Friday, December 31, 2010

Junkbox, Episode MMX.99...

Last links of the year.  Happy, happy, all!
 As for me and 2011, I'm trying to stay calm.

All the best.

Tuesday, December 28, 2010

Sentences that catch your attention...

Stuff like this article talking about natural gas futures.
“The first two weeks of January, you’re going to see the market turn around from December cold,” said Dave Melita, president and chief meteorologist of Melita Weather Associates in Durango, Colorado. “The snow cover will be melting fast. It will be 20 degrees above average on some days.”
Temperatures in Chicago will dip to a low of 19 degrees Fahrenheit (7 Celsius) on Jan. 1, 2 degrees above normal and 14 degrees higher than a year earlier, according to AccuWeather Inc. in State College, Pennsylvania. New York will fall to 38 degrees, 10 above average. About 52 percent of U.S. households use natural gas for heat.
Natural gas for January delivery advanced 11.8 cents, or 2.9 percent, to $4.23 per million British thermal units at 12:29 p.m. on the New York Mercantile Exchange. The contract expires today. Gas for February delivery rose 13 cents to $4.285. Heating demand drove gas prices above $6 last January.
‘Blowtorch Hot’
Higher-than-average temperatures will persist throughout the Midwest and eastern U.S., with potential in February for “blowtorch hot” weather compared with seasonal norms, Melita said.
The Energy Department reported last week that inventories declined by 184 billion cubic feet in the week ended Dec. 17 to 3.368 trillion cubic feet. Stockpiles reached a record 3.84 trillion the week ended Nov. 5.
Gas stockpiles will total 1.833 trillion cubic feet at the end of the winter heating season in March, about 171 billion cubic feet higher than at the end of March 2010, the Energy Department said Dec. 7 in its Short-Term Energy Outlook.
U.S. natural gas production may reach a record high of 62.09 billion cubic feet a day this year, the department said.
“It’s a pretty bearish picture weather wise, and we’re really not seeing a decline in production,” said Hamza Khan, an analyst with the Schork Group Inc., a consulting company in Villanova, Pennsylvania.[More] [My bold]
I tend to take these comments with some gravity as these guys are betting real margin money on NG which is very sensitive to weather.

And speaking of margin calls, I'm guessing more than a few grain merchandisers are looking at a similar working capital Money Pit they barely escaped two years ago. I've heard far-forward contracts are already being curtailed and also that few grain buyers really took serious steps to off-load their margin risk with swaps or similar financial devices.

Which means a bullish surprise in the January report - like lower final production and/or relentless demand - could close up the shops again except for nearby delivery.

And I don't doubt more than few farmers are shuffling cash to cover positions taken earlier.

Another fiasco in the grain marketing system would not engender warm feelings of confidence in our system, IMHO.

Monday, December 27, 2010

Just once...

I'd like to write a comeback as good as this.

(via sullivan)
I think this is brilliant...

Both economically and socially.

Jan does not, but I'll bet she uses it.

(via sullivan)

Sunday, December 26, 2010

Food is a different kettle of fish...

Apparently.  I have struggled to appreciate the visceral and frankly, often fallacy-riddled opinions so many of us hold about food. From the organic mythos to math-resistant "food-miles", there is a curious passion for what we put in our mouths that those of us in the actual production chain often dismiss at our peril.

Moreover, it seems to be international.
The poultry-centric controversy began late last week when Lotte Mart, one of South Korea's biggest retailers, began selling its fried chicken at a level that undercut the prevailing market price by more than 60 per cent.
South Korea's presidential secretary for political affairs bristled in a blog that, even on a crude calculation of raw materials and processing, Lotte Mart appeared to be losing about 1200 won every time it sold a serving of fried chicken from one of its 82 stores.
That was the cue for a verbal bombardment from Kyochon Chicken, Goob-ne Chicken and hundreds of small restaurants and shops across South Korea that make their living from fried chicken, who fear they would be thrust out of business. Their trade body, the Korea Franchise Association, quickly weighed in with a threat of legal action and allegations of “fried chicken dumping”.
At first, the public shared their rage and seemed ready to be worked up by the media into passionate defence of the little guy against rapacious giants such as Lotte. Then they smelt the chicken, realised they could feed their families for roughly the price of a bus ticket and joined the monstrous queues at branches of Lotte.
The controversy fed into South Korea's unease over how it should continue sculpting its economy now that it is up there among the largest in the world and an attractive model for emerging nations.
I wish I could come up with a Grand Unified Theory of Food Thought to help all of us understand how our minds process food issues differently.  I suspect it may be harder-wired than we suspect, as food has been on our minds a lot as a species.

