Agricultural Econ Potpourri

by Levi Russell

As we move into debate over the next Farm Bill, here is a great overview of the state of the discussion.

If you're curious about China's new policy on beef imports, check out this blog post.

Farm fixed expenses are finally moving down.

As fixed expenses are moving down, land values are up yet again this year.

Beef Trade and the TPP

by Levi Russell

As one of my colleagues recently pointed out at an Extension meeting, both major-party candidates are (at least claiming to be) anti-international-trade. It's true that trade restrictions would be harmful to many segments of the U.S. agriculture sector, including beef. I ran across a great article in Beef Magazine last month that shows the U.S.' top trade partners. The chart below is lifted from the article.

As you can see, Australia is responsible for a substantial proportion of beef (not cattle) imports into the U.S. Our exports go primarily to Asian markets and our geographical neighbors. The article goes into some detail about the recent change in fresh beef imports from Brazil. The new policy is a tariff-rate-quota; details are available in the article and in this video.

Since I strive to tell the other side of the story as fairly as possible, I thought I'd link to what I believe is the most sophisticated argument against the Trans Pacific Partnership I've read. I recommend reading it, even if you are pro-TPP.

One Positive Result of Brexit

by Levi Russell

In the wake of the UK's referendum on its membership in the EU, there have been many positive and negative reactions. My own view is that, even with the potentially negative impact of tighter immigration restrictions, the UK will be better off without EU regulations and will likely have trade terms similar to those it had before (see Switzerland). In fact, the biggest proponents of the Leave campaign want free trade with the EU. Of course I could very well be wrong. It might have been better from a utilitarian/consequentalist point of view for the UK to remain in the EU.

I think there's one benefit of the UK's (potential) exit that is unambiguous: The UK citizenry will be better equipped to govern themselves. Specifically, the cost of monitoring their lawmakers has fallen dramatically. If and when the UK leaves the EU, Britons will only have to monitor the behavior of the 650 members of parliament (MPs). Outside of trade deals, the EU MEPs in Brussels will have no direct effect on them.

Additionally, the benefit of participating in the political process is higher as well. Each MP now controls a larger share of the laws and regulations under which Britons live. Thus, any influence Britons (whether individually or in groups) wield over MPs now carries more weight.

It's possible that, on net, the UK's (potential) exit from the EU will be very bad for the average British citizen. However, there are clear benefits from a public choice point of view.

Brexit Stock Market Perspective

by Levi Russell

The financial press was abuzz before and after the recent UK referendum to leave the European Union (see here, here, here, here, here, and here). To be sure, the British Pound took a big hit and several stock market indices across the Western world were affected. I'd just chalk this up to political uncertainty, not a referendum on the referendum. After all, we don't actually know if the UK will leave the EU. Perhaps I'm biased.

Here's the perspective I promised in the title. First, a look at the 5-day charts (all taken from Yahoo Finance) of U.S. (Dow and S&P 500), British (FTSE), Spanish (IBEX), German (DAX), and French (CAC 40) stock exchange indices:

To be sure, these are some pretty serious one-day drops. However, the Dow and S&P 500 fell more modestly than the others and the FTSE (British index) has recovered somewhat. The hardest hit so far are the European indices. Interesting, to be sure.

But what does this selloff look like over a 1 year time horizon? How far back in time do we have to go to see these indices at similar levels?

The Dow and S&P 500 are right about where they were last month. If you take out the big troughs in September 2015 and early this year, both indices are pretty much flat. The FTSE looks similar, though it seems to have a bit more of a downward trend than the U.S. The Spanish, German, and French indices are down a bit more relative to the past few months but it seems they're just continuing a downward trend that's been around for the past 12 months.

I'm not saying the referendum had no effect on the markets but after looking at these charts I'm left asking "Where's the fire?" Maybe I'm missing something, or maybe my cavalier attitude to the stock market stems from the fact that I'm 29 years old.

Brexit Roundup

The UK recently passed a referendum to leave the European Union. Regardless of your view on the outcome, it certainly is a momentous occasion with potentially far-reaching implications for the future of the EU itself.

Here are some articles I found informative on the issue:

A nice summary

A cautiously optimistic take

A couple of very positive takes (here and here)

A negative take

Here's a look at the fallout in the US stock market in the wake of the vote.

