Juan Cole at http://www.juancole.com today posted a letter from an "informed reader" that makes some rather telling points about the supposed nuclear reactor that North Korea was supposedly helping Syria build that was bombed out back in September by the Israelis, and which the US CIA now claims was a reactor, although maybe, not necessarily, one to be used for weapons, with some crucial parts missing. The letter on Juan Cole makes the following further points.
The reactor design was supposedly based on the DPRK's Yongbyon, itself an old British design, and a "hunk of junk." Yongbyon uses lots of graphite. None reported from the area around the blast or of any moving into Syria. No evidence of boron-carbide or cadmium alloys that could be used for control rods. No reports of any missing uranium yellowcake to be used for fuel rods. Furthermore, the US knew there was construction going on at this site since 2001, but never asked the IAEA to carry out an inspection, even thought it also had known for some time that Israel had been plotting to hit the site. Syria has been a signatory of the NPT since 1969 in good standing (unlike Israel) and presumably would have responded favorably to an invitation for an IAEA inspection, or if it had not done so, that would have been a red flag. But no such move was ever made, and now we never will be able to find out what was really going on there or if the North Koreans really were involved (the CIA presentation's evidence for their involvement was one photo of a known North Korean with an unnamed man claimed to be a Syrian at an unnamed location at an unkown date that was supposedly provided by the Israelis, as were most of the photos used in the CIA presentation). So, this looks like a lot of phoney manipulation for purposes that remain unclear: pressure on North Korea, pressure on Iran, pressure to sandbag or enhance some secret negotiations between Israel and Syria? All are possible.
Sunday, April 27, 2008
THE EFFECTS OF EARLY RETIREMENT ON YOUTH EMPLOYMENT
by the Sandwichman
This is just bizarre:
The idea that forcing elderly workers out of the labor market before the statutory age of retirement would provide jobs for the unemployed young has been for a long time widely accepted in several European countries, particularly in Belgium where indeed youth unemployment is particularly high both in absolute and in relative terms. For most economists and fortunately an increasing number of Belgian this view is based on the erroneous belief in a fixed amount of work. Economists call this allegedly widespread view the "lump of labor fallacy".
No, the rationales I've heard for early retirement usually had to do with workforce reduction. Since layoffs would primarily affect the most recently hired -- and among them younger people -- the option of early retirement would thus presumably provide an alternative to layoffs, not a bonanza of job openings. The second rationale I've heard, though, does have to do with opening places for advancement of younger staff who otherwise have nowhere to go on the promotion ladder. So this early retirement business was not about some "erroneous belief in a fixed amount of work" but about coping with a declining amount of jobs or advancement possibilities in particular organizations.
I don't know if early retirement is an effective method for reducing a workforce while avoiding layoffs of workers without seniority. I would assume it depends on how it is implemented. But what is the point of assigning it some other purported purpose and then finding it didn't achieve something it was never expected to do?
Admittedly, the authors did cite a Belgian program that existed from 1983 to 1991 and that allowed a 5-year relaxation of the retirement age, without reduction of benefits, if the employer commited to replacing the retiree with an unemployed person receiving unemployment insurance. Such a program sounds like a bureaucratic nightmare but it wouldn't assume a fixed amount of work; it would prescribe a tit for tat. Some anti-dismissal legislation also allowed firms to lay off older workers provided they hired unemployed people collecting benefits. Same story. With only the authors' second-hand account to go on, those provisions sound more like loopholes with fig leafs than they do legitimate job creation strategies.
Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work. Yet it is too convenient to yield the burden of the proof on the advocates of the lump of labor fallacy. In our study we want to show that preretirement to make room for the young didn't work.
This is even more bizarre: if those who make the claim offer no evidence... CASE DISMISSED. If there's no evidence for the claim, there's no point in showing that a policy that, as far as we know, WASN'T based on the supposed belief may or may not have worked in accordance with that non-existent belief. If there's no evidence that X killed Y, there's no point to proving (or disproving) that it was in self defense.
© 2008 International Monetary Fund WP/08/30
IMF Working Paper
Fiscal Affairs Department
The Effects of Early Retirement on Youth Unemployment: The Case of Belgium
Prepared by Alain Jousten, M. Lefèbvre, S. Perelman and P. Pestieau1
Authorized for distribution by Isaias Coelho
February 2008
This Working Paper should not be reported as representing the views of the IMF.
Well, I'm glad to hear that. I wonder, though, if there isn't some minimum level of coherence that an argument should attain before being distributed by the International Monetary Fund? I mean, if those who make the claim offer no evidence, what is the point of proceeding (other than to lend spurious credence to a claim for which no evidence has been offered)?
