Extreme Weather in Kansas

One of theorized consequences of climate change/global warming is that more extreme weather is supposed to occur. One possible measure of extreme weather is the number of days where the temperature meets or exceeds 90 degree fahrenheit. This is one of the monthly variables that NOAA happens to collect and report for each weather station in the country.

This post examines monthly weather data in Kansas from 1900 through 2013 to determine if the number of days where the temperature has met or exceed 90 degrees has increased over time. For this analysis, data from every weather station in Kansas was collected from the NOAA website. All the stations within a particular county were averaged together to produce a county number for each month and each variable.

Potpourri

David Widmar of Purdue University suggests a rising dollar could hurt ag exports in the near future.

Bryan Caplan (George Mason U) has a post about Bob Lawson's (Southern Methodist U) offer of a wager on the relationship between economic freedom and GDP growth over the next 20 years.

Michael Giberson of Texas Tech U defends the practices of "price gouging" during a disaster.

Don Boudreaux says income inequality is just not a big deal.

Mercatus Center's Data on Regulation in Agriculture

In a previous post, I summarized an article in Regulation about the long-term effects of regulation on the U.S. economy. The somewhat dramatic result of that study suggested that GDP per capita would be 3.6 times higher than it currently is if regulation had remained at late 1940s levels. The authors of that paper used annual page counts from the code of federal regulations as a measure of regulation. I provided a discussion of several measures of regulation in that post.

The newest measure of regulation I'm aware of comes from the Mercatus Center, a university-based research center at George Mason University. Their method of measuring regulatory burden is to count the number of restrictive words (e.g. "must" "shall") in the code of federal regulations. This allows them to calculate indices that measure the number of restrictions on individual U.S. industries by individual federal regulatory agencies. The data can be accessed using a convenient online tool and more thorough explanations of their methods can be found here and here. The only drawback of the Mercatus data is that it currently covers a relatively short time span: 1997-2012.

I'm currently working on a research paper that examines the effect of regulation by the EPA and USDA on U.S. agriculture. When I have a draft ready, I'll be sure to make a blog post about it, but in the mean time, I thought I'd provide a short discussion of the Mercatus Center data I'm using for the project.

Potpourri

Matt Bogard provides a commentary on a recent episode of EconTalk with Greg Page, former CEO of Cargill.

Don Boudreaux discusses, in an entertaining fashion, the political economy of K-12 education and here gives an example of where policy "nudging" leads.

Jayson Lusk discusses regulatory costs in the context of GMO wheat varieites.

Alex Tabarrok of George Mason University points to an interesting case of risk compensation, also known as the Peltzman Effect after Sam Peltzman, a Chicago School economist.

Pete Boettke of George Mason University gives an interview on the rise of an important free-market school of economic thought: the Austrian School.

Potpourri

Jayson Lusk of Oklahoma State University takes on Nassim Taleb's analysis of risk and GMOs. Taleb suggests that catastrophic but statistically improbable events implies we shouldn't use GMOs. Further, he suggests that biologists can't judge risk or causality.

Don Boudreaux of George Mason University has an interesting quotation and short discussion on "sticky wages," one of the fundamental assumptions of Keynesian theory.

With Chipotle on another anti-commercial-ag tirade, here's a post from last year by the world famous Peterson Farm Brothers.

Despite increases in federal gov't spending on cybersecurity, breaches are on the rise.

Nielsen poll suggests that consumers pay more for what they perceive to be "better" food. Of course, this includes food that goes by such scientifically-dubious monikers as "organic" and "all natural." The recent dramatic increases in beef (and therefore calf and breeding stock) prices certainly corroborate this.

McDonald's continues its campaign to assuage the fears of consumers about its food. In this case, it's their french fries.

John Cochrane of the University of Chicago brings up an old paper by former Federal Reserve economist Charles Plosser that reminds us that price deflation isn't necessarily a bad thing.

“Free” Community College for Everyone

During Obama’s SOTU address last night, he again proposed providing free community college. However, most folks know that nothing in life is really free. The White House’s own estimate is around $60 billion. There are plenty of studies out there that show college degrees do help improve a person’s lifetime earnings. So, at first glance, this might seem like a good idea to have a more educated workforce.

However, if the extra earnings from a college degree outweigh the costs of the degree, why isn’t everyone already in college. After all, there are already student loan programs available that alleviate the cost of obtaining the degree. Obama’s proposal really only makes sense if there was some kind of market failure that was preventing students from going to college.

There are two things that will happen under this proposal. First, students who would attend college anyway, will end up with less cost for their degree. The flip side is that this degree still costs money and now taxpayers will be on the hook for subsidizing this student. What is the benefit here?

