Showing posts from November, 2010

Bipartisan drive to end ethanol subsidies

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

Where are the $100 bills?

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

Adapting to a Changing Climate

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

The Problem with Fenty and Rhee

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

Leonardt on Cultivating Chinese Consumption

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

ideaHarvest, another agricultural economics blog

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.

Additivity and Payments for Ecosystem Services, Take Two

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

Eggertsson and Krugman

I don't know how many economists have been reading the new paper by Eggertsson and Krugman .  I just gave it a once over.  I didn't check the math that wasn't obvious but I could see how the equations fit together, and the intuition made sense. For me, anyway, this model adds a whole lot of clarity to the current situation, many past recessions, and macroeconomics in general.  I feel it is destined to be a classic. The backward bending AD curve is really interesting. One thing they didn't mention:  The idea of a threshold level of debt that changes in "the Minsky moment" melds very nicely not only with standard models of asymmetric information (a la Stiglitz and Weiss) but also with the well documented empirical link between risk premiums and business cycles.  When risk, or at least perceived risk, goes up, threshold debt levels naturally decline in asymmetric information models. The model needs more dynamics.  It would also be nice if the model includ

Energy, food and clothing expenditures as share of total expenditures

I haven't posted a graph in awhile, so here is one I just made for a presentation I will give today. The plot shows the percent of household consumption expenditures on food, clothing and footwear, and energy  (NIPA accounts, downloaded from EconStats: ).  The grey bands are recessions. There's not too much to say about this that isn't obvious.  Volatile energy prices explain the fluctuations in energy consumption shares, and these are often associated with recessions.  Food and clothing shares have shown a steady trend down, as production efficiency has increased and prices have fallen [relative to income].  Demand is relatively inelastic which means the consumption share has declined with [relative] price, even though per-capita quantities have increased (the obseity problem, larger closets, etc.)  The smoothness of food and clothing expenditures also attest to inelastic demand and perhaps the monopolistically competitive nature of re

If China were to let its currency float, commodity prices would soar

But this would be a good thing. Krugman says China's currency is clearly undervalued .  Clearly, he's right.  And this is hurting China, hurting the US, and hurting the whole world's economy.  China could solve their inflation problems without curbing growth by simply letting their currency float.  And their proposed price controls could make things a lot worse. Now, if China were to abandon these destructive policies, I think it's also clear that commodity prices would soar, at least as measured in dollars.  (Prices would fall in Renminbi, and perhaps other currencies.)  This would likely elicit howls from some who might fear that rising oil prices would stifle domestic recovery. But I think those fears would be misplaced.  Because while oil and other commodity prices would rise, so would foreign and domestic demand for goods produced in the U.S.  This would stimulate our economy and push us back toward full employment and capacity utilization.  That is, commodit

Another take on QE2 and commodity prices

Thin posting these days because I've been way too busy with travel and other things, and really don't have time for blogging.  At some point I hope to write something about a great meeting on PES (that's P ayments for E cosystem S ervices) in Chapel Hill last week and a trip to Illinois where I gave a seminar and had some great discussions Scott Irwin. For now, here's a brief follow up to a post a couple weeks ago where I critiqued Jim Hamilton's post on the effect of negative real interest rates on commodity prices.  That argument didn't convince me. But in a more recent post he now says that decline in value of the dollar seems to be driving broad increases in the prices of commodities.  On this point I agree.  A weaker dollar is likely driving up commodity prices, and the decline in the dollar probably has something to do with QE2. But I guess I don't see this as especially ominous.  Commodity prices are a very small share of retail prices in this

I thought I understood the idea of inflation targeting....

...until I read this utterly confounding post by Paul Krugman . Whether you love him or hate him, one must admit this is unusual for PK.  Usually he is exceptionally clear and logical.  I suspect there probably is some deeper logic here than meets the (or at least my) eye, and I suspect we'll be hearing a lot more from Krugman and others on inflation targeting. There is also the possibility that my skull is thicker than usual this evening. In any case, kudos to him for finally writing more about the topic.  I was kinda wishing he and others would have done more of this, oh back in February of 2009 . In the meantime, I really like Jim Hamilton's perspective on the issue .  The basic idea is to always have a long-run inflation target in mind, say 2%. Then, have medium-run targets for inflation that take into account cumulative off-target inflation in the past.  So, following a few quarters of disinflation, the Fed should target a somewhat higher inflation target going for

VOTE, even though it's irrational

Voting may be the biggest prisoner's dilemma ever. That is, it's smart for one and dumb for all to NOT vote. Thankfully, many of us do it anyway.  If we didn't, democracy wouldn't work. Some, including at least one of my colleagues, isn't sure whether democracy does work.  I personally shudder thinking about the alternative. The good news is that, despite it being irrational to do so, turnout expert Dr. Michael McDonald is predicting a turnout of 90 million people (hat tip to ).  Good weather may push things even higher. So. Join the irrational masses and vote already!

QE2 and Commodity Prices

Over at Econbrowser (one of my favorite blogs) Jim Hamilton is worried about the effects of QE2 (or negative real interest rates) on commodity prices. He writes: What does a negative real rate signify? If you consider a simple one-good economy in which the output is costlessly storable, a negative real rate could never happen-- people would simply hoard the good rather than buy such miserable assets. You're better off storing a can of tuna for a year than messing with T-bills at the moment. But there's only so much tuna you can use, and many expenditures you might want to save for can't really be stored in your closet for the next year. It's perfectly plausible from the point of view of more realistic economic models that we could see negative real interest rates, at least for a while.  Even so, within those models, there's an incentive to buy and hold those goods that are storable. And in terms of the historical experience, episodes of negative real interest rat