Showing posts from October, 2009

An open letter from a real scientist to Steven Levitt

This comes from Real Climate , or more specifically, from Steven Levitt's colleague at the University of Chicago: Raymond T. Pierrehumbert, Louis Block Professor in the Geophysical Sciences. OUch.   It makes me utterly ashamed to be an economist. Update : Joe Romm is relentless .   It seems to me Levitt and Dubner should have eaten copious quantities of humble pie on day one.  They didn't. Why not?  Maybe because they aren't quite the hard-headed objectivists they paint themselves to be? Here are some interesting musings from Andrew Gelman on the role of ideology the likely underlies a lot of this, and especially its internal contradictions.

Counting jobs

Okay, I'm not a macroeconomist, so someone please tell me if I way off base here.  I'm trying to figure out how reasonable or unreasonable the Obama administration's claim of 1 million jobs saved may be. The media reports are useless.  We all know that every journalist can find a Republican that says it's all bogus and the Obama administration will stand by its numbers.  Sadly, none of the news reports walk through the Econ 1 and basic algebra to weigh in on the reasoning underlying the numbers.  Bad reporting or stupid reporters?  Which is it? Anyway.... So, as an armchair macro guy I'll borrow Krugman's picture of Okun's law.  It shows we get an extra 0.5% change in unemployment for every 1% change in GDP.  There are about 150 million jobs in the U.S. so 0.5% is about 750K jobs. So, in claiming 1 million jobs created or saved, the Obama administration is claiming GDP is about 1.33% larger than it would have been without the stimulus. Now we have

Menzie Chin on futures as predictors of commodity prices

Here is Menzie Chin (my thoughts below): As commodity prices start rising again -- at least some -- the question of whether futures are useful indicators seems relevant. Figure 1 shows the IMF commodity price indices, as reported in the October World Economic Outlook : Figure 1: Commodity price indices for energy (blue), food (red), agricultural raw materials (green), metals (black) and beverages (teal). NBER defined recession shaded gray, assuming recession ends in 2009M06. Source: IMF, World Economic Outlook (October 2009), data for Chart 1.16 . In a previous set of papers, Oli Coibion , Michael LeBlanc and I examined the predictive power of energy futures post and paper . In a new paper , Oli Coibion and I update our results regarding energy futures, and metal and agricultural commodities as well, through the end of August 2008, just before the financial crisis broke out in full force. From the paper: This paper examines the relationship between spot and futures pri

On the commodity share of retail food prices

A professor of biological sciences emails: I would like to follow up on your observation that "Raw commodities make up such a tiny share of retail food prices we would hardly notice a 10-fold increase in corn prices. The price of a quarter-pound hamburger (produced from corn-fed beef) would probably go up by less than a dollar." Could you direct me to the analysis or more general treatments of the supply chain costs? At the moment, I'm very interested in supply costs and retail costs for soybean-based products. I'm a molecular scientist and not an economist, so I appologise if my request is very basic! I knew someone would ask that question... In case others are interested, here's my reply: I believe the general principle is well known.  The numbers in the quote came from my own back-of-the-envelope calculations.  There are about 6 lbs. of corn used to produce each lb. of beef.  Corn sells for about $3.70/bushel.  A bushel is 56 lbs.  So I figured the valu

Alternatives to Biotech Food

Here are a few follow up ideas from the NYT Room for Debate .  This is such a huge topic it's hard to know what to put in 300 words.  I opted more for context than hard recommendations in my 300 word spiel.  If I had more space I probably would have laid out these additional points: I don't think biotech crops are evil and could be a big help, especially in developing nations.  But I think we'd be naive to think these will solve all the world's food problems going forward.  Maybe they will but they probably won't. Good development policy, whatever that may be, is surely good food policy.  In many ways food is too cheap relative to income in rich countries and too expensive relative to income in poor countries.  Both problems are solved if incomes are more equal.  Figuring out good development policy is, err..., much harder... I think a meat tax makes a lot of sense.  Taxing meat would help to keep staple grains cheap and plentiful, which would help the poorest fo

Climate change, food supply and the role of genetically modified crops

I think higher food prices--the kind the poor will see much more than anyone reading this blog post--are one of the biggest risks from global warming.   If you don't care about whether the poor eat or not, I think you will care about the civil conflict that would accompany their hunger.  If GMOs solve the problem, great.  But I'm kinda skeptical that they will... Here I am live at the New York Times Room for Debate : About 30 years ago Julian Simon, an economist, made a famous bet with Paul Ehrlich, the entomology professor and author of “The Population Bomb.” The bet was about the future direction of resource prices. Where Mr. Ehrlich saw population growth leading to scarcity in resources and higher prices, Mr. Simon saw an impending resource boom that would easily compensate for population growth. Mr. Simon handily won the bet. Staple commodity prices — from food to oil to metals — have all trended flat or downward over the long run. Technological optimists point to this

