Quote for Today...

"A melancholy lesson of advancing years is the realisation that you can't make old friends."
- Christopher Hichens
[More]

I wonder which side...

Big Ethanol is lobbying for. Oil subsidies could actually be in trouble.

In a letter to congressional leaders this week, Obama urged “immediate action” on the tax subsidies, arguing that the revenue generated from the move should be invested in clean energy programs to reduce America’s dependence on foreign oil.
In the letter, Obama said he was “heartened” by the “openness” House Speak John Boehner (R-Ohio) expressed on April 25 to the idea of eliminating tax subsidies for energy companies. “Our political system has for too long avoided and ignored this important step, and I hope we can come together in a bipartisan manner to get it done,” Obama wrote.
Later in the week, House Budget Committee Chairman Paul Ryan (R-Wis.) said he agreed that federal oil subsidies should be eliminated. “We’re talking about reforming the safety net, the welfare system; we also want to get rid of corporate welfare,” Ryan said at a town hall in Waterford, Wis. “And corporate welfare goes to agribusiness companies, energy companies, financial services companies, so we propose to repeal all that.”
[More]

I did some simple math a few months ago to show how a real btu-to-btu comparison reveals the considerably higher subsidy levels for ethanol compared to gasoline.

So if we use 51% as gasoline's share (allocated below), here is what the subsidy levels per gallon look like, using Todd's numbers.  I think this is fair because Todd counts home heating oil subsidies, for one example, in the mix, which don't have anything to do with the 140 B gallons of gasoline he divides by.  The last column using the energy difference between gasoline and ethanol (80%) for an energy equivalent number.

		DTN	Allocated	Allocated
	$B	$/gal	$/gal	$/eqiv gal
Oil (low)*	133.2	$0.96	$0.49	$0.49
Oil (high)*	280.8	$2.01	$1.03	$1.03
Ethanol	16.1	$1.24	$1.24	$1.55

[*These labels were stupidly reversed in the original post] 

It is fair to report the huge total number oil gets, but as I noted before, most farmers still believe the bigger you are the more subsidies you deserve.  And oil is a really big industry.
So for this observer, I think the idea oil is getting "more" subsidies is an artful arrangement of fact.  At the very least, oil gives the taxpayer more energy bang for his/her subsidy buck.

While I am skeptical of actual oil subsidy cuts, should it occur, enormous pressure would come to bear on the blender credit and tariff. Not to mention the revenge factor from the oil lobby.

Of course, we delay planting another three weeks or so and ethanol is toast, IMHO.

Maybe our most lasting influence...

Centuries from now what marks will America have left on the globe? One of the more surprising suggestions is pants.  More specifically, jeans.

But why of all things denim - blue jeans? Denim is clearly a global presence, it not only exists in every country in the world, but in many of these it has become the single most common form of everyday attire. In preparing this paper we counted the proportion of persons wearing denim blue jeans out of the first hundred to pass by, on random streets in sites ranging from Istanbul, London, Rio, Manila, Seoul and San Francisco. This ranged from 34% to 68%. This suggests that soon, at any given moment, more than half the world will be wearing this single textile. Although there are many other global forms ranging from foods such as Coca-Cola, through to car brands, we will argue that denim is special, being as much a refusal, as an acceptance, of capitalist pressures such as fashion. Also, a major part of the explanation of its growth is that it connects intimacy and personalisation to ubiquity in a manner that is perhaps unique, even within the genre of clothing....The ubiquity of blue denim as a global clothing is precisely such a blindingly obvious presence in the world. No-one today is going to be surprised by the fact shamans or hunters wear blue jeans. Anthropologists have bored themselves silly with such anecdotes for the last thirty years. Furthermore, denim seems to rule not just in breadth but in depth. In heartlands such as the United States the average American woman owns 8.3 pairs of jeans (Cotton Incorporated, 2005) and over half of adults in the UK ‘usually’ wearing jeans (Mintel, 2005). So this paper will not waste time demonstrating the ubiquity of denim. These figures are all that we need to make clear our starting point. [More very serious talk about jeans]

The US has spun off many global norms without planning or thinking. This one and the outlook suggested in the article certainly bodes well for cotton farmers.

Hard-to-measure good stuff...

