Potpourri

I haven't done one of these in awhile, so I thought I'd put some stuff I've read recently that caught my eye.

Jayson Lusk recently blogged about my article currently in review at the Journal of Regulatory Economics on the effects of USDA and EPA regulation on ag productivity.

Don Boudreaux, spurred by a back and forth between Russ Roberts and Paul Krugman, has a couple of great posts (here and here) on economics as a science and its ability to generate falsifiable predictions. Very thought provoking.

Marc Bellemare documents the top 5 journals in ag economics based on recently-calculated impact factors. The ordering is interesting, but it's important to remember that there are many measures of journal quality. This paper, sent to me today by a colleague, puts ag and applied economics journals into groups (A+, A, B, C, D). All of this is good information which, as an assistant professor, I find very useful.

Matt Bogard has some interesting thoughts on the abilities required for working as a data scientist outside the academic world.

Fed: Rate Hike Will Come Later

On Wednesday, the Federal Reserve convened its regular FOMC meeting to discuss monetary policy and the state of the economy. These meetings are highly anticipated by the finance world, and rightly so. At these meetings, the chair of the Federal Reserve gives her thoughts on the economy and, some hope, an indication as to what interest rate policy will be in the coming months.

This particular meeting was interesting in that expectations for a rate hike had generally been high this year. Earlier this year, many expected a hike in the Federal Funds Rate (FFR) by mid-year. After this meeting, likely very few hold this position. Chair Yellen essentially indicated that a rate hike may come by the end of the year but that upward movement in the FFR target will be slower than originally anticipated.

Yellen has indicated before that monetary policy is "data dependent," so the slower-than-anticipated rate hikes imply that Yellen is not happy with the employment and inflation data/forecasts. The employment aspect of this is especially complicated, since we know that labor force participation has fallen and continues to fall, and many still remain underemployed.

The Atlanta Fed's GDP Now forecast for 2nd quarter GDP has strengthened dramatically since early June. To get anywhere close to the Fed's original annual growth forecast, 2nd, 3rd, and 4th quarter GDP growth is going to have to offset the -0.7% decline in GDP in the 1st quarter. Slow GDP growth also provides justification for low rates.

Intervention Breeds Intervention: The Case of the Trans Fat Ban

The recent decision to eliminate trans fats by regulatory fiat is an interesting example of intervention breeding intervention. It's safe to say everyone in my generation (I was born in the mid 1980s) was brought up on the Food Guide Pyramid. Unlike the vaunted Swanson Pyramid of Greatness we now know that the advice given in the Food Guide Pyramid isn't great. (Even South Park jumped in on the conversation.) The Pyramid taught that grains were the foundation of sound nutrition and that fats, particularly saturated animal fats, were bad. These fats were thought to cause heart disease and a whole host of issues.

The reality is that the sugar found in grain products like bread and pasta are the heart disease culprit. The Pyramid, designed by well-intentioned folks at the USDA and backed up by the CDC incentivized the use of partially-hydrogenated oils as a substitute to saturated animal fats. These partially-hydrogenated oils are a major source of trans fats. It turns out that the Food Guide Pyramid was wrong and your grandma was right: excessive carbohydrate consumption is bad for you, butter is better than margarine (often containing partially-hydrogenated vegetable oil), and animal products build healthy bodies.

So, it seems to me, if it weren't for the demonization of saturated fats and animal products in general, we wouldn't have been eating so many trans fats from partially-hydrogenated oils over the past 30 years. We'd have been following the same rules our grandmas taught us. There wouldn't be any need to ban trans fats because the crusade against the healthier alternative wouldn't have happened. This is, it seems, a negative outcome of government domination of the health conversation. The fitness community has been on the low-carb-is-best bandwagon for a long time. The rest of us are finally catching up.

I hope in the future school lunches are more in line with the "carbs aren't so great and animal products are" view. I suspect this will not only make them healthier for the growing bodies and minds of our children, but kids will actually want to eat the food.

Matt Bogard on GMOs and Farm Subsidies

Back in April, Matt Bogard posted a series of questions on GMOs and farm subsidies. As Matt notes, the typical view of ag subsidies is almost completely at odds with the data and relevant research.

I definitely recommend reading the whole thing, so here are his questions:

1) Do farm subsidies encourage farmers to plant biotech or GMO seeds?

2) If subsidies drive the production of commodities and most of these are GMO,  aren’t we indirectly subsidizing GMOs?

3) Do farm subsidies make unhealthy foods cheaper and contribute to obesity?

4) Do farm subsidies largely prop up wealthy farmers vs. helping small farmers thrive in a volatile, competitive global and corporate dominated marketplace?

I'm fairly confident that a large percentage of the population would confidently answer "yes" to each of these questions. The reality is either "no" or at least a much less emphatic "maybe."

Perfect Markets and the Beauty of B School Economics

Don Boudreaux at Cafe Hayek has written several posts recently that are related to some of the themes I've been focusing on lately. (See his posts here, here, and here.) I'll quote from the first one and provide some of my thoughts.

The market process is chiefly one of entrepreneurs spotting market failures and sub-optimal situations – spotting problems that have yet to be ‘solved’ adequately by market (or non-market) forces – and then experimenting with actions to address such problems.  The discipline to ensure that such experiments work as well as possible over time is supplied by (1) the fact that those who do the experimenting in private markets put their own money and effort on the line (rather than money and effort forcibly commandeered from others), (2) consumers’ freedom to buy or not to buy the resulting products, and (3) the actual and potential competing experimenters who do, or might, arise along side of the initial entrepreneurial experimenter.  And this on-going process is indeed just that: a process that, as much as it improves market performances over time, never comes close to creating any situation that deserves the name “perfect market.” 

A Comment on Behavioral Econ and Public Policy

Jayson Lusk recently discussed a forthcoming article in the American Journal of Agricultural Economics. As he explains, the article uses behavioral economics to examine consumer responses to taxes or subsidies on goods. The gist of their conclusion is that the tax (subsidy) itself makes people want to consume more (less) of the good and less (more) of the things politicians prefer.

This is certainly an interesting result, and I enjoyed Lusk's discussion. Specifically, he points out that regulators and politicians are also flesh-and-blood human beings who are subject to the whole range of irrational or counter-intuitive results of behavioral economics. Behavioral economics can certainly help us think about certain situations, but I think the behavioral folks and the anti- (non?) behavioral economists both often miss out on important aspects of human behavior that have impacts on economic analysis.