Unintended Consequences of Environmental Regs

by Levi Russell

Over at the Texas Ag Law Blog, Tiffany Lashmet provides a discussion of the history and current state of the Waters of the United States (WOTUS) rule in relation to ag. Her post is very informative and I suggest you check it out. Here's a slice:

Rescinding a rule already promulgated is not as simple as it may sound.  The EPA has published a new proposed rule in the Federal Register, which essentially seeks to codify the rule as it was prior to the 2015 EPA rule being passed (and, due to the 6th Circuit stay, the approach currently in place across the US).  Specifically, the proposed rule would rescind the 2015 approach and codify an approach consistent with the Rapanos Supreme Court decision, applicable case law, and other longstanding agency practices. 

Now, notice and comment rulemaking will take place, which will allow the public to offer input on the new proposed rule.  This period is open through August 28, 2017.  After that, the EPA plans to conduct a “substantive re-evaluation” of the definition of WOTUS and conduct notice and will likely propose a new rule after property notice and comment rulemaking occurs. [Read new proposed rule and comment here.] 

Meanwhile, the 2015 rule is not in force anywhere in the United States, as the 6th Circuit stay remains in place.  Thus, currently, the definition of WOTUS is governed by the pre-2015 rule that got us the complex decision in the Rapanos case.  Unfortunately, until a new rule is promulgated, landowners are left with trying to interpret the Rapanos decision in order to know whether federal permits are required on their land.

Over the past couple of years I've been thinking about the costs associated with regulation like this. Certainly the intent of environmental regulation of agriculture is to internalize the external costs associated with the production of agricultural goods.

For example, we value the food and fiber produced by modern agricultural practices, but their production entails such things as water and air pollution, soil erosion, and other economic "bads." Environmental regulation is intended to curtail the production of those bads by ensuring that producers bear the cost of producing them. However, no policy is perfect and it is reasonable to think that some of the costs of regulation might be borne by consumers rather than producers.

To examine that question, I recently finished up a working paper examining the relationship between EPA regulation and relative food cost. You can read the whole thing here (and I'd appreciate any feedback), and here's the abstract:

Cost-benefit analysis of agri-environmental regulation is limited in the sense that it only examines the effects a single regulation will have on the public and polluters. Further, important mechanisms through which the public might bear part of the cost of regulation are not examined. This paper uses new data that allows for examination of regulation by a specific government agency on a specific industry to determine whether and to what extent relative food costs are affected by regulation of agriculture by the Environmental Protection Agency (EPA). The index allows for an examination of the overall effect of regulation, which is an important addition to the existing literature. Findings indicate that the costs of EPA regulation have not been borne solely by producers and that relative food costs would be lower now if EPA regulation had not increased over time.

Environmental Law Tradeoffs for Ag

by Levi Russell

Tiffany Dowell at Texas A&M has a great, concise blog post about a recent circuit court decision that will undoubtedly increase costs associated with environmental regulation of farms. As usual, I encourage you to read the entire post, but here's an excerpt:

Environmental groups, led by Waterkeeper Alliance, argued that CERCLA and EPCRA do not allow the EPA to exempt anyone from reporting requirements if there are releases over the statutory reportable quantity.  Further, the environmental groups claim that the rule is arbitrary in treating waste on farms differently than similar waste in other places, such as at a zoo or a slaughterhouse, which would not be exempted from reporting.  On the other side, the National Pork Producers Council also filed suit, albeit for a very different reason.  The Council claimed that the CAFO exception is not allowed because it was based upon the public’s desire for information, rather than based upon the purpose for which the statute was enacted–facilitating emergency response.

...

Now that the rule containing the farm exemption is no longer in place, under federal law, farms that may emit hazardous substances from animal waste above the threshold amount are legally required to report such emissions.   One major problem, which was noted by the court, is that there has been no determination of how these emissions should be measured.  It is unclear how farmers are expected to know whether their emissions are above reportable quantity, or how they are to measure them for reporting.  It may be that some operations can simply file an annual notice of continuous release if the releases are “continuous and stable in amount and rate.”  Hopefully, the EPA will offer some additional guidance documents in light of this ruling.  Operations for which this may be an issue should consult with their attorney to determine what steps to take.

A few things to note here:

1. The exemption was not for large animal feeding operations, it was for regular farms. With that exemption gone, farmers will be subject to significant regulatory uncertainty and cost.

2. That uncertainty and cost will fall disproportionately on small farmers. While this type of regulation will apply to larger farms, it will be difficult, at least in the short run, to know exactly where the threshold is. How many cows/hogs/chickens/etc does it take to create 100 pounds per day of ammonia or hydrogen sulfide? It will also complicate investment decisions for small farmers.

3. There's clearly an industry concentration vs environmental quality tradeoff here. A public concerned with the continued existence of the "family farm" would be smart to consider this tradeoff.

4. Tiffany notes that public comment played a role in the circuit court's decision, implying that interested parties can have some say in the regulatory process, at least when regulations are challenged in the courts. I suspect this will be a losing battle for ag in the future if the public continues to grow more concerned about these issues.

Do cities make us more productive?

by Levi Russell

I came across this blog post late last week and thought I'd share it. In the post, the author (a geographer) presents the typical case that city density is positively correlated with productivity. This is thought to be due to "agglomeration externalities" which are "the benefits that firms obtain by locating near each other."

The author presents some statistics showing a positive correlation between productivity and city size or density. Part of the problem of establishing a causal link between density and productivity is that once you dig into the data to figure out exactly who gets more productive in denser places, it tends to be only people who are highly skilled with "nonroutineized work." His second critique is that we don't know how density drives productivity. He gives this task to economists.