Timothy Lee puts his finger on something I have been trying to get my mind around as I adopt upgrades and free apps: Is GDP adequate for measuring our new forms of wealth?

Now imagine an alternate universe in which industrial products did not work this way. Suppose we lived in the world of Harry Potter, and one day in the late 1950s RCA hired a wizard to wave his magic wand and transform all of the world’s black and white sets into color sets. This would clearly represent a large increase in the standard of living—a larger increase, in fact, than the non-magical process whereby people have to buy new, more expensive, televisions. Yet the government in the alternate universe would almost certainly have recorded a smaller increase in GDP. Our own BLS would see consumers buying more expensive televisions while in the Harry Potter universe consumers would be happy with the old, cheap ones. Hence, consumers circa 1970 would be wealthier in that universe than in ours, but official GDP statistics would show just the opposite.Today these magic wands exist. For example, a couple of years ago, Google waved a magic wand that transformed millions of Android phones into sophisticated navigation devices with turn-by-turn directions. This was functionality that people had previously paid hundreds of dollars for in stand-alone devices. Now it’s just another feature that comes with every Android phone, and the cost of Android phones hasn’t gone up. I haven’t checked, but I bet that this wealth creation was not reflected in GDP statistics. And it’s actually worse than that: as people stop buying stand-alone GPS devices, Google’s innovation will actually show up in the statistics as a reduction in GDP. Cowen writes that the Internet is producing wealth that “is in our minds and in our laptops and not so much in the revenue-generating sector of the economy.” This isn’t exactly wrong, but it fails to appreciate the extent to which the software industry is entangled with the “revenue-generating sector of the economy.” The digital revolution isn’t just introducing novel ways to amuse ourselves, it’s rapidly displacing a wide variety of “revenue-generating” products and services: typewriters, newspapers, magazines, books, maps, cameras, film development, camcorders, yellow pages, music players, VCRs and DVD players, encyclopedias, landline telephones, television and radio broadcasts, calendars, address books, clocks and watches, calculators, travel agents, travelers checks, and so forth.Paul Graham and Reihan Salam have been popularizing the term “ephemeralization”, originally coined by Buckminster Fuller, to describe this process whereby special-purpose products are replaced by software running on general-purpose computing devices. As the list above suggests, ephemeralization is affecting a growing fraction of the economy. And with technologies like self-driving cars on the horizon, its importance will only grow in the coming decades. Ephemeralization offers an alternative explanation for the puzzling growth slowdown of the last decade. Every time the software industry displaces a special purpose device, our standard of living improves but measured GDP falls. If what you care about is government revenue, this point might not matter much—it’s hard to tax something if no one’s paying for it. But the real lesson here may not be that the American economy is stagnating, but rather that the government is bad at measuring improvements in our standard of living that come from the software industry. [More]

The reason this is important is we are beginning to use GDP as THE yardstick for problems as varied as national well-being and taxation fairness. While I have been hard on conservatives who downplay the growing inequality in the US, their point about being poor isn't as bad as it used to be has some merit.


For brains evolved on scarcity, the immense wealth of the US, and indeed the globe, presents unique hurdles to rational thinking. Indeed, on an issue a seemingly as straightforward as hunger, we often are misled by a) our increasing separation from the knowledge of the actual lives of people who are affected by hunger and 2) the unexpected choices the poor make in the face of non-intuitive options. 


It seems the more we really get to know - rather than merely document with data - the poor, the more confusing the world gets.

