our being fatter.... ...One recent study estimated that 30 percent of the increase in health care spending over the past 20 years could be attributed to the soaring rate of obesity, a condition that now accounts for nearly a tenth of all spending on health care... ...As things stand, the health care industry finds it more profitable to treat chronic diseases than to prevent them. There’s more money in amputating the limbs of diabetics than in counseling them on diet and exercise... ...As for the insurers, you would think preventin

Note to self about climate change impacts and income inequality

Brad Delong's finger exercise could be tweaked to examine the effects of climate-change-induced reduction in agricultural productivity . For the representative individual in the U.S. or any developed nation, the decline in agricultural productivity would be a very small deal since agricultural commodities are a very tiny share of aggregate consumption. For the representative individual in a countries where people live on $2 a day or less and spend most of their income on agricultural commodities, it would be a very big deal. So we need to tweak Delong's finger exercise so there are two kinds of individuals with different expenditure shares on commodities and one price. The expenditure share would be a couple orders of magnitude larger for the poor individual and demand would be more elastic, due to a larger income effect. The overall wealth impact would surely be huge for the poor individual and tiny for the rich individual.

Obama's health care speech

Obama's health care speech to a joint session of congress was as impressive on substance as it was on delivery. Even if you disagree with some specific proposals, he nailed the economics. Is this what they call egregious moderation? Apparently to Joe Wilson . Then there was a bizarre "fact check" in the Washington Post today in response to Obama's statement beginning: "The only thing this plan would eliminate is the hundreds of billions of dollars in waste and fraud, as well as unwarranted subsidies in Medicare...." Supposed fact checker Lori Montgomery of the Washington Post begins by writing "This is, at best, wishful thinking." Okay. But if so, then why does she finish with "Many health-care experts view this as a promising route to cutting costs without harming care to the millions of senior citizens who rely on health care." Thanks for clearing up the facts Lori Montgomery. (This was in the printed version of the W.P.--sorry I c

The state of macroeconomics: It's about irrational pessimisim

Paul Krugman gives us a fabulous review of macroeconomics and current ideological debate within the field. He also nails the cruxes of where current macroeconomics, of both Keynesian and neoclassical stripes, falls short. One problem is that current theories lack a fundamental cause for crises and ensuing recessions. Another is that current theories ignore the central role of financial market failures. The answer, he suggests, is fundamentally psychological or behavioral. To get our models right we'll need to make them less elegant. He presents a clear and compelling case. My main criticism with Krugman's review, and more generally with his writings on business cycles, is that he doesn't acknowledge or emphasize that asset prices (stocks, houses, etc) appear most rational--in the textbook economic sense--just before the "bubble" is about to pop. During normal or more depressed times, asset prices appear too low as compared to textbook theory. Too man