Showing posts from August, 2011

More on Weather and Civil Conflict

A study just out in Nature , coauthored by Soloman Hsaing , Kyle Meng and Mark Cane,  finds El Nino events are correlated civil conflict.  Sol is a recent Columbia PhD who has been working as a post doc on an NSF grant I have with Wolfram Schlenker and David Lobell. What makes the study interesting is that it documents a link between conflict and weather fluctuations that are predictable and larger-scale--a bit closer to climate change.  That could be a lot different than documenting a links between conflict and localized acute weather events. The study is featured on the cover of Nature and is getting a ton of press coverage. Here's a nice summary at Time . Here's another at the Washington Post . I don't think anyone knows what to make of the correlation.  The only mechanism that obviously comes to mind is food prices.  But I've never played around with conflict data.  And it's amazing how playing around with the data can change one's perspective

Food Prices and Riots

For a long while now I've been wanting a student to do some work on the link between food prices, riots and other kinds of conflict.  I've got a few basic ideas about how this could be done.  But I'm also busy and am sure a zillion others are busy working on this too. So, one of my students, Jon Eyer, just sent me this link .  I don't know exactly what these folks are doing or where they got their data.  But the graph, reproduced below, sure is compelling.  We have had a few papers linking weather to conflict.  It seems to me the obvious mechanism in those papers was food prices. So why haven't more people looked at food prices themselves? And since climate change may cause food prices to rise , Eric Hammel over at Thomas Ricks' FP blog is connecting the dots to argue that climate change is the biggest national security challenge we face . That might be overstating the case.  But this does seem like a very real threat. Update:   Marc Bellemare, who mad

Here Comes Irene

    Yikes.  At least we're a little ways inland. I hope the trees around our house are well rooted.

Hotter Planet Doesn't Have to Be Hungry

I'm live at Bloomberg . The usual bailiwick about weather, crop yields and food prices. My suggested title was: "On the Precipice of a Warming World: Will We Feed Everyone?" It's interesting how a title can change the tone from one that leans dismal to one that seems optimistic. Update :  I basically gave three policy suggestions in my Bloomberg piece.  What else might I suggest?  Well, I find myself in the blurry area of my career that lies between focusing on positive "what is" kinds of questions and normative "what should we do" kinds of questions.  I'm still much more comfortable entertaining questions of the "what is" variety, so policy ideas come slowly. With that caveat in mind, here are four (or three and one-half) policy ideas that I didn't mention in the Bloomberg piece. 1) End ethanol subsidies and mandates.  There has been some talk of ending the subsidy, but I think that would be meaningless from a food

Debating Illegal Labor at the New York Times

" Could Farms Survive Without Illegal Labor? " I'm one of several debaters.  I like what  Phillip Martin had to say--he's the real expert here.  Here's the intro to the broader debate: A farmer in Maine who is raising crops sustainably  told Times columnist Mark Bittman , “If the cost of food reflected the cost of production, that would change everything.” Instead, American produce is underpriced, in part because farmers and growers rely on illegal immigrant workers, who are paid little and often have poor working conditions.   This reliance on immigrant workers has farmers  lobbying against a bill  that would require them to verify migrant workers' status and employ only legal workers, saying such a mandate would cripple the industry.   If American growers are so dependent on illegal labor, would strict verification drive up prices for labor and, ultimately, produce? Are consumers too accustomed to inexpensive vegetables and fruit to accept the cost of le

Does GMO Regulation Enhance Monsanto's Market Power?

I've been wondering for a little while about Monsanto's growing market power in the seed business.  Monsanto's growing dominance has coincided with expansion of genetically modified seed.  That doesn't mean one caused the other.  But there may be a causal link that comes from strong regulation of GMOs relative to traditionally bred crops.  This regulation makes it too costly for small or public entities--like universities--to develop GMO seeds and take them to market.  The only way to do it is to be really big and have deep pockets like Monsanto does. This has been the complaint of Ingo Potrykus, who in 1999 invented " golden rice ," a genetically modified crop fortified with vitamin A.  Potrykus has been working ever since to get the product approved internationally.  He would like to help some of the millions that die or become afflicted with blindness due to vitamin A deficiency.  Clearly, there is not much money in selling seeds to poor people, so this i

A Malthusian Who Knows Markets

From a profile of Jeremy Grantham published in the New York Times a couple days ago. Here are a few snippets: On his track record: Grantham has a long track record. He was right about indexing, an investment strategy he took a lead role in inventing, when everyone else assumed that you should try to beat the market rather than join it, and about the long rally in small-cap stocks in the early 1970s, the bond rebound in 1981 and the resurgence of large-cap growth stocks in the early 1990s. He was also, well in advance, right about one bubble after another: Japan in 1989, tech stocks in 2000, the U.S. housing market and financial markets and global equities in 2008 (in the wake of which, when investors were still reeling, he made a celebrated and early bullish call in a letter titled, Reinvesting When Terrified On prognosticating and environmentalism: When he reminds us that modern capitalism isn’t equipped to handle long-range problems or tragedies of the commons (situations like