So it shouldn't surprise us that the poor choose their foods not mainly for their cheap prices and nutritional value, but for how good they taste. George Orwell, in his masterful description of the life of poor British workers in The Road to Wigan Pier, observes:
The basis of their diet, therefore, is white bread and margarine, corned beef, sugared tea and potatoes -- an appalling diet. Would it not be better if they spent more money on wholesome things like oranges and wholemeal bread or if they even, like the writer of the letter to the New Statesman, saved on fuel and ate their carrots raw? Yes, it would, but the point is that no ordinary human being is ever going to do such a thing. The ordinary human being would sooner starve than live on brown bread and raw carrots. And the peculiar evil is this, that the less money you have, the less inclined you feel to spend it on wholesome food. A millionaire may enjoy breakfasting off orange juice and Ryvita biscuits; an unemployed man doesn't.… When you are unemployed … you don't want to eat dull wholesome food. You want something a little bit "tasty." There is always some cheaply pleasant thing to tempt you.
The poor often resist the wonderful plans we think up for them because they do not share our faith that those plans work, or work as well as we claim. We shouldn't forget, too, that other things may be more important in their lives than food. Poor people in the developing world spend large amounts on weddings, dowries, and christenings. Part of the reason is probably that they don't want to lose face, when the social custom is to spend a lot on those occasions. In South Africa, poor families often spend so lavishly on funerals that they skimp on food for months afterward.
And don't underestimate the power of factors like boredom. Life can be quite dull in a village. There is no movie theater, no concert hall. And not a lot of work, either. In rural Morocco, Oucha Mbarbk and his two neighbors told us they had worked about 70 days in agriculture and about 30 days in construction that year. Otherwise, they took care of their cattle and waited for jobs to materialize. All three men lived in small houses without water or sanitation. They struggled to find enough money to give their children a good education. But they each had a television, a parabolic antenna, a DVD player, and a cell phone.
This is something that Orwell captured as well, when he described how poor families survived the Depression:

Instead of raging against their destiny they have made things tolerable by reducing their standards. But they don't necessarily lower their standards by cutting out luxuries and concentrating on necessities; more often it is the other way around -- the more natural way, if you come to think of it. Hence the fact that in a decade of unparalleled depression, the consumption of all cheap luxuries has increased.

These "indulgences" are not the impulsive purchases of people who are not thinking hard about what they are doing. Oucha Mbarbk did not buy his TV on credit -- he saved up over many months to scrape enough money together, just as the mother in India starts saving for her young daughter's wedding by buying a small piece of jewelry here and a stainless-steel bucket there.
We often see the world of the poor as a land of missed opportunities and wonder why they don't invest in what would really make their lives better. But the poor may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible and celebrating when occasion demands it.
We asked Oucha Mbarbk what he would do if he had more money. He said he would buy more food. Then we asked him what he would do if he had even more money. He said he would buy better-tasting food. We were starting to feel very bad for him and his family, when we noticed the TV and other high-tech gadgets. Why had he bought all these things if he felt the family did not have enough to eat? He laughed, and said, "Oh, but television is more important than food!" [More]

Of course, my bleeding "liberaltarian" heart cannot quite condemn the poor for being wholly responsible for their poverty because of poor choices. Their lack of faith in longer term rewards is the product of a system that pretty well sucks the lifeforce out of those dreams.

But we should consider many of our approaches are not working in the new age of under-the-radar forms of wealth and instinctive choices that are wholly inappropriate to modern economics. I suspect the economics of poverty will become a significant field for research for economists, and econometricians will be struggling to better translate into hard numbers the new forms of "goods" being delivered to us.

While you were trying to plant corn...

This forecast was quietly issued.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.Put that in your calendar.It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s. [More]

For help with the idea of Purchasing Power Parity:

In its "absolute" version, the purchasing power of different currencies is equalized for a given basket of goods. In the "relative" version, the difference in the rate of change in prices at home and abroad—the difference in the inflation rates—is equal to the percentage depreciation or appreciation of the exchange rate. [More]

This is not the shocker it may seem, IMHO. Other than simple bragging rights, this crossing of trends was clearly indicated years ago.  The date is mildly startling, but my guess is many will simply dismiss the idea of PPP, and then resort to per capita GDP in turn to satisfy their search for a number that keeps the US on top.

Kind of like the curious "jobs that depend on agriculture" number that FB arbitrarily trumpets.

Moreover, we really don't know how this will affect our lives. My guess is not much, as our fortunes will be made or undone at home by our own policies.

Junkbox, Episode GBDFA...

Looks like about May 10 for us.

• Another service occupation is in jeopardy
• Here I thought I was just sick of Vista. Turns out I was opting for a personality change.
• All quiet on the Northern Front
• Denmark wins again
• A good place to start for understanding shale gas
• Is this what fuel hedging will look like?
• A Farm Bill smorgasbord?  Yeah, that could happen.
• I am so getting this for my grandson's birthday (secretly, of course).
• Inequality and trust. It's a tricky relationship.

Rotten weather calls for...