Regardless, these anecdotes do suggest one important thing for producers and others in the food industry: Don't bet the (chicken) ranch on rational or even familiar economic behavior in the markets we serve. We will likely be sideswiped by unpredictable fads, preferences, and rejections despite our best efforts to comprehend our ultimate customers.

Saturday, December 25, 2010

Junkbox, Episode MRYXMS...

Still working for you...
God jul!

Friday, December 24, 2010

One way or another...

In a remarkable and frankly moving article about his wife's cancer, a health industry executive gropes for some answers to our health care delivery philosophy and the consequent economics.
So, what do we do? I wish there was an answer that offered real value. After all, I’m a business executive who runs a health plan providing benefits to thousands of employers. I’m also a taxpayer who supports government programs. Unfortunately, there are no such assurances, but there are steps we can take.
Best Course
As a society, we need to be honest about treatment limitations. Patients should be well informed about what the industry knows and doesn’t know. There should be candor about the likelihood that care will make them worse instead of better. Patients should be empowered to be the treatment decision makers.
In recognition of the uncertainty patients face, we need to compassionately acknowledge their pain and fear. We need to counsel that aggressive intervention isn’t always the best course of action.
I share these conclusions not to suggest dissatisfaction; Linde and I are grateful for her care. Her clinicians included the country’s most respected doctors who did what they were trained to do -- aggressively seek a cure.
Rather, these observations are offered to challenge the U.S. health-care industry to be more explicit about medical treatment being as much an art as a science and to provide emotional and spiritual support to improve patient and caregiver experience.
Course of Disease
There may be an economic benefit to this. As patients learn more about the limits of medicine, some may choose less intensive and costly care. As a nation, our health-care spending increases as patients near the end of life. [More]
It will be impossible to avoid the hard choices rushing toward us of how much health care is given to each person.  Given the enormous and certainly advanced health care industry here in the US, the answer has always been "whatever it takes". But just like we are finding out the pledge to "pay any price" is an unsustainable burden when applied too loosely to every foreign policy objective, the hard truth is that we can provide more services than we can afford in an ultimately futile attempt to promote an open-ended lifespan or make right every medical problem.

I don't see much evidence that our current system allocates resources effectively.  Our national statistics continue to decline compared to "abhorrent" systems that more effectively channel care to achieve the greatest total, rather than individual good. Spending more on prenatal and early childhood outcomes are examples of wiser spending than our elder-care focus.

But as the author above points out, a mix of education and market nudges - such as decreasing limits for some expensive interventions as we age - could help individuals to make better choices and our system to optimize the massive expenditures we now face.

It would be fair to reach and link this to the fictitious "death panel" claim, but regardless of your political preferences, the fact remains our private-for-for-the-young/socialist-for-the-old insurance system is careening toward insolvency as both costs and premiums soar.  Somewhere, somehow, someone must say, "Enough, no more".

We can wait until it is the guy with the last policy or dollar, but maybe we could contemplate adjusting culturally to accept the economic and medical limits of reality.

Thursday, December 23, 2010

Not the only hot land market...

I have written before about the interest in Africa by nations looking to secure food supplies, but the speed of the acquisitions is accelerating, it seems.
A World Bank study released in September tallied farmland deals covering at least 110 million acres — the size of California and West Virginia combined — announced during the first 11 months of 2009 alone. More than 70 percent of those deals were for land in Africa, with Sudan, Mozambique and Ethiopia among those nations transferring millions of acres to investors.
Before 2008, the global average for such deals was less than 10 million acres per year, the report said. But the food crisis that spring, which set off riots in at least a dozen countries, prompted the spree. The prospect of future scarcity attracted both wealthy governments lacking the arable land needed to feed their own people and hedge funds drawn to a dwindling commodity.
“You see interest in land acquisition continuing at a very high level,” said Klaus Deininger, the World Bank economist who wrote the report, taking many figures from a Web site run by Grain, an advocacy organization, because governments would not reveal the agreements. “Clearly, this is not over.” [More]
While we are fixated on Asia the real frontier could be the dark continent.  Mostly because we are so poor at geography as an inward-looking profession, we miss how big a deal developing Africa could be.  Maybe this map will help.

[Click to enlarge] [Source]

I also keep in mind that woefully underdeveloped land often experiences enormous productivity gains with the first application of ag technology. Global production will get far more lift from taking Africa to say, 50 bpa corn than the US to 200 bpa.  Not too mention the millions lifted from subsistence lives.