To be perfectly clear, Sandwichman doesn't much like the idea of early retirement and doesn't see it as a feasible strategy for re-assigning jobs. But that lack of enthusiasm has nothing to do with anyone else's supposed assumptions about a fixed amount of work.
BUT the positive side to this dumb paper is the sentence, "Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work." That's a paraphrase of what the Sandwichman has been saying for 10 years! Some reviewer of the paper probably questioned the authors about evidence for the fallacy claim and they put that in as a "qualifying phrase" rather than throw out the whole paper just because it was based on a chimera.
This is just bizarre:
The idea that forcing elderly workers out of the labor market before the statutory age of retirement would provide jobs for the unemployed young has been for a long time widely accepted in several European countries, particularly in Belgium where indeed youth unemployment is particularly high both in absolute and in relative terms. For most economists and fortunately an increasing number of Belgian this view is based on the erroneous belief in a fixed amount of work. Economists call this allegedly widespread view the "lump of labor fallacy".
No, the rationales I've heard for early retirement usually had to do with workforce reduction. Since layoffs would primarily affect the most recently hired -- and among them younger people -- the option of early retirement would thus presumably provide an alternative to layoffs, not a bonanza of job openings. The second rationale I've heard, though, does have to do with opening places for advancement of younger staff who otherwise have nowhere to go on the promotion ladder. So this early retirement business was not about some "erroneous belief in a fixed amount of work" but about coping with a declining amount of jobs or advancement possibilities in particular organizations.
I don't know if early retirement is an effective method for reducing a workforce while avoiding layoffs of workers without seniority. I would assume it depends on how it is implemented. But what is the point of assigning it some other purported purpose and then finding it didn't achieve something it was never expected to do?
Admittedly, the authors did cite a Belgian program that existed from 1983 to 1991 and that allowed a 5-year relaxation of the retirement age, without reduction of benefits, if the employer commited to replacing the retiree with an unemployed person receiving unemployment insurance. Such a program sounds like a bureaucratic nightmare but it wouldn't assume a fixed amount of work; it would prescribe a tit for tat. Some anti-dismissal legislation also allowed firms to lay off older workers provided they hired unemployed people collecting benefits. Same story. With only the authors' second-hand account to go on, those provisions sound more like loopholes with fig leafs than they do legitimate job creation strategies.
Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work. Yet it is too convenient to yield the burden of the proof on the advocates of the lump of labor fallacy. In our study we want to show that preretirement to make room for the young didn't work.
This is even more bizarre: if those who make the claim offer no evidence... CASE DISMISSED. If there's no evidence for the claim, there's no point in showing that a policy that, as far as we know, WASN'T based on the supposed belief may or may not have worked in accordance with that non-existent belief. If there's no evidence that X killed Y, there's no point to proving (or disproving) that it was in self defense.
© 2008 International Monetary Fund WP/08/30
IMF Working Paper
Fiscal Affairs Department
The Effects of Early Retirement on Youth Unemployment: The Case of Belgium
Prepared by Alain Jousten, M. Lefèbvre, S. Perelman and P. Pestieau1
Authorized for distribution by Isaias Coelho
February 2008
This Working Paper should not be reported as representing the views of the IMF.
Well, I'm glad to hear that. I wonder, though, if there isn't some minimum level of coherence that an argument should attain before being distributed by the International Monetary Fund? I mean, if those who make the claim offer no evidence, what is the point of proceeding (other than to lend spurious credence to a claim for which no evidence has been offered)?
To be perfectly clear, Sandwichman doesn't much like the idea of early retirement and doesn't see it as a feasible strategy for re-assigning jobs. But that lack of enthusiasm has nothing to do with anyone else's supposed assumptions about a fixed amount of work.
BUT the positive side to this dumb paper is the sentence, "Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work." That's a paraphrase of what the Sandwichman has been saying for 10 years! Some reviewer of the paper probably questioned the authors about evidence for the fallacy claim and they put that in as a "qualifying phrase" rather than throw out the whole paper just because it was based on a chimera.
Saturday, April 26, 2008
Genetic Engineering and Invasive Species
What follows is not an economic question. I have no expertise in genetic engineering, though I am a skeptic, worried about possible consequences -- and even more worried about corporations is having property rights in such matters. Here is the background to my question:
They are very successful breeders. Each pair of cane toads can lay 33,000 eggs per spawning (some published references estimate they produce as much as 60,000 eggs!). They are also an ecological disaster.
My question is, do we have anything to learn from the experience with the introduction of invasive species?
