Showing posts from December, 2010

US Corn Yield, 1980-2010

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 Note that I usually don't believe "statistical significance" that cannot be seen with a compel

Scarcity and Strategic Trade of Rare Earth Minerals

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.

How much do crop yields respond to commodity prices?

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

Commodity prices: scarcity bites

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.

Michael Oppenheimer on the role of scientists in policy

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

NGDP targeting with a futures market

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

Science Confronts Politics

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

QE2, The Tax Cut Deal, Interst Rates and Bond Vigilantes

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