The Foreign Subsidies Database

If you've ever wanted information about agricultural subsidies in other countries, the Foreign Subsidies Database at Texas Tech is a great resource.

The page has several interactive features. One feature is the Subsidy Tables which are laid out in table form and includes information from Argentina, Australia, Brazil, Canada, China, Egypt, the 27 countries of the EU, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, Russia, South Africa, South Korea, Thailand, Turkey, Uzbekistan, Vietnam, and the West African countries.

The tables include information on direct support (price supports, direct payments, import quotas and tariffs, subsidies and export taxes), indirect support (state trading and ownership, investment assistance, and credit and transport subsidies), and statistics on the production, consumption, export, and import market share by country. Commodities listed in the database include corn, cotton, rice, sorghum, soybeans, sugar, and wheat.

The site also includes more detailed information in narrative form on the commodity support in the countries/areas listed above in the Searchable Database. Some of the data goes back several decades. For instance, here's a graph of Australian cotton production, consumption, imports, and exports:

If you're interested in the way other countries subsidize their ag industries, I suggest you check out this site.

Food Labels and the Informed Consumer

Product labels are an important part of communicating product information to consumers. For a long time, regulators and politicians have been in the business of mandating the content of labels for a whole range of products, especially food. While other reputation mechanisms are important to being fully-informed, we all rely on labels to some degree.

But mandated labeling has its share of pitfalls. Regulators might require too much information on a label, increasing costs to consumers with little upside. They might reduce the amount of information on a product label by increasing the costs of using certain language. More bizarrely, they might require completely misleading information to be put on a label. Arguments in favor of different labeling requirements can come from consumer pressure groups, but often they come from within industries.

An example of the first problem is mandatory country-of-origin labeling (or MCOOL) of meat products. Though there are efforts in congress to repeal MCOOL, it is currently the law of the land. A fact sheet distributed by K-State concludes:

The overriding finding of limited awareness of MCOOL, narrow use of origin information in purchasing decisions, and no evidence of a demand impact following MCOOL implementation is consistent with the argument that voluntary labeling by country of origin would have occurred if it were economically beneficial to do so. More broadly, the findings of this project generally support the assertions of MCOOL opponents who have asked “where is the market failure?” 

MCOOL creates international trade issues and increases costs to producers, processors, and retailers with little to no upside.

Potpourri

I haven't done one of these in awhile, so I thought it was time to share a handful of links to some great stuff I've read recently.

Richard Ebeling at The Citadel offers a fantastic take down of the Keynesian view of recessions for the layman. It's certainly worth a read for the non-specialist in macro.

The always-insightful Don Boudreaux recently discussed the role of theory in measuring the effects of the minimum wage. He also provided a short note on the role of institutions in economic analysis in response to a reader's question and an interesting take on the economic way of thinking. Very good stuff.

Jayson Lusk recently weighed in on the fight between scientific integrity and consumer sovereignty in the food world. He also provided a short discussion of an article on crop insurance subsidies and risk taking.

John Tamny reviews a recent book on the myriad ways gov't policy has and will negatively affect the millennial generation.

I, Pencil

Leonard Read's famous story "I, Pencil" is a short tale that reminds us of the wonders of the market that we observe all around us every day. We may take it for granted, but even a device as simple as a #2 pencil requires a massive effort on the part of economic actors.

The people who make the eventual production of a pencil possible are specialized in their own tasks and may have no idea what the eventual product of their labor will be. No one person plans the production of pencils, yet they sit on shelves around the world, ready for purchase and use. Below is a video version of Read's essay that I think readers might enjoy.

Potpourri

More surprises for farmers from the Affordable Care Act. Generally speaking, regulatory costs are the most burdensome for the smallest firms.

Texas A&M economist Parr Rosson discusses the benefits of freer trade with Cuba. Even if you don't smoke cigars, trade with Cuba is likely to benefit you.

Chicago-ites are now unable to benefit from restaurant innovation due to new city policies. We need permissionless innovation in ag and food production.

University of Chicago economist John Cochrane discusses Keynesian policy failure.

Several ag schools make this list of 10 best & worst college towns (none of the worst, of course).