Rotten writing.  Some really bad analogies (my favs):

The accountant had the world-weary air of a ferret that had been up so many trouser legs that life held no more surprises. 

Her new phone was so cool, OMG! so cool like it used to be in the North Pole before those stupid gases melted all the icebergs. John O’Byrne 

The winding country lane snaked endlessly ahead like a continuous series of lavatory S bends joined together and laid flat. 

The main course was as sinful as if loin chops cut from the Beast of the Apocalypse had been marinated in ambrosia and then flambéed over the fires of Hell itself. 

He was as angry as an eight-year-old who spends six hours building a Lego battleship and then his three-year-old sister smashes it to pieces and stomps on it so he whacks her and he gets severely punished. Mae Scanlan 

The sea was agitated, like an old man demanding directions in a library as his wife is telling him to put the batteries back in his hearing aid. 

He was as dull and uninspired as, I don’t know what. Frank Osen 

The arsenal of nuclear missiles stood ready, each one like a mercury-coated sausage full of death. 

[More]

Wish I'd written that...

A regrettable Easter tradition...

The creepy Easter Bunny.  We got this picture of remarkably brilliant and darling little girl (who just might be related to me) with an Easter Bunny I wouldn't want to be hugged by.

Turns out that there are a lot of them out there.

[More - not for the faint of heart]

Not enough chocolate eggs in the world...

Photogs join the club...

Another profession takes a serious hit from the Internet and its ability to undo knowledge-hoarding.

At first glance, David Hobby looks like just another casualty of the decline of print media: A longtime staff photographer for theBaltimore Sun, he was one of many employees who accepted a buyout in 2008 as part of broad staff reductions at the distressed newspaper.Yet last month he embarked on a sold-out, cross-country tour that will visit 29 cities. Approximately $1 million in tickets have been sold for the privilege of hearing Hobby and famed magazine photographer Joe McNally speak about their craft. Hobby's blog,Strobist, on which he teaches amateurs the lighting techniques used by professionals, welcomed 2 million unique visitors last year. (The largest professional photography association has a membership 1 percent of that size.) Manufacturers have named lines of equipment after him, an unheard-of honor.How Hobby went from being a workaday newspaper photographer to an internationally recognized guru is a story tied up with seismic changes in the photography profession. By teaching a horde of novices the skills necessary to shoot photographs of a quality that was until very recently only within the grasp of an elite few, Hobby has played a significant role in the transformation of the profession. In the last few years, the market rate for many types of professional photographs has dropped by as much as 99 percent. [More]

It's hard not to draw parallels with the guild system during the Middle Ages.

Because of industrialization and modernization of the trade and industry, and the rise of powerful nation-states that could directly issue patent and copyrightprotections — often revealing the trade secrets — the guilds' power faded. After the French Revolution they fell in most European nations through the 19th century, as the guild system was disbanded and replaced by free trade laws. By that time, many former handicraft workers had been forced to seek employment in the emerging manufacturing industries, using not closely guarded techniques but standardized methods controlled by corporations.The decline factors of guilds are given following^[citation needed^]:

1. There was no proper definition of the rights and trade area of concerning guild.
2. Middlemen (mediators) played negative roles.
3. The factory system replaced the guild system.
4. Discoveries opened a wide market for trading and guilds were unable to provide products.

[More]

Or even trades that required arcane skills like working with cast-oron drain pipe as plumbing did. Once PVC showed up and This Old House began, only code restrictions and city inspectors stood between them and suddenly-competent amateurs.

Of course, photography has its own unique aspects, but once photos went digital, the odds of photography being a future career plummeted. See also: travel agents.

Knowledge on demand for free is not leaving agriculture untouched either. Make a list of the farm skills that can only be learned by years of experience and study and are not replicable by a box in the cab.

1. Negotiating with landowners/sellers
2. Marketing Wait - averaging will beat active selling in the long run.
3. ? 

What will our work amount to in 20 years? What abilities will make us uniquely qualified to do it?

Real headaches...

Many of US ag complaints about exchange rates are, in fact, solving themselves via the old economics school theories of foreign trade. Our comparatively (and absolutely) low interest rates and trade imbalance has put pressure on the Chinese currency especially and I think with implicit cooperation of Chinese central bankers, the yuan has drifted significantly higher.