This type of development is uncomfortably close to colonialism, but I am having a harder and harder time to decide whether a colonial period is the worst outcome from countries who cannot rise above tribalism to advance.  To be sure some native culture is trampled, but any advancement would necessarily mean some losses.

It can't be any worse than the extraction industries that dominate too many poor countries.
And the sand gets in the keyboard...

Jan forced me to go with her to the Keys and visit her sister for Christmas. I'm working, umm, diligently to post serious, meaningful stuff, but keep falling asleep due to the sunshine and copious overindulgence.

But fear not. It's only until the 27th, and I'm sure I'll have some stuff up before then.

Meanwhile best wishes from Jan and I me for a legendary Christmas. (Remember last year!)


Tuesday, December 21, 2010

Net neutrality has arrived...

After an exhaustive lobbying effort by all sides (I think there are more than two in this one), the FCC will release rules to safeguard access to the Internet.  This is the clearest short summary I could find of what the rules will do.
The first rule is about transparency. Network operators of both fixed and wireless networks will be required to disclose to consumers, content providers, and device makers information that will be necessary for them to deploy services. In other words, if a broadband network operator is using network management techniques that affect an application or if a wireless broadband network provider doesn't allow a certain type of application, the service provider must provide information about the requirements for its network.
The second Net neutrality rule prohibits the blocking of traffic on the Internet. The rule applies to both fixed wireline broadband network operators, as well as to wireless providers. But the stipulations for each type of network are slightly different.
For wired networks, operators will not be allowed to block any lawful content, services, applications, or devices on their network. For wireless providers, the rule is somewhat limited and only prohibits the blocking of access to Web sites or applications that specifically compete with a carrier's telephony voice or video services.
The blocking rule for wireless and wireline networks also includes allowances for reasonable network management. This means that wireline and wireless broadband providers will be able to reasonably manage their networks during times of congestion to ensure every user can adequately access services.
And finally, the last rule applies only to fixed broadband providers. It prohibits fixed wireline broadband providers from unreasonably discriminating against traffic on their network.  [More]
For rural users who may be getting much more from the Internet than we currently imagine, I think this nobody-is-happy compromise works.

 One key phrase above is "unreasonably discriminating".
The proposal falls short of what some consumer advocates had sought. Although it would prevent wireless carriers from blocking competing voice services on smartphones, it would allow them to charge more for other types of Internet applications, such as video or social networking services.
The rules would prohibit Internet providers from arbitrarily blocking or slowing delivery of online services, but they could strike business deals in which a company might pay extra for faster access to consumers.
The proposal marks a compromise after more than a year of wrangling by the FCC, phone and cable giants, and brand-name Internet firms such as Google and Facebook. Some carriers and high-tech firms say the proposal strikes a good balance between protecting consumers and preserving the ability to compete.
"These rules will increase certainty in the marketplace; spur investment both at the edge and in the core of our broadband networks, and contribute to a 21st century job-creation engine in the United States," Genachowski said in an excerpt of prepared remarks released Monday night.
But some Internet companies and Republican lawmakers say the FCC's new regulations will restrict network operators, making it harder for Internet service providers to invest in faster networks that reach more homes.
Rebecca Arbogast, an investment analyst for Stifel Nicolaus, said that the rules are written so they can be broadly interpreted and that questions remain about the real impact on Internet video. It's unclear whether a company such as Comcast could in effect give its video-on-demand service priority over competitors such as Netflix, YouTube and Amazon by charging them more to transmit high volumes of data, she said. [More]
While much of the fine-print is unclear, I suspect high-bandwidth users will see higher costs, but access to the whole Internet will be protected. The niggling suspicion is more of us could become high-end users as we use the Internet for more than just reading Incoming and it becomes our main channel for entertainment and information.

However, at that point, broadband and wireless providers will be competing for our loyalty, I would imagine and the lines of user-volume would become more vague.

Unless Congress is pushed by heavy industry lobbying to override this ruling legislatively, my initial reaction is getting this issue fixed imperfectly allows us to start working and refining the rules as we see how consumers and industry develop this medium.

So rack up another homely fix for a longstanding complex problem. Is it me or are we seeing a pattern in government lately of getting something done (albeit imperfectly) instead of merely having complaining contests?

Ponder what it might mean if government productivity increased even slightly.

Monday, December 20, 2010

Good on ya, Republicans...

It would only be fair to admit I am pleasantly surprised by the Republican leadership and the actions of individual members to actually try to do something rather than just prevent action. First the tax bill, which although claiming that Obama "caved" still required considerable courage for members facing reelection challenges to support.  I mean Rush, et. al. hated it.