Mark Thoma asks if there is a solution to the Pundit's Delimma

Here's Mark Thoma : Mark Liberman at Language Log says the game theory can explain why pundits "best move always seems to be to take the low road": ...Overall, the promotion of interesting stories in preference to accurate ones is always in the immediate economic self-interest of the promoter. It's interesting stories, not accurate ones, that pump up ratings for Beck and Limbaugh. But it's also interesting stories that bring readers to The Huffington Post and to Maureen Dowd's column, and it's interesting stories that sell copies of Freakonomics and Super Freakonomics . In this respect, Levitt and Dubner are exactly like Beck and Limbaugh. We might call this the Pundit's Dilemma — a game, like the Prisoner's Dilemma, in which the player's best move always seems to be to take the low road, .... ...Pundits (and regular journalists) also play an iterated version of this game — but empirical observation suggests that the penalties f

Bad for yields does not mean bad for farmers' profits

Yes, we do predict large negative impacts to U.S. crop yields from global warming .  Yes, there are many reasons why things might not get as bad as we predict.  But the evidence, I think, is pretty clearly bad for crop yields. So, in response to Grist and the position by the American Farm Bureau on climate change, one may wonder:  Why would farmers oppose the climate bill if they have so much to lose from potential global warming?  There is a simple answer:  a big hit to crop yields does not imply a big hit to farmers' profits.  In fact, if the rest of the world is unable to make up for U.S. losses, a big hit to yields is probably a very good thing for farmers profits.  At least for the corn-soybean guys in the Midwest. You see, the demand curve for basic grains is very steep.  We've estimated an elasticity of about 0.05 (also see this paper ). So if yields worldwide get cut by 50%, and no additional supply comes online to replace that loss, prices will go up 1000%, a

Ezra Klein on climate change and agriculture

Here's a first for me:  I'm quoted in the Washington Post!   And so is this wee little blog. Kudos and thanks to Ezra Klein for writing about implications of global warming on crop yields.  The big study by IFPRI was the main focus, as it should have been, but he also wrote a bit about our study. Two little quibbles: (1) Our temperature threshold of 84F is actually the optimal temperature for corn.  It gets bad pretty quickly for temperature much hotter than that, but a little hotter is still okay.  Much above 90 is bad, but it depends on how long it stays that hot.  Anyway, I probably could have been clearer about this in my earlier blog posts. (2) I'm still a lowly assistant professor, not Professor, despite my rapidly advancing age.  You see, I'm new to the academic thing.  Just over a year ago I was a government bureaucrat at the USDA. But thank you kindly for the exposure Ezra, it's much appreciated.

Growing Areas in Brazil and the United States with Similar Exposure to Extreme Heat Have Similar Yields

Update: The letter to PNAS by Meerburg et. al is here .  Our reply is here . Boy, that was fast. Less than three weeks after PNAS published Wolfram Schlenker’s and my paper predicting big negative impacts from global warming on U.S. corn, soybean and cotton yields, we were notified about a letter to the editor commenting on our article.  The PNAS editors had already agreed to publish the letter when they told us about it.  We had seven days to write a maximum 500-word reply. The jist their letter: It’s already hotter in Brazil than the United States, and some areas of Brazil have higher yields than the United States, so we were being too “pessimistic” about what might happen to U.S. yields.  More precisely, they claimed 2008 soybean yields in the Brazilian state of Mato Grasso were higher than U.S. yields of that year. Hmmmm.  Well, we didn’t claim our results extended to Brazil.  Brazil differs from the U.S. in many ways.  For one, Brazil is a lot closer to the equator, whic

Optimal contracts for jumped-up monkeys

Amid the serious health care debate we have Brad Delong responding to Marty Feldstein wit h: ...[P]eople are really lousy consumers of medical services when they have to spend their own nickel. Why, just this morning Anthem Blue Cross waived the copays on all flu shots. That's not something you would want to do if people were anything more than jumped-up monkeys with brains designed to figure out whether the fruit is ripe.. Which made me laugh very hard... But seriously, if we're all jumped-up monkeys (and let's face it, many of us are) forget the copay on preventative care.  In fact, wouldn't it be more profitable if insurance companies paid patients for preventative-care visits?  Once upon a time I would have swallowed the prima facie evidence that insurance companies don't pay for prevention as proof such a policy wasn't  optimal.  I suppose I still lean in that direction. But I'm not so sure...

IFPRI Report on Climate Change and Food

IFPRI came out with a big report that, like our study , also predicts pretty dismal outcomes for crop yields.  Here's a nice summary and link to the report : This analysis brings together, for the first time, detailed modeling of crop growth under climate change with insights from an extremely detailed global agriculture model, using two climate scenarios to simulate future climate. The results of the analysis suggest that agriculture and human well-being will be negatively affected by climate change: In developing countries, climate change will cause yield declines for the most important crops. South Asia will be particularly hard hit. Climate change will have varying effects on irrigated yields across regions, but irrigated yields for all crops in South Asia will experience large declines. Climate change will result in additional price increases for the most important agricultural crops–rice, wheat, maize, and soybeans. Higher feed prices will result in higher meat prices. As