But while we are watching that, another story unfolds south of us.

What's happening in Brazil? A big story is the country's high interest rates. These have landed the country in an extremelydifficult position. Inflation is high and rising, and so the central bank has responded by raising rates. But higher rates attract inflows of capital, which both bid up the value of the currency and support inflation. Because Brazilian rates are high, companies often opt to borrow abroad and repatriate the cash, essentially engaging in carry trade investments like big international investors and pushing up the value of the real.Meanwhile, Brazil's leaders find themselves facing an uncomfortable choice vis-a-vis cheap Chinese manufacturing imports. Cheap Chinese imports offer one source of disinflationary pressure in an overheating economy. But domestic producers are growing increasingly frustrated, and the government is concerned that appreciation is reducing competitiveness and undermining balanced growth. On the other side of the relationship, hunger for Chinese products continues to boost resource and labour demand in China, fueling inflation in the absence of a real Chinese appreciation. [More]

This complicates things for Brazilian farmers who have become quite the currency arbitrageurs. This from last year:

Soybean farmers in Brazil, the world’s second-largest grower, are withholding supplies of the oilseed as they bet the real’s drop will boost revenue from dollar-denominated sales abroad, the head of the nation’s biggest producer said.“It looks like the real will devalue a little bit more, so we are holding sales and waiting for the right moment to sell,” said Erai Scheffer, president of Grupo Bom Futuro, Brazil’s top soybean grower. The group has 230,000 hectares (568,000 acres) of soybeans, an area more than twice as big as San Antonio.The Brazilian real has lost 5.5 percent against the dollar this month, the worst performance of the seven most-traded Latin American currencies. Farmers don’t expect the real to rebound any time soon amid concern that the debt crisis in Europe may slow the global economic recovery, Scheffer said. [More]

Corn Belt growers are wallowing in an embarrassment of riches: record grain prices, record land prices, pitiful interest rates, and now, a currency tailwind.

If only we could get into the fields to plant a crop....

I'm being oppressed...

I did not realize how the Plight of Men has worsened lately. Luckily they just held a conference to debate this very topic and here is a deeply serious account:

Indeed, it's no longer so easy to be male. If you're a frog, this is literally true—modern environmental toxins can actually turn you into a female. If you're a human, they've merely halved your sperm count since the 1940s and zapped 15 percent of your testosterone since the 1980s. Also, you've never been less employable, both absolutely and relative to women, and you now account for just 42 percent of college students, and falling. (Campus gender ratios may be a small boon for undergraduate men, but they're a giant economic impediment for menkind.) [The best 8 minutes you'll waste today]

All seriousness aside, the college ratios do make you wonder.

Not just for Star Trek theme music* anymore...

The much belittled theremin can be more than a prop for a Big Bang episode.

Behold, music played strangely.



What is really fascinating is how seriously they all seemed to take it.

*Trick question! The theremin-like sound was actually a remarkable soprano.

Heh.

Word of the Day: Elasticity...

I often think I understand price elasticity because I used to sometime back in the Dawn of Time.  But a refresher is not a bad idea, especially when the subject is oil:

"Price elasticity" is a measure of how people react to rising prices. A high number means they cut back sharply when prices rise. A low number means they just suck it up and keep buying.So what's the elasticity of oil prices? This is important, because it tells us, for example, how people are likely to react to higher taxes on gasoline. Will they use less and find other ways to get around? Or is it damn the torpedoes, keep burning the stuff, and figure out other places to cut back? [More]

So how do we react to oil prices. Hardly at all.

If these numbers are right, they're pretty stunning. Even in the rich world, it apparently takes massive price increases to significantly reduce the demand for oil, even over a 20-year horizon. In the developing world, forget it. As long as incomes are going up, demand will go up. Urk. [Same - also: the figures]

I was equally surprised, but my thinking was clouded by the effects of the recession that followed the last oil spike. We did cut back consumption, but it obviously was not driving to jobs we had been laid off from, not a reaction to prices.

This insensitivity - the gotta-have-it nature of gasoline - perhaps explains why presidential political fortunes are so impacted by pump prices.