Friday, April 25, 2008
Dems Cave on Guns
Lost in the huffing and puffing over Obama's "bittergate" remarks on gun owners is the fact that he and the rest of the leading Dems have completely caved on the issue of gun control, much as they did on the death penalty after the disastrous 1988 prez race of Dukakis. After that Dem prez candidates had to show they could execute the young and mentally ill to get elected. Now there will be no more pushing for assault weapons bans, handgun restrictions, heightened gun registration, or anything else. West Virginia and other states that used to go Dem but went for Bush need to be fought for, and since Kerry's defeat it is clear that kowtowing to the NRA has been an aim of the Dems. (And, ironically, Kerry was a card-carrying NRA member and longtime hunting gun owner, but when he showed up shortly before the election in Ohio in a frou-frou designer hunting outfit, he might as well have bowled a gutter ball in Altoona and denounced xenophobia by rural religious gun nuts.)
So, in the awful ABC debate that also saw Hillary ready to defend the entire Middle East against Iran (or maybe Syria?), Obama agreed with the NRA position on the Second Amendment as it relates to the case before the Supreme Court about D.C.'s gun ownership restrictions. He said it guarantees an individual right to own guns, against the traditional interpretation that the Second Amendment is about a "well-regulated militia." In any case, even the slaughter at Virginia Tech last year has not moved the Dems (and certainly not blind duck Hillary) to push for what Hillary's husband got, restrictions on the most extreme of assault weapons. By my calculation if the madman at Virginia Tech had only had guns allowed during the 1990s, he would have been able to kill only about a third fewer than he did because of the fewer rounds of shots one can get off with those allowed guns. But, we cannot pursue such matters any more. The NRA and the gun nuts must be assuaged, even though I fear that is hopeless for Obama now.
So, in the awful ABC debate that also saw Hillary ready to defend the entire Middle East against Iran (or maybe Syria?), Obama agreed with the NRA position on the Second Amendment as it relates to the case before the Supreme Court about D.C.'s gun ownership restrictions. He said it guarantees an individual right to own guns, against the traditional interpretation that the Second Amendment is about a "well-regulated militia." In any case, even the slaughter at Virginia Tech last year has not moved the Dems (and certainly not blind duck Hillary) to push for what Hillary's husband got, restrictions on the most extreme of assault weapons. By my calculation if the madman at Virginia Tech had only had guns allowed during the 1990s, he would have been able to kill only about a third fewer than he did because of the fewer rounds of shots one can get off with those allowed guns. But, we cannot pursue such matters any more. The NRA and the gun nuts must be assuaged, even though I fear that is hopeless for Obama now.
Thursday, April 24, 2008
THE $10,000 "LUMP-SUM" CHALLENGE
by the Sandwichman
I've been thinking about an offer I made some three-and-a-half years ago, in October 2004, on MaxSpeak. At the time, a report on economic growth had just been presented to the French Finance Minister, Sarkozy, by Michel Camdessus, former head of the International Monetary Fund, in which it was alleged that advocates of reduced working time believe there is only a fixed amount of work to be done. That was, of course, the proverbial lump-of-labor fallacy claim, which I had disemboweled in an article published several years earlier. I offered $5,000 to anyone who could refute my refutation of the abominable strawman.
Of course there were no takers. But that could easily have been because I would have been the judge of whether any rebuttal was successful. Who could have trusted that my verdict would be impartial? After more thought, I've decided to raise the award to $10,000 and to establish an adjudication process untouched by Sandwichman hands.
So here's the plan:
In the meanwhile, I've had a second article, "Why Economists Dislike a Lump of Labor" published in the Review of Social Economy. That article was motivated by irritation at the Camdessus report and several other dewy-eyed obeisances to the mythical fallacy claim, including one by the managing editor of the Journal of Economic Perspectives, Timothy Taylor (not in the JEP, though).
To qualify for the $10,000 prize, the candidate would need to write an article refuting the main conclusions of my September 2007 article and have it accepted for publication, as a peer-reviewed article, in one of the 30 top-ranked economics journals. Now, admittedly, that's a pretty tall order, so I would also offer a $1,000 consolation prize for a refutation published in one of the economics journals ranked 31-159. The point is that the so-called "best-known fallacy in economics" should be worthy of a publishable peer-reviewed full-length explication or it's bullshit. I say it's crap. I've shown it to be crap. And I'll put my money on it that it's crap.
I plan to formally announce the contest on May 1.
I've been thinking about an offer I made some three-and-a-half years ago, in October 2004, on MaxSpeak. At the time, a report on economic growth had just been presented to the French Finance Minister, Sarkozy, by Michel Camdessus, former head of the International Monetary Fund, in which it was alleged that advocates of reduced working time believe there is only a fixed amount of work to be done. That was, of course, the proverbial lump-of-labor fallacy claim, which I had disemboweled in an article published several years earlier. I offered $5,000 to anyone who could refute my refutation of the abominable strawman.
