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Showing posts from October, 2010

Update on additivity

Note that my last post on additivity, and this one, are both examples where I'm thinking out loud.  I'm still trying to sort out my views on these things. I think Glenn's comment in the last post refers to the phenomenon of "leakage" or "slippage", which I have written and blogged about (see here ).  I don't have a problem with this jargon.  Nor do I have a problem with any of the theoretical and empirical issues that dance around carbon offsets and similar policies that pay for conservation. I guess my main concern is that the term "additive" may be too generic: it doesn't help to clarify where and how policies may be inefficient. But, as Glenn points out, one of the big overarching issues here is that many conservation programs tend to put a price on environmental services in some contexts but not price them in other contexts.  Or, almost equivalently, environmental gains are priced but environmental loses are not

Do we really want payments for environmental services to be "additional"?

"Additionality" is big piece of jargon floating around in the academic/government literature on "payments for environmental services," or PES.  Sadly, I think this word may be getting in the way of clear thinking about environmental policy. The idea behind PES is basically the opposite of a pollution tax.  The idea is to subsidize activities with positive externalities (like "environmental services") instead of or in addition to taxing negative externalities like pollution.  So, we can pay people to plant forests to sequester carbon from the atmosphere and/or tax people who burn carbon-based fuels or cut down forests and thus emit CO2. The idea behind additionality is that payments for new, carbon sequestering forests should be directed only at those who wouldn't have planted forests anyway, that are "additional."  That sounds fair.  But it also sounds impossible.  After all, the whole idea behind pricing schemes, like PES, is to decentra

Research subsidies with and without carbon prices

With climate change policy on the back burner, Ezra Klein, back in July , interviewed Michael Shellenberger about whether subsidies for research and development were a good substitute, or at least a politically viable substitute, for cap-and-trade or carbon taxes. There's some interesting economic theory of the second best that sits beneath this question (see the bottom of the linked post). Others are now getting on the bandwagon.  The other day David Leonardt was channeling Michael Greentone , with a follow up channeling Nathaniel Kohane .  Tyler Cowen also seems intrigued by the idea. It's the kind of policy that might actually find some bipartisan support.  Although big oil and coal probably wouldn't like this any better than cap and trade. I'm sure a dozen or so theoretical environmental economists are busy working on just this topic.

The corn-soybean belt is starting to walk North and West

Adaptation begins: Associated Press : DES MOINES, Iowa —   Warmer and wetter weather in large swaths of the country have helped farmers grow corn, soybeans and other crops in some regions that only a few decades ago were too dry or cold, experts who are studying the change said. Bruce Babcock, an Iowa State University agriculture economist, said soybean production is expanding north and the cornbelt is expanding north and west because of earlier planting dates and later freezes in the fall. .... The article is big on quotes from Bruce Babcock, who knows agriculture very, very well.  But it's a little short on hard facts. But the article does give me an idea...

First a supply shock, now a demand shock

Crop reports from the last few days reflected a downward shift in supply. Today we have news about an outward shift in demand: a report that EPA is going to approve a 15% ethanol blend , up from 10%.  That means demand for corn could rise from roughly one third of the U.S. crop to roughly half.  Put another way, from about the 5% of the world's caloric base in grain/oil production (corn, soybeans, wheat and rice) to about 7.5%. Yikes. Oddly, prices didn't jump much with the news.  I'd guess the market expected this ruling to be likely awhile ago. Still, corn is back up to $5.77 a bushel.   Wheat is above $7 and soybeans are trading at nearly $12.  Rice is at $13.45, up from about $9.50 a few months ago.  It's not 2008, but those are pretty high prices.

The upsides of bad weather are...

(1) that grain farmers get rich; and (2) the topic of my personal interest gets major billing at the New York Times: Rising Corn Prices Bring Fears of an Upswing in Food Costs: First it was heat and drought in Russia. Then it was heat and too much rain in parts of the American Corn Belt. Extreme weather this year has sent grain prices soaring, jolting commodities markets and setting off fears of tight supplies that could eventually hit consumers’ wallets. In the latest market lurch, corn prices dropped in early October, then soared anew, in response to changing assessments by the federal government of grain supplies and coming harvests. The sudden movements in commodities markets are expected to have little immediate effect on the prices of corn flakes and bread in the grocery store, although American consumers are likely to see some modest price increases for meat, poultry and dairy products. But experts warn that the impact could be much greater if next year’s har

Hans Rosling on child mortality statistics

A new TED talk: I wonder: What's the link between food prices and child mortality? I know Egypt worked hard to keep food very cheap, and that must have helped, as has the steady global decline in commodity prices. I wonder, and also worry, if cheap food is something we've taken for granted.