And now Paul Ryan, a leading figure on fiscal sanity, has teamed with Alice Rivlin to actually flesh out some details about his previously vague ideas to reform Medicare.

And I think I have seen this somewhere before...

If you're looking for a description of the Ryan/Rivlin Medicare reforms that have gained so many admirers on the right, Matt Yglesias has a good write-up of the idea. But I'd add another way of explaining the proposal: The Ryan-Rivlin plan basically turns Medicare into Obamacare. And in that context, Republicans love the idea behind ObamaCare and think it'll save lots of money.
Under the Ryan-Rivlin plan, the current Medicare program is completely dissolved and replaced by a new Medicare program that "would provide a payment – based on what the average annual per-capita expenditure is in 2021 – to purchase health insurance." You'd get the health insurance from a "Medicare Exchange", and "health plans which choose to participate in the Medicare Exchange must agree to offer insurance to all Medicare beneficiaries, thereby preventing cherry picking and ensuring that Medicare’s sickest and highest cost beneficiaries receive coverage."
Sound familiar?  [More]
In getting down to real numbers, Ryan may be discovering what Obama did about what is possible, rather than just broadcast sweeping idealistic goals. And one thing that is looking more and more useful, even as it faces judicial challenges, is requiring universal coverage.  Consider what is happening with "Romneycare".
So rather than sit around and wonder about a world without an individual mandate, let's talk about a world that has one. We don't have to go into hypotheticals to get there. We just have to go to Massachusetts.
In 2006, then-governor Mitt Romney signed a major health-care reform bill into law. "An achievement like this comes around once in a generation," he said. "Today, Massachusetts is leading the way with health insurance for everyone, without a government takeover and without raising taxes."
Given that the plan was enacted anyway, it's time to check in on how Massachusetts is doing. And the answer, basically, is pretty well. This week, the state's health and human services agency released the results of a new, independent survey examining coverage in Massachusetts. More than 98 percent - 98 percent! - of the state's residents now have health insurance, as do more than 99 percent of the state's children.
Remarkably, those numbers have gotten better in recent years, with the number of uninsured residents in the state falling to 1.9 percent in 2010 from 2.6 percent in 2008. That's very unusual. Normally, the ranks of the uninsured swell during recessions as people lose their jobs and states cut back on public programs to balance their budgets. Nationally, the number of Americans who are uninsured rose to 16.76 percent in 2010 from 14.8 percent in 2008, according to Gallup.
That Massachusetts's reforms have survived, and even prospered, in this economic environment has left the law's architects feeling vindicated. "The goal of the law was covering people," says Jonathan Gruber, an MIT health economist who worked on the legislation, "and it couldn't have gone better."[More]
Even if the courts rule the mandate unconstitutional, I have a hard time seeing legislators snatch long-awaited coverage access from children in college (or unemployed) now covered by parents, or the growing number of recission victims, or folks whose state program for high-risk are full. Those numbers are expanding, and without requiring coverage, insurers will be pounding on Congress for relief.

Besides there are other ways than the mandate to "encourage" getting coverage. Here are just three that I find acceptable.
5. Temporary higher deductibles for late sign ups – If an individual signs up for insurance after previously being uninsured, the company could be given the right to charge them a dramatically higher deductible for the first five months they are insured. This also helps eliminate the finical incentive to wait to get insurance until you get sick.
6. Multi-year waiver – This is an idea put forward by Paul Starr that should eliminate Hudson’s constitutional objections. If the individual doesn’t want to pay the mandate penalty, they wouldn’t be forced to as long as they sign away their right to guaranteed issue, community ratings, and subsidies for a set period of time, like five years. After that time, the individual can get the regulatory benefits or choose to sign another multi-year waiver.
7. Open enrollment period – You can have one month open enrollment period each year. People who sign up that month get the basic rate. The insurance companies would be allowed to charge a set higher premium for people who sign up at any other point for the rest of that year.  [More]
I suspect that while repeal will be at least attempted even Republicans are counting on the Senate to stop it. The real work will be folks like Ryan and Rivlin who will smash this vehicle into shape.

In fact, along with the economy picking up steam, and the admittedly mild effects of the limited stimulus in the tax bill, our despised Congress may prove to be more productive and effective than either side expects viewed in hindsight, at least.

We can say it is because the problems are now unavoidable, but I prefer to believe we still have folks with some spark of public service in most of the seats.