Of course there were no takers. But that could easily have been because I would have been the judge of whether any rebuttal was successful. Who could have trusted that my verdict would be impartial? After more thought, I've decided to raise the award to $10,000 and to establish an adjudication process untouched by Sandwichman hands.
So here's the plan:
In the meanwhile, I've had a second article, "Why Economists Dislike a Lump of Labor" published in the Review of Social Economy. That article was motivated by irritation at the Camdessus report and several other dewy-eyed obeisances to the mythical fallacy claim, including one by the managing editor of the Journal of Economic Perspectives, Timothy Taylor (not in the JEP, though).
To qualify for the $10,000 prize, the candidate would need to write an article refuting the main conclusions of my September 2007 article and have it accepted for publication, as a peer-reviewed article, in one of the 30 top-ranked economics journals. Now, admittedly, that's a pretty tall order, so I would also offer a $1,000 consolation prize for a refutation published in one of the economics journals ranked 31-159. The point is that the so-called "best-known fallacy in economics" should be worthy of a publishable peer-reviewed full-length explication or it's bullshit. I say it's crap. I've shown it to be crap. And I'll put my money on it that it's crap.
I plan to formally announce the contest on May 1.
FAUSTIAN ECONOMICS AND LIMITS
by the Sandwichman
Wendell Berry has an essay in the May Harper's Magazine, "Faustian Economics: Hell hath no limits." The concluding paragraph reads, in part:
"Whichever way we turn, from now on, we are going to find a limit beyond which there will be no more. To hit these limits at top speed is not a rational choice. To start slowing down, with the idea of avoiding catastrophe, is a rational choice, and a viable one if we can recover the necessary political sanity."
I glanced at the title and on the way home, before reading Berry's essay, was thinking about those limits Hell (and growth economics) hath none of. Closest to home for me is the "only so much work to go 'round" of the infamous lump-of-labor fallacy. "Sharing the work" has always only one side of an equation the other side of which was limiting the hours of labor. English factory inspector, R.J. Saunders, observed in 1848, "Further steps toward a reformation of society can never be carried out with any hope of success, unless the hours of labour be limited, and the prescribed limit strictly enforced.
For some reason, something that an English factory inspector had the temerity to suggest 160 years ago, when the condition of the working class left a whole lot to be desired, is something most Americans know they "just can't afford" today. I don't get it. Unless it's a case of that knowledge without wisdom, which, to quote Berry paraphrasing John Milton's Archangel Raphael in Paradise Lost. "is not worth a fart..."
Wendell Berry has an essay in the May Harper's Magazine, "Faustian Economics: Hell hath no limits." The concluding paragraph reads, in part:
"Whichever way we turn, from now on, we are going to find a limit beyond which there will be no more. To hit these limits at top speed is not a rational choice. To start slowing down, with the idea of avoiding catastrophe, is a rational choice, and a viable one if we can recover the necessary political sanity."
I glanced at the title and on the way home, before reading Berry's essay, was thinking about those limits Hell (and growth economics) hath none of. Closest to home for me is the "only so much work to go 'round" of the infamous lump-of-labor fallacy. "Sharing the work" has always only one side of an equation the other side of which was limiting the hours of labor. English factory inspector, R.J. Saunders, observed in 1848, "Further steps toward a reformation of society can never be carried out with any hope of success, unless the hours of labour be limited, and the prescribed limit strictly enforced.
For some reason, something that an English factory inspector had the temerity to suggest 160 years ago, when the condition of the working class left a whole lot to be desired, is something most Americans know they "just can't afford" today. I don't get it. Unless it's a case of that knowledge without wisdom, which, to quote Berry paraphrasing John Milton's Archangel Raphael in Paradise Lost. "is not worth a fart..."
Back on the Carbon Trail
I’ve started working on a project related to the Western Climate Initiative, a process underway between seven US states and two Canadian provinces to put this scenic portion of the planet on a carbon budget. Because of this, I’ll be posting more frequently on topics related to climate change and how to limit it. Right now, I’m thinking of the decision to commit the WCI as a whole to auctioning only a portion, between 25 and 75%, of the carbon permits they intend to issue, distributing the rest gratis. Isn’t it generous to be handing out free money to the most polluting businesses?
Of course, it’s difficult for the general public to see just what’s going on. To remedy this, I propose the following: auction all the permits. Then take some of the money, between 75 and 25%, and deliver it to the doorstep of firms that emitted the most carbon in the past, preferably in suitcases with unmarked bills.
Maybe if you put the whole operation on YouTube people would get the point.
