Greed, Green & Grains

This is a super simple plot of yields from the world's most successful crop: US corn. Yields have been trending up in steady linear fashion for a long time.  The last five years are a continuation of that trend. But consider:  Prices were at an all time low, in real terms around 2005-2006, trading at less than $2 bushel, and they have been above $4/bushel most of the time since late 2007.  That's a solid doubling or more of prices for a sustained period of time. Now, if yields respond a lot to prices, shouldn't we see some kind of acceleration in the trend?  After all, prices were pretty much falling through most of the period from 1980 to 2005, and since then have increased substantially. Like I said the other day , I sure don't "see" a big price effect on yields.  Do you? There's a lot more data where this came from at www.nass.usda.gov Note that I usually don't believe "statistical significance" that cannot be seen with a compel

China has a near monopoly on rare earth minerals used in all kinds of manufacturing.  These kinds of commodities must have extremely inelastic demand.  Thus, it's not surprising to see China, which possesses about 95% of know extractable deposits, curtailing exports . Curtailing exports will raise prices on the amounts they do export, and also raise the international market value of goods produced in China using rare minerals.  While some may interpret the action as a slight against free market fundamentalism, a much easier and more compelling explanation is that China is simply asserting its market power for nationalistic gain.  To me, anyway, this looks like a textbook example of strategic trade.

There's an old paper by Houck and Gallagher that examines how corn yields respond to price changes.  They found corn yields went up 21 to 76 percent with a 100 percent increase in price, presumably a response to increase fertilizer use.  In econ speak this is called an "elasticity" between 0.26 and 0.76.  The total supply response would be this elasticity plus the land area response. The middle estimates in that old paper are being used by some to justify relatively benign effects from ethanol policy on food commodity prices. Some recent updates to that old work are finding numbers at the lower end of that range, but also find large acreage response elasticities.  Those arguing for a big yield response acknowledge that the land response is small, around 0.1.  But there are lots of folks saying that the overall, yield plus land area, supply response to price is between 0.5 and 1. These results contrast sharply with my own work with Wolfram Schlenker .  After accounting

Today Krugman writes about commodity prices (oops, missed the link the first time).  To me, anyway, he looks right on all counts. 1) I've seen no evidence that the spike in 2008 was a speculative bubble.  That goes for the current fledgling rise as well. 2) I don't think the commodity prices bear significant influence on inflation.  Most of what we buy is comprised of domestic wages and rent, neither of is likely to much influenced by commodity prices, so inflation will remain subdued. I wonder if Julian Simon were alive today, whether he would be willing to make another bet with Paul Ehrlich. We'll never know.  But if he were alive, and he were to repeat that bet , this time I think he'd lose.

A transcript is below; video here . Hat tip to Ruben Lubowski and Climate Progress. TRANSCRIPT: I feel particularly honored to have been asked to deliver the first Stephen Schneider lecture. Steve was a friend and a colleague, and an inspiration, who spoke eloquently and convincingly about questions with which I have struggled for my entire career and which I am going to address today: What is a useful and proper role for scientists in the public arena? How can we best discriminate where the boundary lies between expert knowledge, and values or political opinion, and how can we properly honor that line? What can we expect in the way of reception for our interventions and how can we increase their efficacy? At the same time, I feel a bit sheepish about this task, because I’m sure some of my recommendations will sound obvious and trite to you, like Polonius’ “to thine own self be true”, although hopefully not that trite. In addition, while I intend to keep war stories to a minimum

Scott Sumner has been advocating nominal GDP targeting by the Fed for some time now.  He's recently added more meat to that idea by tying the target to a Fed-backed futures market. This is a slight twist on inflation targeting, which seems theoretically sound but requires a credible commitment by the Fed to keep monetary policy loose well after the economy recovers.  That could be a tough commitment to make, especially with Ron Paul as the new overseer. I don't know that I fully understand Scott's idea, but I think it basically takes care of the commitment problem by creating huge arbitrage opportunities to the market if a target NGDP isn't reach.  Which basically means we'll either get the inflation or we'll get the growth, and probably a little of each, since it is very hard for me to see how we won't get a lot of real aggregate demand growth with a bit more inflation.  This is because, with a bit of inflation, nominal debt burdens will decline, asset

I haven't read the book Merchants of Doubt by Naomi Oreskes and Erik Conway, although this is something I've been meaning to do and intend to do very soon.  The book concerns the remarkable influence of a few very well organized scientists, backed by some powerful and deep-pocketed special interests, dedicated to sowing doubt in the public's mind about the reality of human induced climate change, that smoking causes cancer, and many other issues.  Way back I posted a talk by Oreskes with a similar theme .  Below is a very long but very good video of a lecture she gave more recently at the University of Rhode Island.  Don't miss the question and answer at the end. The issue here is one that is larger than climate change itself.  It concerns the relationship between scientists and the general public, how people come to trust (or not) what scientists have to say, what "truth" is, and especially the role of media in communicating often disparate sc

So, after Obama announced his tax cut deal with Republicans, bond prices fell and interest rates spiked. Does this spike reflect bad expectations of impending inflation and crowding out by US debt?  Or does it reflect expectations of greater growth in response to tax cut stimulus? The news headlines are all over the place.  To my eyes, they are also inconsistent with each other.  For example, on the first page of Google News we have the following headlines: TREASURIES-Prices fall for second day on deficit fears US STOCKS-Financials, semiconductors help Wall St advance Oil Down as Supplies of Gasoline, Other Fuels Grow  and the clincher: Gold, Silver Tumble as Dollar Gains, Curbing Demand for Alternative Assets This is easy to sort out if one looks what simultaneously happened to the dollar, stock prices, gold, silver and possibly oil.  The dollar and stock prices went up; gold and silver went down.  That's a tell tale sign that the news contained in the tax cut deal wa