What is forgotten is that rising gas prices have been one of the most consistent threads of the Obama administration. The average retail price when he took office was $1.61 a gallon. A year later, it was $2.61. Now, it's $3.86 -- an increase of 140 percent under Obama.
Obama's policies haven't had much to do with the increase. But if gas is still this dear come November 2012, he's the one who'll get the blame. [More]

In fact, the recovery here and around the world could perversely be bad news for Democrats. We have essentially lost empathy for the unemployed (unless they are we), so gas (and food) prices will be major factors in how we evaluate how we're doing. I'll bet even the deficit won't poll as high.

Besides on the deficit front, it's becoming pretty obvious we won't stand for the cuts we need to make.

Not totally alone...

Steve Chapman echoes my commentary this week on USFR. Why do only certain farmers get subsidies?

Most farmers, in fact, manage with a minimum of federal help because they raise commodities that don't get subsidies. The great majority of government payments go to producers of just five crops: corn, wheat, soybean, rice and cotton. Yet if you go to the grocery store, you will find racks filled with potatoes, strawberries, broccoli, tomatoes, lettuce, nuts and carrots, grown without being heavily fertilized with tax dollars.Here's how the market in those items works: Farmers plant the crops, harvest the crops and sell the crops. If things go well, they earn a profit. If not, they don't.Those farmers with a knack for making money stay in business and prosper. Those who lose money go bust. It resembles most of the other businesses in America — with the notable exception of the rest of agriculture.We really have two agriculture systems in this country. One is based on generous federal subsidies (as with corn and wheat) or strict federal control of production and imports to keep prices high (as with sugar and dairy products). The other relies on open markets, the free interplay of supply and demand, the usual "creative destruction" of a capitalist economy, and the absence of guarantees.Both produce huge amounts of the commodities we need. Both provide a good living to farmers. But one costs taxpayers billions of dollars a year, and the other doesn't. Now, which approach sounds better? And why do we insist on using an inferior model when we have a superior one available?Farmers who cherish their federal aid regard any effort to cut it as a scorched-earth strategy that will leave devastation behind. But really, it's just pulling weeds. And as any farmer knows, pulling 20 percent of your weeds doesn't do much good. [More]

The answer to approximately 90% of subsidy justifications is: potatoes.  How do we grow potatoes in the US without socialist farm programs? 

Pretty damn well, I'd say. 

Your tuition dollars at work...

You wacky Purdue parents.

It starts with the Big Bang, re-creates the extinction of the dinosaurs, holds a jousting competition, flips over an album, and simulates World War II, a shuttle launch, the fall of the Berlin Wall, and even the alleged apocalypse in 2012. In its precisely executed review of history, "The Time Machine," a Rube Goldberg contraption built by members of the Purdue Society of Professional Engineers and Society of Hispanic Professional Engineers, incorporates a record-breaking 244 steps—all to water a single flower. 
The machine beat the existing world record of 230 steps, achieved last year by Katsumi Takahashi and students at Michigan's Ferris State University. But that wasn't the team's objective: The goal was to win the 24th annual national Rube Goldberg Machine Contest held in March at Purdue University. Zach Umperovitch, a geology major and the team's captain, decided to count the steps in the machine the day before the competition. "We never do step counts," he says. "It just kind of happened."  [More]

Some inflation stings more...

Farmers need to be aware that mere numbers do not convey the way people experience price increases. In fact, the New York Fed has discovered food and gas price jumps get up our noses more so than other increases, despite the absolute costs.

In sum, our research shows that expectations of higher nominal wage growth or concerns about increased growth of nominal government debt are unlikely to be behind the recent increase in short-term inflation expectations reported in the Michigan Survey. Instead, we suggest that this rise in inflation expectations reflects two factors: (1) sharp expected increases in food and especially gasoline prices and (2) the use of a survey question (“prices in general”) that results in reported expectations being more sensitive to these types of price change. An important open question concerns the extent to which households act on their expectations of overall inflation as well as on their expectations of specific price changes. As noted earlier, one significant area in which inflation expectations may influence consumer behavior is in the wage negotiation process, but thus far neither the “prices in general” nor the “rate of inflation” measure appears to be feeding into increases in expected future wage growth. We hope to return to this open question in a future post. [More]

The good news (sorta) is due to still-slack labor demand general inflation is constrained. Without wage increases consumption must fall forcing prices back down.