Of course, it’s difficult for the general public to see just what’s going on. To remedy this, I propose the following: auction all the permits. Then take some of the money, between 75 and 25%, and deliver it to the doorstep of firms that emitted the most carbon in the past, preferably in suitcases with unmarked bills.
Maybe if you put the whole operation on YouTube people would get the point.
Wednesday, April 23, 2008
The PA Catholic white working class vote
I know something about this demographic; they are my relatives: my parents are both Irish catholics from Philadelphia, both first-generation college and thus able to get out. And I'll tell you something about the people they left behind: they're not voting overwhelmingly for Hillary becuse they like her policy ideas. They're voting for her because she's white.
Monday, April 21, 2008
The Joy of Crises: My Short Cathartic Outburst
How is it that the bastards that run the country are able to turn their mistakes into opportunities? Energy shortages demand the elimination of environmental restrictions. Food shortages demand more GE crops. The housing crisis requires tax cuts for corporations.
Nothing for the people who are being plowed under by the crisis. All we have to show for our troubles is Obama and Hillary.
Nothing for the people who are being plowed under by the crisis. All we have to show for our troubles is Obama and Hillary.
The Real Problem with the Last Dem Debate: Iran
I would have signed that letter complaining about the questions asked by ABC's Gibson and Stephanopolous if someone had asked me to. However, they may have done Obama a favor in the end by giving him a dry run with this sort of trivial stuff, which the Republicans will surely hit him on hard in the general election (although it is my understanding that John McCain does not wear flag lapel pins much more than Obama does, although clearly he can get away with that better than Obama).
No, the much bigger problem with the debate was Stephanopolous asserting (in contrast with the US NIE finding unanimously agreed to by all 18 US intel agencies) that Iran is pursuing nuclear weapons and asking the Dem candidates what they would do about it. Neither called him on what garbage this assertion is, especially in light of the fatwa against nuclear weaons by Vilayat-el-faqih and Commander-in-Chief of the Iranian military, Ayatollah Ali Khamene'i. Instead they both declared how much they opposed this by Iran and supported defending Israel on the matter, although Hillary went much further than Obama, proposing a defense shield over all of the Middle East, something beyond anything advocated by either Bush or McCain. I observe that about the only media people to note the extreme nature of this declaration were Rachel Maddow and Patrick Buchanan on Olberman's show. This is far more appalling and serious than all the dreck posed in the first 45 minutes.
No, the much bigger problem with the debate was Stephanopolous asserting (in contrast with the US NIE finding unanimously agreed to by all 18 US intel agencies) that Iran is pursuing nuclear weapons and asking the Dem candidates what they would do about it. Neither called him on what garbage this assertion is, especially in light of the fatwa against nuclear weaons by Vilayat-el-faqih and Commander-in-Chief of the Iranian military, Ayatollah Ali Khamene'i. Instead they both declared how much they opposed this by Iran and supported defending Israel on the matter, although Hillary went much further than Obama, proposing a defense shield over all of the Middle East, something beyond anything advocated by either Bush or McCain. I observe that about the only media people to note the extreme nature of this declaration were Rachel Maddow and Patrick Buchanan on Olberman's show. This is far more appalling and serious than all the dreck posed in the first 45 minutes.
Friday, April 18, 2008
Food: Scarcity or Bubble?
Since climate change and financial meltdown aren’t enough for us, we’ve been handed a third crisis, the explosion in global food prices. Hunger is now, famine looms in the future.
There are two broad views of the problem, epitomized by two of this morning’s readings. Marc Lacey, reporting in the New York Times, tells us that poor Haitians are eating mud, the final link in a chain that begins with rising demand from China and other expanding economies, declining output due to drought and disease and the diversion of cropland to biofuel production. Meanwhile James Hamilton, over at Econbrowser, shows that a basket of commodities, including not only basic foods but also minerals and oil, has been rising more or less in tandem, suggesting that a financial mechanism is at work. Who is right?
Let’s take the mainstream view first. There are three proposed factors, one on the supply side and two that show up on both demand and supply.
Let’s start with supply. It continues to rise overall at the rate of about 2.5% per annum, although there are much publicized crop failures in rice. At least in the case of Australia, the collapse of rice production is the result of drought, presumably attributable to early effects of climate change. Even though this is not a principle cause of the current global crisis, if Schlenker and Roberts are right, we should be very worried about the future. (I should add that my own view, based on long run considerations concerning pest and pathogen evolution, soil quality and water mining, is that industrialized agriculture is still an unproven experiment.)