I try to refrain from getting too normative on this blog.  And when I do, I try to point out alternative viewpoints.  But there are times when there just doesn't seem to be two sides to the story.  Which brings me to ethanol subsidies and mandates, which seem like a really bad idea on almost all fronts. It's nice to see my views have some bipartisan support. I can see arguments in favor of subsidies for research and development for biofuels.  But since long-run prospects presently seem limited, I gather these subsidies should be modest relative to, say, subsidies for R&D on battery technology and renewable energy sources such as solar, wind, and ocean currents. I can see how ethanol probably does make some sense as an un -subsidized gasoline additive.  Even without further subsidies, I suspect ethanol would be significant fuel for awhile, albeit larger than it would have been had ethanol never been subsidized. But I cannot see any good reason for the policy currentl

The basic story of depression economics is that mass unemployment, especially when combined with disinflation, is a symptom of disequilibrium. In technical terms, it is said that an excess demand for money or safe assets is necessarily counterbalanced via Walras Law by excess supply of labor and production capacity, which we see in the forms of excess unemployment and recession. In lay terms, this kind of disequilibrium means there is a lot of money lying on the ground--profit opportunities that are simply not being exploited.  So, all we need to do to revive the economy is pick up those $100 bills. Sounds easy.  So where are they? They probably lie in investment opportunities that are not being exploited for a complex set of reasons, perhaps fear being chief among them.  With interest rates as low as they are, firms make nothing by sitting on cash, so $100 bills are lying where any profitable investment may be, no matter how small returns may be. I see big profit opportuniti

I just saw this nice article in The Economist on adapting to climate change. It's also nice that they cite my work with Wolfram Schlenker . It would be so much easier to adapt to climate change if there weren't so much income inequality.  This article does a nice job of clearly spelling out all of those challenges.

I've been in DC for the holiday weekend and thinking about urban schools.  So, I just read Work Hard Be Nice by Jay Mathews, in which he chronicles the remarkable work of David Levin and Mike Feinberg and their development of KIPP charter schools . For anyone interested in improving schools and learning, you've got to read this book.  It's inspiring. A few thoughts:  (1) The youth and vigor of Teach for America teachers clearly helps.  But it's also clear that Levin and Feinberg would have gotten nowhere without the mentorship of highly skilled and experienced master teachers that had strong connections to the communities where they honed their skills, especially Harriet Ball, but many others as well.  It seems to me that continued efforts to find and learn from similar master teachers should be a big part of ongoing efforts in school reform. (2) It seems a key reason white boys and girls with privileged backgrounds could succeed in teaching in poor, ethnic nei

Awhile back I suggested that Fenty lost his mayoral reelection bid mainly because schools had not performed nearly as well as had been billed in the popular press (and is still being billed--Michelle Rhee has been on Opera and even has a movie coming out). The reality of the mayoral contest was not about those for and those against school reform.  Rather, it was between those who only heard the rhetoric and believed it versus those who actually had kids in the schools and believed their lying eyes. What Rachel Levy describes here fits much more closely with first-hand accounts I've heard: Here's what a lot of people are saying about Michelle Rhee as they sort out her legacy as chancellor of Washington D.C. public schools: Her policies were right on target and she moved city schools forward, but her big problem was simply that she didn’t play well with others. This assessment is wrong. Her reforms weren’t good policy, and criticism that her hard-charging style stifle

This is a nice article by Leonardt . But somehow it all seems too long and complicated for the reality of the situation. The main obstacle for China, and a big one for the U.S. and the rest of the world, is explained in a single paragraph. ...By buying large amounts of United States Treasury bonds (and, to a lesser extent, Japanese and European bonds), China has kept its currency artificially low. The renminbi has roughly the same value today as it did in 1990, relative to a basket of other currencies, which is remarkable considering how much faster China’s economy has grown than the world economy. The low renminbi holds down the price of Chinese-made goods in other countries, increasing exports. But it also means that foreign-made products are more expensive within China than they would otherwise be. In effect, China’s government is deliberately reducing the buying power of its own consumers to subsidize its exporters. Lower prices and they will spend. That w

Barrett Kirwan, another agricultural economist and good friend and colleague, has started a blog called ideaHarvest It's now added to the blogroll. It's cool to see other assistant professors jump into this. But despite what some might say , this is still risky business for untenured blokes like us.

Awhile back I wrote a couple vague posts about PES and additivity (also, here ).  I am going to try to clarify my thinking a little.   All of this comes in response to a great workshop on payments for ecosystem services , sometimes called payments for environmental services , that was held in Chapel Hill a couple weeks ago.  The workshop was hosted by the Property and Environment Research Center , a Libertarian think tank based in Bozeman, MT.  PERC is headed by Terry Anderson who has long espoused "free market environmentalism."  His broad thesis is that, with well-defined property rights, private markets can solve environmental problems more efficiently and effectively than government regulation.(**)  While PERC has what some might consider fringe Libertarian underpinnings, for this workshop they corralled a broad group of  interesting participants with varied (or non-) ideological leanings.  It was also relatively small, with lots of time set aside for discussion.  As J