Ezra Klein on external economies, superstars, the large rewards of small differences, and public investment

Ezra Klein doesn't have a PhD in economics, but his economic thinking transcends that of many PhDs I know.  And he writes much better.  I blame it all on the fact that he grew up in a much richer technological environment than I did. Ezra Klein : "The idea of the lone genius who has the eureka moment where they suddenly get a great idea that changes the world is not just the exception, but almost nonexistent," says Steven Johnson, author of "Where Good Ideas Come From: The Natural History of Innovation." That's because innovation, whatever the Facebook movie told you, isn't really about individuals. And in making it about individuals, we misunderstand, and thus impede, innovation. I was not born ... superior to my grandparents. But I would have been much likelier to invent Facebook than they were. The natural capabilities of human beings don't change much ... their environments do, and ... technology .... Better sanitation .... Transporta

Another big revision in USDA's crop forecast

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It wasn't just wheat that was way off earlier forecasts, but corn and soybeans too. Bloomberg : -- Corn futures are called to open 40 cents to 45 cents a bushel higher on the Chicago Board of Trade after the government said U.S. production will be less than forecast a month ago, said Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago. -- Soybean futures may open 40 cents to 50 cents a bushel higher in Chicago after the U.S. government reduced its crop forecast and dry weather threatens yields in South America, Grow said. Soybean-meal futures may open $15 to $17 higher per 2,000 pounds, and soybean oil is expected to open up 0.75 cent to 0.85 cent a pound. -- Wheat futures may open 6 cents to 8 cents a bushel higher on the CBOT, the Kansas City Board of Trade and the Minneapolis Grain Exchange as surging corn prices increase demand for wheat in feed rations and dry weather may curtail acreage in the southern Great Plains in the U.S.

Two small points for the supply siders in the macro wars

I've been blogging less on the macro wars.  It is something I follow but really cannot comment on with much authority.  I am happy to see that monetary verses fiscal policy discussions have become somewhat more pointed and more clear (see here , here , here , here , here , here , for example).  This was something I had expected to see a lot more of a lot earlier.  But everything takes longer than you expect, no? I do agree with the Delong-Krugman front that the evidence overwhelmingly supports Keynesian and New Keynesian views, even if these views can be harder to publish in the academic journals.  Indeed, I think on the evidence front, real business cycle models have looked bad for a very long time, well before the recent crisis and recession.  I recall reading Robert Lucas admitting as much, also long before the recent crisis. It certainly is sad that academic fashion constrains research effort on questions that really matter for policy.  That shouldn't happen. Clearly, p

Big inventory adjustment, big price spike

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It is odd to have such a large inventory adjustment this late in the season.  Usually, most of the news about the size of crop is out by September. What happened? For economics geeks, this does provide a fairly powerful natural experiment for measuring the fundamental relationship between inventories and prices, since this large short-run move in prices likely has very little to do with a shift in demand.

The social costs and benefits of electric cars

There is a nice Room for Debate series at the New York Times on electric cars.  See here . I like Chris Knittel's position best: The all-electric Nissan Leaf is an exciting new product in the automobile market... The benefits of all-electric vehicles from an environmental perspective are clear. In terms of climate change, electric motors are more efficient than internal combustion engines requiring less energy to travel the same distance. If the electricity powering the vehicles comes from low greenhouse gas-emitting sources, the transportation sector can significantly reduce its greenhouse gas emissions. In terms of local pollutants, electric vehicles move the location of these emissions from city streets to rural areas where fewer people are affected. But there are two factors that may keep electric vehicles from being the technology of the future. First, ...[g]one will be gas stations, replaced by either 440 volt quick charge stations that will still require

Transit economics

Paul Krugman was hoping his commute to and from New York would be improved by the development of a new tunnel.  Much to his chagrin, the project was scuttled by the New Jersey governor. Tunnel Of Idiocy Many reports that Chris Christie is about to scuttle the second rail tunnel under the Hudson. If so, it’s arguably the worst policy decision ever made by the government of New Jersey — and that’s saying a lot. The story seems to be that Christie wants to divert the funds to road and bridge repair; but in so doing he would (a) lose huge matching funds from the Port Authority and the Feds (b) delay indefinitely a project NJ needs desperately ASAP. He could avoid these consequences by raising gasoline taxes. But no, taxes must never be raised, no matter what the tradeoffs. And it’s a social bad too: now is very much the time when we should be ramping up infrastructure spending, not cutting it. In a follow up post he explains the essence of transit economics : The usual suspects

You don't need to be a Keynesian to see a lot of potential government expenditures for which the benefits would far outweight the costs

Imagine you're in debt well past your eyebrows and then lose your job.  The only thing you can do to pay down your debt is collect aluminum cans and recyclable plastic bottles from trash bins and redeem them for pennies.  You'll never repay your debt at this rate, but you dutifully send your pennies to your lenders and live off food stamps. Now suppose there's another alternative.  A high paying job across town is available for you, but to accept this job requires that you buy a car for the commute, a car that you can only buy by going deeper into debt.   Lenders trust you deeply and are not only willing to lend to you but are willing to lend to you cheaply, at a near-zero rate of interest.  And the job pays well enough to pay off both new car loan debt and contribute significantly more to paying down your current debt. Should you take out the loan, buy the car and take the job across town? Obviously, yes.  But some would claim that you're already deep into debt,