The uptick in demand is seen as resulting from economic growth and competition between food and biofuels, although both may also show up in reduced supply numbers. The first of these can be described as the conversion of hundreds of millions of formerly poor people, in China, India and parts of Latin America, into middle-class food consumers. Hamilton dumps on this, saying (of commodities in general):
He may be right about other commodities, but, in the case of food, the issue is the shift from direct grain consumption to meat, which has the potential to increase total demand far more than simply piling a little more on the plate. There are important threshold effects at work, so simple linear relationships between aggregate income and meat consumption will not necessarily capture the dynamic. While George Monbiot places great stress on diet, and rightly so, it is also the case, according to the FAO, that use of grains for animal feed is not rising faster than supply. Diversion of land for pasture would be another factor to consider, but it would show up on the supply side.
Competition with biofuels is just beginning and currently has a small effect on global demand, less than 5% of total output based on direct use but not diversion away from cereal production (as in Brazilian cane), which impacts supply. Biofuels are growing very rapidly, however, and may be significant at the margin, since, with inelastic demand in the short run, small shortages can give rise to large price spikes.
Now consider Hamilton’s case, which parallels Jeffrey Frankel. It rests on the following diagram, for which I am very grateful.
If all storable commodities have trended upward, we should look for a common cause and not get bogged down in the individual factors affecting each (which may nevertheless tell us why some are surging faster than others). His candidate: all of them are attractive stores of value in a world in which short term interest rates, in the US at least, have turned negative. This is plausible, although I would add that this argument should be examined in dynamic terms. At any point in time, a movement of real interest rates deeper into negative territory should result in a one-time increase in commodity prices. (This underlies Hamilton’s suggestion that the Fed confound the markets and refuse further cuts in the fed funds rate, which would permit a real-time experiment.) But a continuing trend toward higher commodity prices implies either a continual process of asset switching or a continual increase in funds chasing assets or both. The first, according to Hamilton’s logic, would arise if interest rates were falling over time. The second, which interests me, implies that some of the funds that have previously inflated bubbles in mortgage-backed and other dollar-denominated securities are now finding their way into commodities. I repeat: the sovereign recycling of dollars on the capital account has to find assets, and, since the flows are not based on profit expectations, they will push the prices of the assets they end up in beyond their reasonable fundamentals. (Yes, profit expectations can also be wrong, but sovereign recycling doesn’t even try to be right.) If this is happening with food it is a very, very big deal.
So where are we at? As always, we need more data. The asset-switching hypothesis really does need to be tested, pronto. The biofuel diversion is politically driven and can be stopped in its tracks if Washington and Brussels will it. In fact, I am worried that, as fuel prices increase in the years to come, simply ending biofuel mandates and subsidies will not be enough; we will need to install roadblocks. George Monbiot is right: we should eat less meat and be willing to pay more for it, as meat is shifted to marginal cropland and small niches in the farm production system. Above all, subsistence in a resource-scarce world will always be a problem when global income is distributed so unequally: the Gini coefficient for global income distribution is about .65, higher than in any single country, as Milanovic has shown. The spread of hunger in a world with so much wealth should tell us, in a blunt way, that we have a social justice problem.
In the very short run, the rich of the world should pony up and help feed the poor.
There are two broad views of the problem, epitomized by two of this morning’s readings. Marc Lacey, reporting in the New York Times, tells us that poor Haitians are eating mud, the final link in a chain that begins with rising demand from China and other expanding economies, declining output due to drought and disease and the diversion of cropland to biofuel production. Meanwhile James Hamilton, over at Econbrowser, shows that a basket of commodities, including not only basic foods but also minerals and oil, has been rising more or less in tandem, suggesting that a financial mechanism is at work. Who is right?
Let’s take the mainstream view first. There are three proposed factors, one on the supply side and two that show up on both demand and supply.
Let’s start with supply. It continues to rise overall at the rate of about 2.5% per annum, although there are much publicized crop failures in rice. At least in the case of Australia, the collapse of rice production is the result of drought, presumably attributable to early effects of climate change. Even though this is not a principle cause of the current global crisis, if Schlenker and Roberts are right, we should be very worried about the future. (I should add that my own view, based on long run considerations concerning pest and pathogen evolution, soil quality and water mining, is that industrialized agriculture is still an unproven experiment.)
The uptick in demand is seen as resulting from economic growth and competition between food and biofuels, although both may also show up in reduced supply numbers. The first of these can be described as the conversion of hundreds of millions of formerly poor people, in China, India and parts of Latin America, into middle-class food consumers. Hamilton dumps on this, saying (of commodities in general):
I also find it implausible to attribute the commodity price increase to a surge in demand. The economic news over the last three months has been very convincing that output is slowing, not accelerating.