Sunday, December 19, 2010

What were they talking about...

Around 1900?  Google has launched a real "time suck" - an app that shows how often a word was used in the gazillion books they have scanned.  So after fooling around see what came up when I tried the words "farm subsidies" and "biotech":

[Click to embiggen]

[Try your own words here]

So what did biotech mean back then or is something else going on here?

Saturday, December 18, 2010

Just in time...

For holiday parties - a galvanizing conversation starter: Why do we hiccup? It turns out to be an odd quirk from our evolution.
2. Hiccups
The first air-breathing fish and amphibians extracted oxygen using gills when in the water and primitive lungs when on land—and to do so, they had to be able to close the glottis, or entryway to the lungs, when underwater. Importantly, the entryway (or glottis) to the lungs could be closed. When underwater, the animals pushed water past their gills while simultaneously pushing the glottis down. We descendants of these animals were left with vestiges of their history, including the hiccup. In hiccupping, we use ancient muscles to quickly close the glottis while sucking in (albeit air, not water). Hiccups no longer serve a function, but they persist without causing us harm—aside from frustration and occasional embarrassment. One of the reasons it is so difficult to stop hiccupping is that the entire process is controlled by a part of our brain that evolved long before consciousness, and so try as you might, you cannot think hiccups away. [More]
Yes - I'm back in my secret identity: The Cliff Claven of Agriculture

Thursday, December 16, 2010

I can't wait to read...

The accolades from the Truthers about this.
China has agreed to lift its extensive limits on the import of U.S. beef, lower restrictions on imports of wind turbines and telecommunications equipment, and take an array of other steps that U.S. officials say could lead to a substantial boost in U.S. exports to the world's second-largest economy. [More]
This is a big deal for corn farmers as well.  Not only could this support beef prices high enough to keep from destroying demand, as the yuan slowly but inexorably increases in value, the beef price could anchor the whole protein complex.

It is mixed news for consumers. Beef will get more expensive as we increasingly have to compete with Chinese consumers. Given the grim health news that assuredly is linked in part to our poor dietary habits, maybe sharing our abundance of beef (for profit, of course) and eating smaller portions could actually help ourselves, while not hurting the cattle industry.

At the very least, this demand boost makes the battle for acres to supply enough corn ratchet up one more notch, IMHO.

Of course, this breakthrough is the product of hard work by many despised bureaucrats and diplomats, not directly due to presidential effort.  But as the pattern is to blame the top for all the failures on the watch, Obama should be given some credit.

Now it will be interesting to see if along with whacking land value increases, massive income tax breaks, estate tax relief, guaranteed access to health insurance, etc. this trade boost will cause any rethinking about our political affinities in farm country.

C'mon, it could happen...

Wednesday, December 15, 2010

Here's the deal...

The Cargill meetings this week and last wore me out.  Now all I have to do is close out this year's books, refinance most of our land, meet four deadlines and tape the holiday shows for USFR. AND write the Christmas letter.

Posting should resume this weekend.  If not, you'll know how I'm doing on my list.

Take some time with me to enjoy this remarkable Christmas.


Saturday, December 11, 2010

It's not too late...

To rethink the handheld GPS you just wrapped.

[Thanks, Birger]

Friday, December 10, 2010

Junkbox, Episode XMASTIME...

All I want is rain for Christmas.

Thursday, December 09, 2010

What bond yields could be indicating...

I have referred often to the belief that the bond market (i.e. interest rates) will be the gun in the back of politicians to force budget cuts.  This week yields have jumped, and the coincidence with the tax cut deal has some uneasy.  Ryan Avent offers some helpful insights.
But yields that rise because the government's solvency is in question are very different from yields that rise because the private sector is competing for the private savings government has lately gobbled up. Which kind of rise in yields are we seeing now?
It's not possible to say with complete certainty, and there may be aspects of both. But I would make one observation on this score. Over the whole of the past week, yields have been generally flat, even as it became clear that a deal on the Bush tax cuts was likely. And most of the budget impact in the deal is attributable to the tax extensions that were expected to pass. But the "new stimulus" in the deal—the payroll tax cut and the accelerated depreciation for businesses—was close to a policy surprise. These measures were actually unanticipated by markets. And so it stands to reason that most of the jump in yields is likely due to their inclusion.
What's important to note is that these aspects account for basically all of the new stimulus in the bill, but they only add modestly to the budget impact of the package. The forecasters revising up their growth expectations probably already had extension of most of the Bush tax cuts in their models, meaning that the upward bump is attributable to the surprise measures. And so it seems reasonable to conclude that most of the rise in Treasury yields is due to improved expectations for the American economy.
Of course, the better the economy looks moving forward, the greater will be the rise in yields. But this is precisely why I've argued that the surest way to get Congress to tackle deficits is to generate a strong recovery. Bond yields will force action, and bond yields respond most strongly to rising growth expectations. [More]
If the economy is stronger than we suspect right now, and with the stimulus effect of the deal, this analysis could prove very timely.