He then mentions some policy problems and alludes to an issue I've often thought about when taking courses on urban and regional economics. Do we need to reign in urban sprawl? If density doesn't actually drive productivity, is sprawl really that bad? What about technology that allows a lot of people to telecommute effectively?

I found the post thought-provoking and it has some interesting data. Let me know what you think!

Productivity and Stagnation from an Engineer's Perspective

Tyler Cowen's famous book "The Great Stagnation" has been the subject of a lot of conversation in the econ blogosphere. Cowen and others point to stagnant total factor productivity and income growth among large segments of the population as evidence that something is very wrong with the economy these days.

Those on the other side of the debate point to the inability of TFP and income statistics to account for changes in the quality of goods over time and the dramatic benefits we all get from things like the internet.

This post tackles the issue from an engineering perspective. The author has a whole slew of charts and graphs on everything from information technology and solar power to steam generators and jets. It's definitely worth a look!

Off-Topic - The Stagnation of the American Middle Class

Don Boudreaux (GMU Econ) recently gave a talk at the Economics Club meeting at my alma mater.

Since Boudreaux is such a dynamic speaker and so well informed on this topic, I thought I'd share it with FH readers even though it isn't one of the typical topics we cover.

I'd suggest starting at 3:10 and adjusting the speed (using the gear button at the bottom right) to 1.25 since it's a rather long talk.

Whither the Young Farmer?

Much is made about the average age of the American farmer. USDA Secretary Vilsack was once quoted as saying, "We have an aging farming population. If left unchecked, this could threaten our ability to produce the food we need – and also result in the loss of tens of thousands of acres of working lands that we rely on to clean our air and water." That's serious stuff, but a more careful analysis reveals that the situation isn't so dire after all.

Analysis by Carl Zulauf indicates that farmers are aging no faster than the general public. Additionally, we would expect, he says, that farmers would be older than the average business owner because modern agriculture is so capital intensive. Todd Kuethe breaks down farmer age by number of farms, acreage, and income, and notes that

The largest share of the income of the sector is captured managers between the age of 45 and 64. Just over half of Illinois' primary farm operators are between ages 45 and 64 (51.5%). This group, however, represents 60% of Illinois' agricultural land and 62.9% of the state's farm income.

Zulauf's observation that capital intensive industries are likely to have older sole proprietors on average is especially interesting given the current land price environment. As Brent Gloy and David Widmar note, land values are currently quite high, but a combination of low returns and rising interest rates could pave the way for a downward correction in land values. I made a similar argument about land values in Texas last October. The potential for a decline in land values may open up opportunities for younger farmers to buy in.

Another potential driver of the increasing age of the average farmer is increased regulation. As I've documented in the past, regulation by the EPA has increased almost continuously over the last 4 decades. Now more than ever farmers are burdened by the cost of regulation by the EPA. This increased regulatory cost creates economies of scale which might serve to hinder entry into the industry.


There are likely many causes of the increase in the average age of the American farmer, but it seems the worst thing that will happen is consolidation. If land values correct and young farmers are able to maintain access to credit, the trend of the aging farmer may at the very least slow down.

Julien Noizet on Low Inflation

Julien Noizet's blog is, in my mind, indispensable. Julien is a banker who also understands economics very well; a combination that allows him to offer unique insights into macroeconomics and banking. I've featured content from his blog in the past and wanted to get his thoughts on recent macroeconomic trends and banking theory. Julien was kind enough to answer 4 questions I thought Farmer Hayek readers might be interested in.

The questions are:
Why do you think inflation has been low in US after the 2008 recession? (this post)
What is the most important thing economists get wrong about the way banks work?
What are your thoughts on NGDP targeting?
What are your thoughts on free banking?

I'll provide links in each post to the other 3 as they come out.

FH: Why do you think inflation has been low in the US after the 2008 recession?

JN: First, it depends what we mean by inflation. If we simply mean ‘CPI inflation’, then the reasons aren’t fully clear. The ability of the banking system to expand lending has been multiplied by the large amounts of reserves injected into the system through the various QE programmes. Excess reserves have jumped and the money multiplier has collapsed, indicating that banks haven’t increased lending volume much. However, it is a mistake to believe that inflation would sky-rocket within years of this massive liquidity injection by the Fed. The crisis involved a balance sheet-led recession, meaning that many banks and bank customers were insolvent. In such case, people and companies attempt to clean up their balance sheet before borrowing again. The experience of the Great Depression clearly showed that it can take decades for the money multiplier to get back to its previous highs.

Does the US Have a "Cheap Food" Policy?

It's often said, in defense of payments to ag producers, that these subsidies constitute a "cheap food" policy. Advocates of the policy contend that the subsidies incentivize increased production such that food prices fall. It's a win-win: producers benefit directly from the subsidy and consumers (especially the poor) benefit from reduced prices at the grocery store.

Leaving aside the question of whether or not these types of policies should exist, it's interesting to see whether the subsidies actually result in lower food prices. It's important to note that direct payments to producers have been reduced as of the 2014 Farm Bill and that the USDA spends an increasingly greater percentage of its budget on direct food assistance. That said, the article's findings are still interesting today.

With all that out of the way, I want to summarize the findings of a paper by Corey Miller and Keith Coble of Mississippi State University. The paper is relatively old; it was published in 2007 in Food Policy, but it nevertheless provides some interesting insights. The gated, full version is here and an un-gated but incomplete version can be found here.

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.