Greed, Green & Grains

The story used to be that inflation was bad for an economy because greater levels inflation led to greater levels of inflation uncertainty. Uncertainty isn't exactly the same as volatility, but in practice we often equate the two when we economists do empirical work.  So, while I'm not a macro guy, a long, long time ago I wrote a paper for a graduate macro class on the link between inflation and inflation uncertainty. I just used standard time series analysis to predict inflation and then looked at my prediction error in relation to the level of inflation.  I didn't see much of a link even then. Today I see even less of one.  To be honest, I haven't run the regressions.  I'm just looking at this picture from FRED. Back in the seventies and early eighties we might have logically conflated levels of inflation with inflation volatility.  But today, and over the past decade, inflation has been low and inflation volatility quite high. The real macro guys probab

Bittman, who typically writes more about food (I love his minimalist recipes) and less about food policy, fully embraces the idea of taxing "bad" food and subsiding "good" food : ....Rather than subsidizing the production of unhealthful foods, we should turn the tables and tax things like soda, French fries, doughnuts and hyperprocessed snacks. The resulting income should be earmarked for a program that encourages a sound diet for Americans by making healthy food more affordable and widely available.... He gets into details: ...Sweetened drinks could be taxed at 2 cents per ounce, so a six-pack of Pepsi would cost $1.44 more than it does now. An equivalent tax on fries might be 50 cents per serving; a quarter extra for a doughnut. (We have experts who can figure out how “bad” a food should be to qualify, and what the rate should be; right now they’re busy calculating ethanol subsidies. Diet sodas would not be taxed.)... Maybe those experts would be the sa

Here's the story at the WSJ Cotton prices, which surged to historic highs this spring, have plunged 38% so far this month, roiling mill owners and apparel makers. It's a reversal for clothing makers that spent the last year grappling with higher costs and how much, if any, could be passed along to consumers. Now, retailers are wondering if lower cotton prices, off 53% since their March 4 peak, will last or if the roller-coaster ride will continue. "There's never been this kind of volatility in cotton—ever," Eric Wiseman, chief executive of VF Corp, the world's largest apparel company, said in an interview on Thursday. ... I guess I'd just like to note for the record that I called this one a long time ago .  Maybe I just got lucky. My juices are starting to flow for a nice long substantive post about price volatility. I should have time to write on tomorrow's travel day to the AAEA meetings .  Maybe see you in Pittsburgh.

I predict: two years from now someone will present a paper in the EE session of the NBER summer institute that exploits Carmageddon as a natural experiment to estimate various acute effects of air pollution or some other consequence of reduced driving and congestion.  Maybe someone will try to extrapolate their findings to estimate the social costs and benefits of roads. I have far less confidence that I will receive an invitation to said meetings.  Aw well...

Heat waves are not cool.  But the video below sure is. Original source here . Hat tip: David Lobell.

Here's the picture: Compare that to where crops are grown. And consider that this is probably a particularly sensitive time in the growing season. This makes me more bullish on commodity prices than the current drought map does:

Some are starting the emphasize the heat .  And they are at least acknowledging that it's really not so bad:  "...last month had been only the 26th hottest June in the past 117 years."   And while Kansas is looking pretty hot, it's often that way.  That's why it's the most irrigated state in the corn belt.  Every other corn belt state looks pretty mild and reasonably moist.   They are forecasting a little 3-day heat wave over the next few days.  That's still a far, far cry from 1936. So why do they have to bury reality way down on paragraph 15 or 20? One worry about the premature, over-hyped drought stories is that when it really does get bad, everyone will yawn at the usual weather news drama. 

There's a lot more drought  news these days (they gave me a quote all the way at the end of the story).  By some measures, particularly the US Drought Monitor , things look pretty bad . But the time-series plot at the NY Times doesn't go back very far in time.  If it did, the current drought would look much less exceptional.  Also, the areas with severe drought are not very productive agricultural areas.  The Midwestern bread basket looks just fine right now .  Although the productive Mississippi Valley looks dry, crops there are irrigated, which should mitigate the damages. Perhaps more importantly, standard drought indicators don't predict crop outcomes especially well.  I wish they'd emphasize extreme heat more than drought. I think we need our own "extreme heat indicator."  With any luck, we'll have one soon... A larger concern could be the heat wave about to hit the midwest.  This is a bad time for extreme heat because corn plants are probably c