I do not expect interest rates to zoom upward, but we've lost any sense of perspective after years of historically low rates.  Plus the arithmetic of small numbers promises some hyped-up headlines over the first small increases.  For example: raising the prime rate from 3.25 to 4 percent would be shouted as a "23% increase in rates"!  The same rate increase would be seen as less alarming if the prime were 7-8%.

In short, I think we all better have a plan for what we will do if the US economy gets better. 

Hard to get your mind around that, isn't it?
At last - a reason...

OK, a flimsy excuse to get an iPad.  While I love my Kindle, I can see adding an iPad would be serious overlap - especially for book reading.  But with Google getting into the e-book biz, the assumptions are being realigned.

Google eBookstore addresses a complaint many have lodged against Amazon's Kindle: The books bought for it can only be read using Kindle software. This would be a major problem if there weren't Kindle apps for iOS and Droid devices, as well as for Windows and Mac computers; I don't own a Kindle, but I own several Kindle e-books and read them on my iPhone and iPad. What I can't do with my Kindle books is read them on a friend's iPad during a visit, or on a shared work computer if I want, say, to point out an interesting passage to a colleague. Google's e-books will be accessible via a user's Google account from any device that runs a Web browser (that includes tablet computers and smart phones), as well as via apps designed to run on various mobile platforms. I can also read my Google e-books on a Nook or Sony Reader, should I ever decide to buy one, something I can't do with Kindle titles. But remember: You also can't use your Kindle to read any e-books you buy from Google.
So let's review: Google eBooks is a big improvement on the Kindle (still the most popular dedicated e-reader device) if you anticipate wanting to switch from one dedicated e-reader device to another, but if you're switching to an iPad, then it's a wash. On the other hand, if you're a student at the library one afternoon without your Kindle or iPad and you want to be able to access a Kindle book you bought for a class, you're out of luck. (If that last example strikes you as an exotic scenario, bear in mind that while Kindles are the most popular dedicated e-reader devices, the majority of people who read e-books still read them on a laptop or desktop computer, and many of these readers are students.) Your Google e-books, however, can be read on the library's computer using a Web browser. But hold on a minute! -- Amazon just announced that it will be introducing its own Web-browser-based Kindle reader in a month or so.
In other words, figuring out which e-book system will best meet your needs is really, really confusing. [More]
I tell ya - for gadgeteers, life just keeps getting better.

(Even better, we told our kids not to get us Christmas presents when we couldn't come up with any suggestions for them.  So I'll just sniff sadly and say, "Since I didn't get any presents, I bought one for myself...")

Update: Or should I wait until April?
Who gets the cut?...

I have been musing about whether the proposed payroll tax cut (SE for us farmers) would have better been targeted to the employer vs. the employee side.  Luckily,  some really smart guys are way ahead of me, as usual.
Here’s the more detailed testimony of CBO director Douglas Elmendorf. He calculates that reducing employers’ payroll taxes would increase GDP by between 40 cents and $1.20 for every dollar spent, while reducing employees’ payroll taxes would boost GDP by somewhere between 30 cents and 90 cents. On the jobs front, every million dollars spent on the employer side would create between 5 and 13 jobs in the first year; if the cuts were applied to employees, the range is between 3 and 9 jobs.
Elmendorf writes that reducing employees’ payroll taxes “would have effects similar to those of reducing other taxes for those workers”; he doesn’t go into any detail about the behavioral economics of quietly reducing withholding versus sending out splashy rebate checks.
So, let me apologize to Greg Mankiw for calling him disingenuous yesterday: there’s clearly much more of a consensus here than I thought.
I’m not yet persuaded that employer-side tax cuts are better: I still think that for three main reasons, employee-side cuts make sense right now. The experience of the last cuts shows how invisible they are and therefore how likely they are to be spent; the size of corporate cash piles shows how unwilling companies are to reinvest extra temporary cashflow; and in general employers are richer than employees, so giving the tax cut to them seems regressive. But it’s clearly credible and intellectually honest to believe otherwise.
That said, I love Elmendorf’s idea of cutting employer-side payroll taxes only for those employers who increase their payrolls. That policy would surely have a very large bang-to-buck ratio. [More]
I'm going with Felix on this one, and I also agree it was the most viable political choice.  Regardless, if you look at the analysis of the stimulative effects of the whole proposal it looks like Obama may have just negotiated his reelection.  And as several commenters have pointed out, it pretty well exposes the pseudo-concern of Republicans over the deficit.