Second, some people will attend community college who most likely would not have attended. These folks, without an option of free community college, would have internally weighed the costs and benefits of attending college and decided they would be better off by not attending college. After all, not everyone is successful in college as seen by the dropout rates. Also, some people have skills that would be better served in a trade occupation that might not need a college degree.

Obama’s proposal would have negative consequences when applied to this second group as the costs to provided a free college degree would not be covered by the degree’s benefits. If the issue is one of students not having the money to attend college then maybe there needs to be changes to the the student loan program.

Economic Theory: Rigor and Relevance

Physicist Mark Buchanan recently wrote an article in BloombergView entitled "Explaining How Economists Explain." In the article Buchanan makes some good points about how economists conduct theoretical work. He writes:

Several years ago, in the immediate wake of the financial crisis, economist Ricardo Caballero wrote about what he called the “pretense-of-knowledge syndrome” in academia. Economists, he argued, had become “so mesmerized” with the internal logic of their theories that much of the discipline -- even that part concerned directly with policy making -- had spiraled off into fantasy. Even when they studied issues close to the crisis, such as bubbles, panics and fire sales, they relegated them to the periphery of macroeconomics, which at its core valued mathematical elegance over usefulness. [n.b. Caballero has written a handful of papers over the past several years analyzing the financial crisis through the lens of a version of Austrian Business Cycle Theory]

Not much has changed since then. That, at least, is the conclusion of Itzhak Gilboa and a group of economists who recently tried to understand why their profession operates so differently from most sciences. Academic economists, they say, use the term "explanation" in a way that other scientists never would. Instead of developing realistic and testable theories like those in biology or physics, they often aim only to develop "theoretical cases" -- imaginary mathematical worlds with their own rules of cause and effect.

The main point here is that internal validity has trumped external validity as the focus of economic theory (at both the macro and micro levels). This has produced, broadly speaking, a body of literature that is more concerned with mathematical elegance (or rigor) than policy relevance (whether that means government policy or smart business strategy) or an improved understanding of economic reality. This doesn't imply that mathematical modeling can't be useful or that some focus on internal validity isn't necessary, but there's a tradeoff between mathematical rigor and real-world practicality. For every unrealistic assumption made we get more tractability and measurability, and less practicality and generalizability.

Potpourri

Jayson Lusk added some interesting questions to the January 2015 Food Demand Survey. The responses are pure gold.

Elise Hilton discusses new technology for reducing the amount of trash that ends up in landfills. Markets generate conservation behavior when the benefit of reusing or recycling a given resource is greater than the cost. Entrepreneurs are agents of change who create these opportunities.

The Cato Institute Blog has a brief roundup of posts around the blogosphere regarding the "common sense" of a carbon tax.

Jeffrey Dorfman at UGA has some suggestions for budget cuts for the new bicameral Republican majority in congress.

Brent Gloy and David Widmar of Purdue discuss 2015 economic issues related to producers and ag bankers.

Don Boudreaux explains why supposed generous behavior by established firms regarding the minimum wage is likely to limit competition.

Matthew Turner of Brown University discusses the economics of land use regulations in an article at PERC.

Bob Murphy's insightful analysis of the Fed's role in recent oil price moves.

Don Boudreaux links to an interesting graph of world-wide incomes in 1820, 1970, and 2000. This graph shows that increases in income and in income equality can happen simultaneously.

Federal Funds Rate Hike in October?

Predictions based on futures market data suggest a more than 50% chance of a federal funds rate hike in October, much later than other sources have suggested. Though the most recent FOMC minutes suggest the Fed will begin to raise rates as early as April and a recent poll suggests June as a likely candidate (based on stronger employment data in December), the federal funds interest rate futures contracts suggest the rate hike won't begin until October.

Specifically, the CME Group FedWatch uses data from federal funds rate futures contract prices to calculate the probability of a rate hike and the implied probability of various interest rate targets for a given month. As of the time of this writing, the October 2015 contract is the earliest month with a probability of a rate hike greater than 50%. This contract doesn't suggest much of a hike: the implied probabilities of a 0%, 0.25%, and 0.5% federal funds rate in October are 14.1%, 35.4%, and 33%, respectively.

The highest federal funds rate target suggested by the data in October is 1.25% with an implied probability of a measly 0.3%. To put that rate in perspective, the last time the federal funds rate was greater than 1.25% was September 2008. We've been in a very low interest rate environment for a long time. Looking beyond October, the December contract price suggests a 61% probability of a rate hike and the January price suggests a 76% chance.

It's certainly possible that the Fed could choose to raise rates at any time. I've already discussed what I think the return to "normal" interest rates will do to agricultural asset markets. Nicole Gelinas puts it very well in an article discussing the recent history and possible future of Federal Reserve policy: "Raising rates, Blinder cautions, 'needs to be done deftly.' Indeed. But if higher interest rates only expose the problems that low interest rates have hidden, even deftness won’t suffice."

