Showing posts from February, 2011

Matthew Kahn has a more optimisitic view

I guess Wolfram Schlenker and I have become the modern day Malthusians and doomsayers when it comes to potential impacts of climate change on agriculture.  I often try to emphasize that we are not in fact doomsayers; we are simply laying out the range of possibilities, and show strong evidence that the downside is indeed bad.   But we also maintain that there is room for adaptation in ways we cannot yet model or cannot yet anticipate.  We're a long ways from Malthusians--he had a different kind of doom in mind and was much more certain about it that we are. Uncertainty is large.   But, as Brad Delong often points out (and with whom I agree on this point), uncertainty is not our friend when it comes to climate change. Matthew Kahn, esteemed professor at UCLA, leading specialist in environmental economics, and author of the new book Climatopolis , recently wrote about our work and offers a more optimistic view.  He argues that our work provides a clear incentive for innovation. 

Coping with High and Volatile Food Prices

So high and volatile food prices may be with us for awhile.  What should we do about it? At the end of my Room for Debate column I wrote: The best immediate response to these problems would be to reduce barriers to international agricultural trade, and to develop mechanisms to protect the world’s most vulnerable from inevitable price spikes. Such protections, if credible, might convince markets that crude market interferences like export bans were less likely, which would reduce speculative inventories and prices today. Economists almost always favor free trade.  I'm not quite as ideological about this as the headline "Open Up Trade" may have suggested (NYT chose the titles).  But in this case I think free trade is the right answer, but with an important caveat:  I think the international community (UN, FAO, rich nations, etc.) need to develop a clear, credible, anticipatory mechanism for delivering aid, perhaps in the form of food subsidies, for the poorest people in

Debating Food Prices at the New York Times

We're live at the Room for Debate : Bad weather is clearly influencing food commodity prices. So is demand growth, most notably from rapidly emerging economies like China, where people like grain-fed meat and dairy products as much as we do, and many now have incomes to afford them. Then there is the increased demand from subsidized and mandated ethanol production . Price spikes like the current one can and will happen regardless of whether the climate has changed or will change. It is just the nature of these kinds of markets : bad weather shocks draw down inventories, which make prices higher and more volatile. A few good weather years could replenish inventories and bring prices back down. Thankfully, rice prices haven’t spiked -- yet. Historically, market forces have caused spikes in rice prices to follow those of corn, soybeans and wheat . These four crops provide the caloric basis for most food worldwide. Here in the U.S., we won’t notice high commodity pric

The price of cotton in your shirt

Yesterday the near month futures price of cotton closed at $1.83/lb.  That's pretty high, more than double the price of just a year ago.  Before this year, I'm not sure cotton prices ever exceeded $1.20.  But that's in nominal dollars. Adjusted for inflation cotton prices were a good clip higher back in the early 80s. How much do these high prices matter for the prices we pay for clothes? Not so much.  Consider that there is about 0.6 lbs. of cotton in a typical man's shirt.  So that $1/lb increase in cotton prices over the past year means it costs an extra 60 cents to make the Brooks Brothers shirt for which I paid $40.  On sale. Would it be so hard for the news media to put this kind of perspective on things? Aw shucks, Hoss... It's so much more fun stoking inflation fear and general hysteria. Take the New York Times, for example, one of our last and best shining stars of high-quality media. Stephanie Clifford, Mokoto Rich and William Neuman : A pac

Climate Change and Elasticity

 Elasticity---the responsiveness of production and consumption to price---is important to keep in mind when thinking about potential climate change impacts on agriculture.  Sadly, much of the profession doing empirical work on potential climate impacts seems to ignore this part of the equation.  I'm thinking particularly of this paper and this paper , both of which have other issues (see here and here ). On a global scale, supply and demand of staple commodities are highly inelastic.  Demand is inelastic mainly because commodity expenditures comprise a small share of the price of most consumption goods. Supply is inelastic because there's only so many places where it makes sense to grow certain crops. As a result, commodity prices can be very sensitive to shifts in supply or demand.  If climate change causes a big inward shift in supply, it could cause a huge loss in consumer surplus.  But if climate change were to cause a big outward shift in supply, the welfare change woul