In my conversations with farmers this week the only interest they showed was if biofuel subsidies get re-approved. This is more evidence for my conviction the only way we'll address the deficit is when we can't sell debt.

And as long as Europe keeps floundering, we apparently still look like a slightly better bet for risk-averse investors.

Tuesday, December 07, 2010

No too hard...

To see the real threat to agrarian farming: robots that can match human judgment, like picking only the ripe fruit.

Given enough time, however, it will make economic sense to pick berries with robots rather than humans. The history of industrial agriculture teaches us that if a worker can be replaced by a machine, they will be. Yet despite the obvious disruptions this causes in employment, I think the eventual move towards robotic agriculture is a vital one. We are still fighting global hunger, and anything that can increase our productivity and efficiency in agriculture is likely a valuable step towards solving that grand challenge. The strawberry robot is a relatively small development, but it’s a good one. [More]

[via mr]
Merry Christmas to all...

(now living).  The deal between the administration and Republicans kicks the deficit can down the road, but I'm not so sure that's totally bad. I'm not alone in thinking this deal surprised as many as it irritated.

The deal has something to annoy everyone -- but also something for everyone. You're a Democrat? The tax cuts for the rich are extended, and the estate tax deal exempts inheritances up to $5 million while cutting the rate heirs pay to 35 percent. But that's why the Republicans like it. You're a Republican? The tax cuts are only extended for two years, and they're paired with 13 months of unemployment insurance, an extension of a variety of tax credits passed in the stimulus, and a new payroll tax cut -- all of them deficit-financed. But that's why the Democrats like it. You're a deficit hawk? The deal adds more than $700 billion to the deficit. And, let's be honest, you got nothing in return.
It's important, however, to keep the actual policy in perspective. If you're a Republican who argues that long-term uncertainty about tax rates and the deficit are the main problem for the economy, this deal only eases tax uncertainty for two years and it makes the deficit worse. If you're a Democrat looking for more stimulus, this isn't nearly enough, and most of what's there is just an extension of programs that are currently in place. In reality, the politics of the compromise might mean more to the market than the specifics of the policy: The two parties actually have the ability to sit in a room and come to a compromise. That has implications far beyond yesterday's tax cut deal. It suggests that we may see more get done in the next two years than many of us thought, and there'll be more capacity to respond to crises than some feared. [More]
The surprise for me is the payroll tax cut. This tax is the most regressive and hence, the most powerful stimulus tool available.  It puts money directly into hands that spend 110% of their income.
Under the plan, the Social Security payroll tax on individual wages would be lowered to 4.2% in 2011, from the current 6.2% rate.
A worker earning $70,000 would pocket $1,400 as a result of the tax cut. Social Security taxes apply only to the first $106,800 in wages, so the benefit for high earners tops out around $2,100. The employer share of Social Security taxes would not be affected.
Obama administration officials say there would be no effect on Social Security benefits or long-term solvency. But the government would have to borrow to make up the lost revenue to the Social Security trust fund. The plan's detractors say it would undermine the program and likely become permanent. [More]
For farmers the SE tax is our Voldemort.  No matter how much shiny steel we buy, it won't go away (via Sec. 179 magic), unlike income taxes. Most of us will happily take the $2100, I'll bet.

(No - wait.  For SE tax, this deal may mean $4200 since we pay both halves.  Not sure - I'll get more info ASAP.) Sheesh!  I didn't read my own post above.  It applies only to the employee contribution.

And there is an estate tax deal that looks suspiciously like a FB talking points memo.
On December 6, 2010, President Obama announced that he reached a deal with Republicans to extend the federal estate tax and other tax cuts.         
Under the deal, the estate tax exemption would be up to $5 million for individuals and $10 million for couples. The tax rate would be 35%.  The exemption and rate would be in effect for two years. [More]
Plus capital gains stay at 15%!  So there should be great rejoicing in farm country, no? (This is me holding my breath...)

The more I think about this budget-bashing compromise, the more I think it will prove good for the economy long and short term.  We need to tackle unemployment first, and the deficit will tell us when time is up on that (I still agree with Bartlett about a date around 2020).