He may be right about other commodities, but, in the case of food, the issue is the shift from direct grain consumption to meat, which has the potential to increase total demand far more than simply piling a little more on the plate. There are important threshold effects at work, so simple linear relationships between aggregate income and meat consumption will not necessarily capture the dynamic. While George Monbiot places great stress on diet, and rightly so, it is also the case, according to the FAO, that use of grains for animal feed is not rising faster than supply. Diversion of land for pasture would be another factor to consider, but it would show up on the supply side.
Competition with biofuels is just beginning and currently has a small effect on global demand, less than 5% of total output based on direct use but not diversion away from cereal production (as in Brazilian cane), which impacts supply. Biofuels are growing very rapidly, however, and may be significant at the margin, since, with inelastic demand in the short run, small shortages can give rise to large price spikes.
Now consider Hamilton’s case, which parallels Jeffrey Frankel. It rests on the following diagram, for which I am very grateful.
If all storable commodities have trended upward, we should look for a common cause and not get bogged down in the individual factors affecting each (which may nevertheless tell us why some are surging faster than others). His candidate: all of them are attractive stores of value in a world in which short term interest rates, in the US at least, have turned negative. This is plausible, although I would add that this argument should be examined in dynamic terms. At any point in time, a movement of real interest rates deeper into negative territory should result in a one-time increase in commodity prices. (This underlies Hamilton’s suggestion that the Fed confound the markets and refuse further cuts in the fed funds rate, which would permit a real-time experiment.) But a continuing trend toward higher commodity prices implies either a continual process of asset switching or a continual increase in funds chasing assets or both. The first, according to Hamilton’s logic, would arise if interest rates were falling over time. The second, which interests me, implies that some of the funds that have previously inflated bubbles in mortgage-backed and other dollar-denominated securities are now finding their way into commodities. I repeat: the sovereign recycling of dollars on the capital account has to find assets, and, since the flows are not based on profit expectations, they will push the prices of the assets they end up in beyond their reasonable fundamentals. (Yes, profit expectations can also be wrong, but sovereign recycling doesn’t even try to be right.) If this is happening with food it is a very, very big deal.
So where are we at? As always, we need more data. The asset-switching hypothesis really does need to be tested, pronto. The biofuel diversion is politically driven and can be stopped in its tracks if Washington and Brussels will it. In fact, I am worried that, as fuel prices increase in the years to come, simply ending biofuel mandates and subsidies will not be enough; we will need to install roadblocks. George Monbiot is right: we should eat less meat and be willing to pay more for it, as meat is shifted to marginal cropland and small niches in the farm production system. Above all, subsistence in a resource-scarce world will always be a problem when global income is distributed so unequally: the Gini coefficient for global income distribution is about .65, higher than in any single country, as Milanovic has shown. The spread of hunger in a world with so much wealth should tell us, in a blunt way, that we have a social justice problem.
In the very short run, the rich of the world should pony up and help feed the poor.
They're back!!!
For those of you who have missed Giblets, Fafnir and the Medium Lobster over the last nearly two years, the funniest blog ever written is back, and better than ever:
http://fafblog.blogspot.com/
http://fafblog.blogspot.com/
In Memoriam: K. Thomas Varghese
K. Thomas Varghese died this week, my old friend and former colleague from the Department of Economics at James Madison University here in Harrisonburg, Virginia. What is below the fold was written about him. Once upon a time, he really did carry a maybe message concealed in his shoe across a difficult border at considerable personal peril. He was a man of courage and honor, and I and my wife, Marina, will miss him and always remember him with fondness and gratitude. Rest in peace, Tom.
The Maybe Messenger
The maybe messenger with the maybe message
Travels by bus, he travels by plane,
He travels by boat, he travels in the mind
Of the sender of the maybe message.
Why do they wait for the long messages?
They are the ones with no conclusions.
They are not epitaphs nor epilogues,
But the dappled points of the maybe saga.
"It is just a movie," say the children,
Of the maybe saga and its manifestations.
But who is the director, the producer?
Does the State license the studio?
The interior monologuist mumbles his maybes.
The reels clatter in the movie theater of his mind.
It has all been taped and red taped,
And the critics know an unlikely story when they see one.
"There is never enough time," say the actors.
"There is too much time between the time," they say.
Where did they learn their lines?
Was the scriptwriter shot after his many awards?
If he were here he could speak to the nameless committee,
The one that decides on the final editing,
Was the maybe message a script revision?
Or was it merely a small portion of the script?
They attempted to understand in the subcommittees,
They became subconscious of the maybe message,
Perhaps it would be waylaid and misplaced,
Lost in the subconscious subcommittee's sublimations.
Buses break down and planes crash.
Customary entries can be revealing and less.