USDA Spending History

USDA spending has changed dramatically over the last 50 years in terms of the USDA's share of the total US government budget and in terms of the composition of USDA spending. A conversation with a farmer or really anyone who pays attention to what comes out of D.C. in terms of agricultural spending will give you the general gist of things: The USDA share of the federal budget has shrunk over time and likely will continue to do so. Other interests outside of production agriculture have increased their share of the USDA spending pie. Aided by data, we can take a more detailed look at these spending trends and make some informed guesses as to where they will lead in the future.

Data on US federal outlays, spending on farm stabilization policy, and the supplemental nutrition assistance program (SNAP) are taken from the White House Office of Management and Budget Website (tables 3.2 and 4.1 here).

Potpourri

An interesting article on Progressive Farmer about low-pressure tires and soil compaction.

Jayson Lusk has an interesting post on the basic facts (and some interesting intuition) about corporate and family farms.

An interesting post by Pete Boettke at George Mason U. on the political leanings of academic economists. Some of the loudest economic voices on the internet are staunchly anti-free-market. Paul Krugman is the most obvious example. Pete mentions a study by Dan Klein which suggests that most economists "lean left" although they do so to a much lesser degree than academics in other social science fields. I hope to conduct a similar study some day for agricultural economists.

The most recent Federal Open Market Committee minutes suggest that the Federal Reserve will not begin to raise interest rates until April or later. The Fed sees recent declines in oil costs as beneficial on net, but is concerned that inflation may not be high enough in the coming months. It's difficult to understand why someone would think that always-rising prices are good when they also believe that lower prices due to increased supply are bad.

Thomas DiBacco has an interesting piece on the one and only time the U.S. national debt was zero.

A recent entry in the Urban Dictionary is pretty hilarious considering the new criticism of the famous book on inequality by Thomas Piketty.

Summary of "A Slow Motion Collapse," an article on the effects of regulation

Pierre Lemieux's recent article in Regulation provides a discussion of the recent history of regulation in the U.S., issues with measuring regulation, and provides a summary of an academic article which tests the effects of regulation on economic growth in the U.S. since 1949. The whole thing is worth a read, but I'll highlight some of his interesting points here. It's worth mentioning that I'm working on a paper for the Public Choice Society meetings in March that measures the effects of USDA and EPA regulation on profitability and productivity in agriculture. I'll summarize the findings of that paper in a later post.

One of the first things that comes to mind when someone mentions regulation of business is licensure. Lemieux points out that 60 years ago, only 5% of Americans needed some sort of government license to work in their field. That percentage has increased to 30% today. He notes that some fields have seen deregulation over that time period, specifically transportation and energy, but indicates that regulation has increased dramatically in finance, environment, drugs, health & safety, and many others.

Potpourri

Brent Gloy of Purdue University discusses the "margin squeeze" and how to manage when input prices are high and commodity prices are low.

David Henderson gives an example of the problem with confusing "inequality" and "poverty."

The latest edition of Regulation contains some articles about GMOs and "nudging" by governments to improve health.

Matt Bogard has an excellent post on the intersection of beef consumption, the environment, and government.

A graphical food version of Leonard Read's classic monograph "I, Pencil."

Tim Fitzgerald has a long post on the economics of fracking. He summarizes several issues well. It's definitely worth a read, IMO.

Is the Minimum Wage Helpful?

Though on-farm employment has fallen dramatically through the decades as technology has made us more efficient, the agricultural industry as a whole is still dependent on blue-collar work to build equipment, manufacture inputs, and harvest manual-labor-intensive crops. This reliance on blue-collar work implies that the ag industry is likely greatly affected by policies directed at affecting labor markets.

Don Boudreaux has had a string of posts recently on his blog regarding the effects of the minimum wage. Additionally, last February Bob Murphy wrote a short article reviewing the most recent academic literature on the topic. Though the minimum wage is very popular, professional economists are (typically) more careful about what they say about the effects of the minimum wage on the lowest-skilled workers in the economy.

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).

Where Will Yellen Take Land Values?

A few months ago I wrote about the then-current state of land values in Texas (and linked to a similar post about the Midwest) and the prospects for land values going forward. In that article, I noted that low interest rates over the past several years have lead to a massive run up in land values. Further, I indicated that careening crops prices didn't offer much help for land rents in the near future, indicating that land values will likely start to fall.

Since then, crops prices have moderated, at least a little bit, and the Federal Reserve Bank (the US Central Bank) dropped a veritable bombshell with its monetary policy statement back in mid-December. The bombshell was simply the removal of the phrase "considerable time" from its Federal Funds target rate projections. That may not sound like much, but it provided more than a shudder for financial markets.