Can't Beat the Heat

Ahem. Poor Weather Pushes Prices Up for Corn and Soybeans : Prices for corn and soybeans jumped in commodities markets on Thursday after the Department of Agriculture said that the onslaught of bad weather, from heat and drought in some areas to heavy rains and flooding in others, would reduce yields for those critical crops. Okay, I'll try to not let this go to my head.  But the heat really kills.  Maybe not as much when it's wet.  But it still kills. The growing season isn't over yet.  USDA was too optimistic last year at this time.  But I think that was mainly because the heat wave came after surveying for the August crop report was finished (about August 1).  If the weather stays good from now until harvest I'd guess the forecast will be about right. I should also note that at least some of the price bump today could have been a demand shock.  Aggregate demand is highly uncertain right now and closely tied to the stock market, which spiked about as much as c

I Think We're Turning Japanese

The Vapors came three decades too soon...

Cheap Stocks Part Duex

The other day I suggested a good index for the relative price of stocks was Robert Shiller's S&P 500 price to earnings ratio multiplied by the 10-yr real rate on treasury bills.  When the index is much greater than one, stocks look expensive; when it is much less than one, stocks look cheap. I couldn't easily construct a long series of that index because inflation-indexed treasuries haven't been around for a long time.  So I used the nominal t-bill rate instead. But if I were using the real rate, today that index would be negative, because the real rate today on 10-yr treasuries  is now negative. Relative to throwing money away, earnings on the S&P 500 look real nice. And with negative real rates extending over 10 years, I, like many others, lament our misplaced focus on debt and deficits.

Is Food Demand Growth in Asia a Myth?

Jayati Ghosh has long detailed piece over at the Guardian's Poverty Matters Blog about world food prices. She argues forcefully that demand growth from China and India are not a driving force in rising food prices.  Instead, she says, it's all about ethanol subsidies and speculation. Ghosh presents a lot of convincing-sounding statistics.  I think I've got a reasonably good feel for the data and what she presents does, I fear, gently mislead the reader.  I don't disagree with everything she's saying but she's definitely overstating her case. However, she does have me scratching my head to figure out the best way to put the various factors into clearer perspective.  That's something I'll work on. For now, a few key points: 1) Consumption does not equal demand.  Demand is the whole schedule of consumption quantities across a whole range of prices, and holding all else the same.  What's ominous is that Asian consumption is growing fairly fast d

Stocks are a Really Good Deal

David Leonhardt says stocks are still expensive . Brad Delong says buy equities! Two super smart, super educated guys.  Who's right? Brad compares the price to earnings ratio of stocks to the interest rate on treasury bills. David Leonhard compares the price to earnings ratio to its historical average (albeit before the other day's crash). I'm with Brad Delong.  The problem with David's analysis is that he's forgetting week one of econ 101: opportunity cost.  The opportunity cost of a dollar invested in the stock market is a dollar not invested in something else.  The benchmark alternative is a long-run treasury.  Brad points out that the rate on that is just dismal, less than today's dividend yield on stocks and far less than earnings. David's mistake is a common one.  I see the same mistake when looking at home prices (the price to rent ratio relative to its historical average, not relative to interest rates or building costs).  It is important t

Marc Bellemare

Another triangle blogger. I've been meaning to add Marc Bellemare to my blogroll and just got around to it.  Marc is at Duke and shares a lot of my interests, with a bit more of a development focus.  He gave a seminar here at NCSU awhile back and will probably give another one sometime soon. He also just won best AJAE article of the year (AJAE is the top journal in agricultural economics). Anyway, I recently learned about his blog via an email correspondence.  Check it out!  It looks like he'll be posting way more frequently than I do.

Is Commodity Price Volatility Good or Bad? Wrong Question.

There's been a lot of discussion about food commodity price volatility and what governments and NGOs like the World Bank should do about it. In principle, I don't see the question of price volatility as fundamentally different from a question about price levels.  Sellers obviously like higher prices and buyers obviously like lower prices.  But there is nothing about prices themselves that tell us whether the price is right.  Instead, economists ask questions about how the market is functioning.  Are there any externalities or other kinds of market imperfections that would cause the price level to be different from what would be if there were no imperfections? Perhaps less abstractly, we might simply ask questions about what makes prices what they are, and whether some artificial force is keeping prices from their natural equilibrium. The same goes for price volatility.  When someone asks whether price volatility is good or bad--or worse, assumes it's bad and prescribe

Why the Deficit Should Be Bigger

Today the government can borrow money, amortized over 10 years, at just 2.6%. What would you do if you could borrow a lot money at 2.6% amortized over 10 years?  Would you use it to finance a college education?  Would you buy a home or larger home?  Buy a house and rent it out for, 2-3 times your monthly interest payment?  Start a business?  Most of us, I think, could find some investment that would pay more than the 2.6% borrowing cost. But here's the thing:  Because the government represents all of us, its expenditures on education, infrastructure and research ultimately benefit all of us, it can (and has) obtained returns far greater than we can earn as individuals.  And that doesn't even count Keynesian multiplier effects, which amplify the benefits tremendously. This should be a no-brainer even if, despite all the evidence, you're an anti-Keynesian.  If you're an anti-Keynesian and think that hyperinflation is just around the corner, then this is a t