All of this and more makes the maybe message maybe,
All of the intervening meaninglessness of loss.
But at its core it is not a maybe message
It is only the means and not the ends
That are in dispute, the endless wranglings
Of the subcommittees of the self-appointed.
"They are nice guys who understand love," says one.
"They are omnipotent and omniscient and will get you," says another.
And these would agree in policy, it appears.
The nameless committee leaves the cuttings on the floor.
The maybe messenger treks a pilgrimage from India.
The tears of Moscow mights wash their dreams.
They know the dream of love drives their movie.
The maybe message is a footnote to their waiting.
June 2, 1984
The Maybe Messenger
The maybe messenger with the maybe message
Travels by bus, he travels by plane,
He travels by boat, he travels in the mind
Of the sender of the maybe message.
Why do they wait for the long messages?
They are the ones with no conclusions.
They are not epitaphs nor epilogues,
But the dappled points of the maybe saga.
"It is just a movie," say the children,
Of the maybe saga and its manifestations.
But who is the director, the producer?
Does the State license the studio?
The interior monologuist mumbles his maybes.
The reels clatter in the movie theater of his mind.
It has all been taped and red taped,
And the critics know an unlikely story when they see one.
"There is never enough time," say the actors.
"There is too much time between the time," they say.
Where did they learn their lines?
Was the scriptwriter shot after his many awards?
If he were here he could speak to the nameless committee,
The one that decides on the final editing,
Was the maybe message a script revision?
Or was it merely a small portion of the script?
They attempted to understand in the subcommittees,
They became subconscious of the maybe message,
Perhaps it would be waylaid and misplaced,
Lost in the subconscious subcommittee's sublimations.
Buses break down and planes crash.
Customary entries can be revealing and less.
All of this and more makes the maybe message maybe,
All of the intervening meaninglessness of loss.
But at its core it is not a maybe message
It is only the means and not the ends
That are in dispute, the endless wranglings
Of the subcommittees of the self-appointed.
"They are nice guys who understand love," says one.
"They are omnipotent and omniscient and will get you," says another.
And these would agree in policy, it appears.
The nameless committee leaves the cuttings on the floor.
The maybe messenger treks a pilgrimage from India.
The tears of Moscow mights wash their dreams.
They know the dream of love drives their movie.
The maybe message is a footnote to their waiting.
June 2, 1984
A Different Torture Question
You’ve heard this one: A terrorist is being held captive. He knows where a bomb is scheduled to explode in a few hours, one that would kill thousands of innocent victims. Is it OK to torture him to get the information in time to defuse the bomb? But I don’t want to argue about that one again. Try this:
You are being held captive by a foreign power. Although it is a mistake, your captors honestly believe that you are a terrorist and know where a bomb is scheduled to explode in a few hours. Is it OK for them to torture you? (Cap tip to John Rawls.)
You are being held captive by a foreign power. Although it is a mistake, your captors honestly believe that you are a terrorist and know where a bomb is scheduled to explode in a few hours. Is it OK for them to torture you? (Cap tip to John Rawls.)
Thursday, April 17, 2008
Happiness is a Warm Bit of Relative Income
David Leonhardt's column yesterday discusses a new paper by Wolpers and Stevenson that claims to debunk the Easterlin paradox. The paradox was that despite an association between income and reported happiness in cross-sectional data, in the time series big increases in income did not increase average reported happiness. An obvious interpretation is that people care about relative, not absolute, income. I have to get the paper, but from Leonhardt's account, I wonder if it answers what to me is the larger point of Easterlin and Easterlin-spawned work: that relative income matters.
The column includes a graph that shows a positive correlation between income and happiness across countries. What I want to know - I have to get the paper - is , granting that the correlation is positive for a particular country's time series, not zero, as Easterlin found, whether the correlation in a cross-section is stronger than in the time series - whether relative income matters at all. The idea that only relative income matters, that absolute income matters not at all, was never very plausible.
Got to go: I'm bitter and angry and dodging sniper fire, can't seem to find my flag lapel pin, trying to find a weatherman to see which way the wind blows, and damn if isn't Spring in poor old Northwest Ohio!
The column includes a graph that shows a positive correlation between income and happiness across countries. What I want to know - I have to get the paper - is , granting that the correlation is positive for a particular country's time series, not zero, as Easterlin found, whether the correlation in a cross-section is stronger than in the time series - whether relative income matters at all. The idea that only relative income matters, that absolute income matters not at all, was never very plausible.
Got to go: I'm bitter and angry and dodging sniper fire, can't seem to find my flag lapel pin, trying to find a weatherman to see which way the wind blows, and damn if isn't Spring in poor old Northwest Ohio!
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