Greed, Green & Grains

Big Government or Blue Cross Blue Shield? More likely the latter, I think. In order to receive full 80-20 health benefits through Blue Cross Blue Shield, this year NC state employees (including yours truly) had to sign a waiver that they didn't smoke or had enrolled in a smoking cessation program sponsored by a doctor.  Otherwise, employees received lower 70-30 coverage rather than the standard 80-20. There will be random testing of those who claim to be nonsmokers.  Those who test positive for smoking will be punished, losing all co-payments for care already received in that year, switched to 70-30 coverage for the remainder of the current year, and kept at 70-30 coverage for the following year regardless of whether they quit smoking or begin a smoking cessation program. What's next?  A neighbor tells me that next year those with a BMI above some threshold will receive less coverage too. This, I suspect, is just the beginning.  As health costs escalate and exclusions

DOE is funding a research project joint with Wolfram Schlenker and Maximillian Auffhammer.  I just gave a 3 minute talk and a poster about one piece of this work. What can one say in three minutes? Not much: I'm Michael Roberts of North Carolina State University and I'm going to talk very briefly about one part of a larger set of projects by myself, Wolfram Schlenker of Columbia University, and Maximilian Auffhammer of UC Berkeley.  I should say: we all are very much on the fringe of IA modeling.  We are more accurately described as applied econometricians—our focus is on statistical measurement of the key economic parameters that might feed into IA models. The focus of this part of the project is to estimate supply and demand elasticities for calories derived from the world’s four most important staple food commodities: rice, wheat, corn and soybeans.  These four crops literally feed the world—they comprise about 75 percent of caloric production of food-related crops w

1. Jim Hamilton spells out some basic economics by comparing two extremes, one where health outcomes and thus demand for health care are purely random, and one wherein all health outcomes are known in advance.  If the first extreme were true insurance markets would work very nicely.  In the second extreme there would be no such thing as insurance in an unregulated market--some would be able to afford their care and some wouldn't.  In the vast majority of acute health events, the afflicted would simply be left to die. Jim's point is that some of this is about wealth transfer from the healthy to the sick.   That's right. But the fact that the real world sits between these two extremes means that the bill is about efficiency too.  In the real world health outcomes are partially random and partially non-random, and individuals know a little more about the non-random part than insurers do.  These real-world facts can cause the insurance market to collapse, as it seems to be d

It looks like Janet Yellen will be the next Fed vice chairman . Yellen has been clear on her position about a higher target rate of inflation.  While I'm no expert in macro, I think arguments in favor of a higher inflation target, ranging from Mankiw, Rogoff and Scott Sumner and on the right of the political spectrum and Yellen, Delong, Blinder, Krugman and others on the left of the political spectrum, are very well thought out.  A lot of this thinking comes from experience with Japan in the 1990s.  Arguments on the other side seem, in my reading, grounded in some kind of strange philosophical ethos rather than hard-headed analysis of theory and evidence. In a nutshell, the main reasons for a higher inflation rate are two-fold: 1) A higher long-run inflation target might give the current Fed a little more power to stimulate an economy still stuck at the 'zero lower bound' of short-term interest rates. 2) A higher long-run inflation target will cause steady-state nom

Over at Freakonomics, McWilliams gives us a neoclassical view the modern food movement. Americans are currently embracing a strange sort of primitivism.....But nowhere has our love for the supposed simplicity of the past been more evident than in food trends.  Guided largely by Michael Pollan ’s seductive mantra—“Don’t eat anything your great-grandmother wouldn’t recognize as food”—millions of earnest consumers are declaring loyalty to the stripped-down essence of a pre-industrial diet. We eat local, buy organic, and support small farms....Like so many other stories America tells itself, the narrative of modern food is a classic jeremiad, a linear tale of success and virtue brought to a halt by modernity and greed.....For all their moral impact, our linear jeremiads fail to capture the circularity of history. This is especially true with our back-to-the past reaction to “industrial food.” Current calls for dietary simplicity might have a revolutionary ring to them. But what’s overlook

It seems to me, and apparently to many others smarter than me, that business cycles and apparent excess volatility in financial markets are related.  Sometimes (usually?) risk premiums appear too high, other times too low, and much of the fluctuation in asset prices appears to be fluctuations in these risk premia. So my thought-of-the-moment is that much of what we loosely describe as "confidence" has to do with the amount of institutional uncertainty.  We learn only very slowly about the solidity of our business, financial and regulatory structures.  If everyone in the economy believes these institutions are working well then prices will reflect strongly defined property rights, so risk premia will be low and prices will be high.  If everyone loses faith in these institutions then prices will obviously crash. All of this has a Chicago-like feel to it.  But there is still room for other important ideas, like sticky prices, which has strong empirical validity and many theo

For now, just two: 1) Environmental economists are still arguing about prices verses quantities.  That is, should we cap-and-trade or tax pollution.  The academic debate differs a lot from the public one.  The current focus is on how these policies might interact with incentives to innovate.  I'm not expert here at all, but to me this looks like really small stuff--to a first and even second approximation I still don't see a difference. 2) Airplane taxi time looks like an important contributor to pollution for those living close to airports.  Who knew? Another reason not to live close to LAX, besides the noise, traffic congestion, and whatever else you may not like about the concrete jungle.

Four random observations from the Ag workshop at NBER: 1. On the political economy of agricultural subsidies:  Bruce Babcock suggests that the reason we subsidize field crop farmers and do not subsidize vegetable crop or livestock farmers is that supply of field crops is inelastic, which gives these farmers (or the owners of the land on which these farmers farm) a stronger incentive to seek rents in the form of subsidies.  This incentive doesn't exist for other kinds of agriculture because the relatively elastic supply will quickly dissipate potential rents. This view was new to me and makes a fair amount of sense. 2. The real crux going forward with regard to agricultural production, biofuels, demand growth coming from Asia, and what all this will mean for food prices going forward is the extent of induced innovation. In other words, will (or has) the prospect for higher commodity prices induced greater yield growth, perhaps through further development and adoption of genetica

Today paul Krugman posted a 5-page snippet about a toy climate model . I have no problems with Krugman's little model and I expect few will--this is just a classic investment model applied to climate change.  Putting a price a carbon amounts to investing in carbon abatement.  The optimal policy maximizes the returns on that investment. So, what's the optimal policy?  Should price start low and steadily increase or start high? That's hard to tell.  The big pieces, not so surprisingly, are a) What are the potential returns on the investment of curbing carbon emissions? b) How should those returns be discounted to the present? I've posted before that I think the discount rate should be lower than for most kinds of capital (like rate typical of stock market returns) because investments in curbing climate change are an insurance policy--they pay off most in if climate change turns out to be a truly bad thing.  That means the risk premium is negative.  Ken Arrow mad

So I'm going to present the latest version of our paper on world supply and demand of food commodities at the NBER Friday morning.  The workshop starts tomorrow and I'm flying out at the wee hour of 6am. Here's a link to the schedule and papers that will be presented: http://www.nber.org/~confer/2010/AGs10/program.html My paper with Wolfram Schlenker is here . For the little world of agricultural economics, I think a lot of the big players are represented.  I feel lucky to be talking to this audience, especially on a big-picture ag. econ. topic. So Wolfram Schlenker and I have presented this paper a number of times at most of the top ag. econ departments and keep revising to answer questions we get.  But I remain a little surprised by some of the largest sources of confusion. In a nutshell, here's are basic ideas (a bit wonkish): Weather is a good instrument for identifying both demand and supply of agricultural commodities. The story for demand is well kn