For inflation expectations to begin spiraling upwards, price increases must be sustainable. And for price increases to be sustainable, they must be matched by wage increases; otherwise real purchasing power falls, consumption pulls back, and the economy weakens until prices adjust downward. Given the state of the American labour market, there is very little upward wage pressure, and therefore very little risk of a wage-price inflation spiral. [More]

But when people start lifting their inflation expectations - which then alters their spending patterns - it is more often due to the perceptions formed by filling the tank and shopping for food.


This is why our sector may be subject to more and perhaps disproportionate criticism about prices.

I stand corrected...

Yeah - he's talking to me.

Trust me...

I'm American.

May be not so much.

The results are based on survey responses to the question, “Generally speaking would you say that most people can be trusted or that you need to be very careful in dealing with people?” Within the United States, just less than half of people expressed a high level of trust in others. [More]

It would be easy to dismiss the decline in trust as a sociological curiosity, but even the most ardent market system depends on trust for efficiency. Lacking same, layers of paperwork, litigation, regulation and oversight load deadweight on any transaction.

[I know I point out the example of Denmark often, but they seem to be doing some things right as a country and culture.]

If you read all the above post, you will also note the correlation (but not necessarily casual relationship) with trust and economic inequality.

It will be hard to lift these numbers, I suspect, without a) trusting preemptively, despite the risks and 2) being trustworthy (no order implied). While this sounds pretty Sunday-Schoolish, few go to Sunday School anymore, so perhaps we need to say it aloud more often.

By popular demand...

Many of you have asked me repeatedly, "What happens when you tickle a penguin?"



Now you know.

[via the dish]

Out of the darkness....

Our Internet was down (and is still slow) after the storms last night.

It was so...Medieval!

I was reduced to surfing on my phone at Verizon-wireless speed.

I need a hug drink.

Oh yeah: 2"total ; 200 acres planted; stopped until at least Monday (best guess)

[One more note: I have switched from Firefox to Chrome on my Mac. Noticeable speed increase, some new idiosyncrasies.] 

Better words than mine...

I am not unaware of the evolution of my political, economic and social beliefs in the last decade or so. While less concerned about accusations of flip-flopping (my marketing record demonstrates that at least) I have mulled over why this change occurred and if it was done for good reasons.

David Frum, whose conservative credentials were impeccable until his ostracizing from the right a few months ago, cogently traces his own journey and captures many aspects of mine.

I strongly suspect that today’s Ayn Rand moment will end in frustration or worse for Republicans. The future beyond the welfare state imagined by Yuval Levin will not arrive. At that point, Republicans will face a choice. (I’d argue we face that choice now, whether we recognize it or not.) We can fulminate against unchangeable realities, alienate ourselves from a country that will not accede to the changes we demand. That way lies bitterness and irrelevance. Or we can go back to work on the core questions facing all center right parties in the advanced economies since World War II: how do we champion entrepreneurship and individualism within the context of a social insurance state?
Those are words I would not have written 15 years ago. I write them now, conscious that I am very far from the first person to write them.  Irving Kristol made the point most memorably at the very onset of the conservative ascendancy:

The idea of a welfare state is perfectly consistent with a conservative political philosophy – as Bismarck knew, a hundred years ago. In our urbanized, industrialized, highly mobile society, people need governmental action of some kind… they need such assistance; they demand it; they will get it.

Conservatism’s task is to shape that social insurance state, not repeal it.
Yuval Levin knew this truth when I did not. I’ll preserve it here in safe keeping for him and all his friends until they are ready to remember it again. [Please read the whole essay]

We badly need to institute responsible changes to our safety nets, and eliminate the false ones such as farm payments to maintain a working economy. But we now know too much about the intrinsic and engineered market failures to expect even our system to deliver a future we can all live with, if not like.

Most of all, total dependence on a market culture makes more sense when rising to developed status, and begins to falter when enough wealth has been generated to accomplish most human aspirations if used slightly more for the common good. In other words, economies like ours can afford features finally we could not before, I think.

Perhaps this belief is tied to a post-consumer sentiment (we have a lot of stuff, for the most part) and our aspirations and dreams fix on other desires.

Just on the edge...

