Agriculture and Forestry Top the List of Gross External Damages

A new paper by Nicholas Muller, Robert Mendelsohn and William Nordhaus looks to be a really important one.  Where others have tried to incorporate flows of natural resources into national accounts, I expect this paper is the first among many that will try to incorporate externalities into national accounting.

I've got some work to do to study this article in depth.  But one striking result, if not altogether surprising, is that the agriculture and forestry sector tops the list in terms of gross external damages per unit of value-added output.  It is number two, behind utilities, in absolute quantity and about 50% greater in absolute quantity than transportation.  I think that's fairly striking given ag/forest is such a small percent of GDP (as currently measured). The whole list is reproduced below.

 

Two quick thoughts:

(1) What are the flows of of positive externalities and shouldn't we try to measure those too?

(2) While I worry a whole lot about climate change--and that particular externality is not included here--I'd guess it wouldn't have much influence on the national accounts.  The issue here, to my mind, is that we need to feed the world.  Since those who may need feeding have tiny incomes, it would probably show up as a tiny number in national accounts even if it were counted.  So while counting externalities is a great improvement, there are many aspects of value the national accounts still wouldn't cover.  (I'm not even remotely suggesting that we shouldn't have them.)

More Federal Debt, Please

1.72%

That's the nominal rate of interest our federal government pays on 10 year loans from the public, a record low.

The demand for our nation's debt is increasing faster than supply.  A lot faster.  The world is literally begging us to issue more debt. 

It seems to me we should oblige the market, issue more debt and spend it on wise things, and save deficit reduction packages for a day when we're not in recession depression.

G-FEED

Everybody's got to have an acronym, right?  Well, this is ours and what it stands for:

Global
Food 
Environment &
Economic 
Dynamics

And to go along with our name, we have a new website.  It's a little thin right now, but we've got lots of great stuff in the pipeline, so hopefully it will improve with time.

Many thanks to Sol Hsiang for getting the website up and running.

We're Number One!

So says Businessweek.  

Based on metrics like school performance, green space, and cultural amenities, Raleigh, N.C., ranks No. 1 in Businessweek.com’s first Best Cities ranking

Not bad. Not bad at all.  The summers are a little sticky and mosquitoes drive me nuts sometimes.  But other than that, this place has a lot of amenities and little traffic for a pretty darn reasonable cost of living.

Inflation Targeting, Committment and Expectations: A Belated Account of Robert Hall's View

Way back in grad school I found Krugman's idea of inflation targeting in the context of Japan really interesting.  And so I blogged a bit about this--and particularly Krugman's relative silence on the subject--way back at the beginning of this Little Depression.

Krugman and others have been writing more about it.  Scott Sumner probably takes the prize for vigilance.  Of course now it seems too little too late.

Krugman's recent blog post is a nice one.  I, for one, just cannot understand why the likes of Volcker doesn't get this.

Anyway, all this has me recalling the keynote lecture by Robert Hall at this past summer's AAEA meetings.  He seemed to get the basic economics right (as he obviously should) and talked about some interesting ideas, like moving from an income tax toward a consumption tax as a way to spur spending.  The essential underlying motive to spend more in the present is a lot like inflation targeting.  And some aspects of a consumption tax do make sense to me. But he didn't mention inflation targeting.

So I asked him in the Q&A about inflation targeting and why the Fed wasn't at least attempting it.  His answer completely stumped me:  He said, in effect, that if the Fed were to target inflation it might not work, and if it didn't work, then everyone would lose faith in the Fed, and that would then hurt efficacy of the Fed's actions going forward.  In other words, they shouldn't try to be effective because then they might lose effectiveness.

That was a new and--to my mind--strange line of reasoning.  I thought I had understood pretty well the commitment/expectations challenge with inflation targeting--that this was mainly about the Fed having the independence and will to follow through on any announcement it might make.  If we could take Fed independence as granted, then I see no great challenge here:  the Fed would stick to it commitment so as to remain credible in the future.  And besides, keeping a higher target is probably better for long-run growth anyhow, or at least better insurance against hitting the zero lower bound in another crisis.

The problem, I suspect, is that the Fed fears it will lose its independence if it sets explicit inflation targets.

It is bizarre and sad how history and economic study have given a long menu of tools to cope with the depressed economies of the developed world while policy makers seem hopelessly compelled to try none of them.

False Balance on Climate Change?

It's not just climate change.  Even in the best media sources, like the New York Times, reporters present false balance on just about everything. I suppose false balance beats no balance (re: Fox News and MSNBC).

But I stumbled upon this post over at Think Progress and found the graphic below kind of entertaining.

While the spirit of this graph rings true to my mind, to acquiesce to modern standards of balance, I suppose I should offer that others (denialists?) may feel the opposite.

To be clear: I don't think the graph has an actual empirical basis.

Now, I wish they would do one on the costs of mitigating climate change.