Maybe I can fall victim the the resource curse after all*.  My farm lies (if you squint) right at the edge of a shale gas play.

If you haven't heard the buzz in the energy world, it's all-shale-gas-all-the-time.

Natural gas is up now — way up — and it's changing how we think about energy throughout the world. If its boosters are to be believed, gas will change geopolitics, trimming the power of states in the troubled Middle East by reducing the demand for their oil; save the lives of thousands of people who would otherwise die from mining coal or breathing its filthy residue; and make it a little easier to handle the challenges of climate change — all thanks to vast new onshore deposits of what is called shale gas. Using new drilling methods pioneered by a Texas wildcatter, companies have been able to tap enormous quantities of gas from shale, leading to rock-bottom prices for natural gas even as oil soars. In a single year, the usually sober U.S. Energy Information Administration more than doubled its estimates of recoverable domestic shale-gas resources to 827 trillion cu. ft. (23 trillion cu m), more than 34 times the amount of gas the U.S. uses in a year. Together with supplies from conventional gas sources, the U.S. may now have enough gas to last a century at current consumption rates. (By comparison, the U.S. has less than nine years of oil reserves.) [More]

This could be a game changer. According to energy experts there could be extractable shale gas under me.

[Source] [Click to enlarge]


Shale gas is not easy to uncork, and the process (fracking) stirs considerable controversy. Oddly this controversy seems to usually divide people almost exactly along the same lines as the shale gas deposits. There is nothing like unexpected windfalls - in this case - literally buried treasure - for stirring up strong emotions. (Ask anyone who has settled an estate)


But natural gas is better than coal for electricity and also fuels peaker plants that can make wind energy less unreasonable. My hunch is there is enough to frustrate energy conservation fans for several decades. But it could help shift us to hybrids and plug-ins if electricity suddenly becomes a comparative bargain and the technologies involved keep advancing.

We have two energy problems in the medium to long term, climate change and peak oil. (In the very long term, all bets are off.) Consequently, shale gas has been proposed as a temporary (a few decades) solution to both. We can—

• use natural gas to replace liquid fuels in transportation, especially as a replacement for diesel in long-haul trucking. This is the (T. Boone) Pickens Plan, which is currently dead in the water. Pickens expressed his excitement about the PGC reports, saying that “the 2,074 trillion cubic feet of domestic natural gas reserves cited in the study is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia’s oil reserves.” Pickens is selling his plan—he knows better than to spout nonsense like this. ASPO-USA commentator Tom Standing did an excellent job of analyzing the energy density issues and practicalities (e.g. compressed natural gas versus liquefied natural gas) of replacing diesel with gas. It would take decades build out the supply chain (e.g. swap petroleum gas stations for natural gas stations). Robert Rapier also wrote an analysis worth reading on this subject.

• use natural gas to replace coal in electricity generation to reduce CO₂ emissions. Dr. Joseph Romm of the influential Center for American Progress is already calling the potential shale gas play a game-changer. The imminently practical idea is to ramp up under-utilized natural gas power generation capacity to replace base-load coal. Geoffrey Styles’ analysis Shale Gas and Climate Change provides an excellent overview, so I won’t repeat the details here. Even if you don’t believe we are going to make an 80% reduction in our emissions by 2050—I don’t believe it—official policy is to act as though we are going to do so. We now have the makings of a de facto moratorium on coal (and here). We seem to be unwilling to build new nuclear capacity. It is theoretically possible for wind to provide 20% of our electricity by 2030, but there are many practical, economic & political barriers to success. Thus it would behoove us to switch to natural gas at large-scales if we want to maintain a functioning electricity grid 10-15 years from now. This is my current view, but the political winds could change quickly as the Great Recession grinds on. [More]

As the economics get better, coal is ripe for replacement. Big Coal won't take this lying down, so it will be curious to see how they play it. They mantra so far has been, "OK, coal is little dirty, but there is lots of it and it's here". Given a cleaner domestic choice, I think officials could use shale gas as an end run around no-win climate change arguments and energy costs. The effect on transportation fuels could be significant as well, since fewer oil-fired plants in the East and more electric vehicles could sharply decrease demand.

Wonder how ethanol would pencil out with $7 corn and declining gas prices?


*Maybe not - we don't have big enough water supplies.