But if this thing passes it will require Republican fingerprints all over it, and the deficit will be a shared problem going forward. While bad news for Senators like Dick Lugar who are too moderate for their own good, it will prove problematic for many others who could face Tea Party hard-line opposition.

I salute those on the right who do stand and deliver after reaching this deal, and like Ezra above confess to pleasant surprise that any compromise was reached as fast as this.  It does bode well for a slightly better two years ahead.

And if the right can't deliver the votes, it certainly says much about their leadership and party unity.

Sunday, December 05, 2010

Gold and inflation...

One of the favorite indicators of inflation hawks has been gold prices. But as Scott Sumner points out, gold is a case unto itself.
Again, I don’t doubt that there are individual investors fooled by news stories of massive monetary base increases and huge deficits, who think that high inflation is just around the corner.  Not many average investors know that the same thing happened 15 years earlier in Japan, with no inflationary consequences.  But I believe the best point estimate of the market’s consensus inflation forecast comes from the CPI futures market, as well as the TIPS spreads in the T-bond market. [More]
As he explains in the cited post, demand from India and China, along with decreasing production means the global gold market is not dominated by inflation fears here in the US, but by much larger forces. In fact, my suspicion is as newly, albeit moderately,  affluent citizens in developing economies look for somewhere to stash extra moola, they stay pretty close to tangible wealth, not unlike our own forebears who bit on dollars to see if they were real gold.  It will be a while before they trust arcane investments like say REITs or swaps.

A more powerful mover of inflation in the US would be oil prices.  And speaking of which, the rally continues.
Benchmark oil settled up $1.19 at $89.19 a barrel on the New York Mercantile Exchange. It's the second time in less than a month that oil has reached the level where it was in the fall of 2008. There are widespread expectations that the price will hit $90 a barrel by year's end and head toward $100 a barrel by next spring when traders begin looking ahead to the summer driving season. [More]
Still, I think we have passed a tipping point on oil being able to dominate our economy. Higher prices would not have the effect we have previously endured as Americans are getting better at curtailing use on their own.  And it's not like we have full employment with people being paid to commute vast distances just to get the bodies.

Nonetheless, I'm filling every tank up right now.

Saturday, December 04, 2010

Those silly Truthers...

A few days ago I read Tim Burrack's contempt-riddled rant about the failure of the Korean FTA while Obama was in Korea.  In their modestly labeled blog - THE TRUTH (which amazingly always seems to align with Big Biotech corporate PR) - several of my ex-NCGA buddies relentlessly expound one narrow view of all the news they deem important. And all of it seems to boil down to: there is no problem biotech can't solve.

It almost makes me wonder where their funding comes from.

Anyhoo, Tim was grasping for language of sufficient outrage  to outline the scope of the disaster in Korea.

First President Obama was defeated at home. Then he toured Asia and was defeated abroad.
His inability to secure a trade agreement with South Korea represents a major setback for a White House that had staked a lot on the successful completion of the accord. It also raises serious questions about the president’s comprehension of the challenges to achieve trade agreements and the importance of America’s economic engagement with the world.
On free trade, the president has over-promised and under-delivered.
The pacts with Colombia and Panama remain important, but they’re also dwarfed by the deal with South Korea, our seventh-largest trading partner. A successful agreement with Korea would become America’s biggest trade accord since NAFTA--a pact finalized by Bill Clinton, Obama’s Democratic predecessor--and mark a significant step toward the goal of doubling exports.
Obama said he would get it done. In June, he gave himself the deadline of last week’s G-20 summit in Seoul. This seemed like a reasonable date because it pushed the issue beyond the midterm elections, safeguarding it from demagoguery.
On the Sunday after the elections, Obama contributed an op-ed to the New York Times. He offered a powerful argument for free trade.
"The great challenge of our time is to make sure that America is ready to compete for jobs and industries of the future." he wrote. "It can be tempting, in times of economic difficulty, to turn inward, away from trade and commerce with other nations. But in our interconnected world, that is not a path to growth, and this is not a path to jobs."
Obama also singled out the specific opportunity with South Korea. "President Lee Myung-bak and I will work to complete a trade pact that could be worth tens of billions of dollars in increased exports and thousands of jobs for American workers. Other nations like Canada and members of the European Union are pursuing trade pacts with South Korea, and American businesses are losing opportunities to sell their products in this growing market. We used to be the top exporter to South Korea; now we are in fourth place and have seen our share of Korea’s imports drop in half over the last decade."
What happened to the man who wrote these words? Well, he didn’t seal the deal. The president’s self-imposed deadline has come and gone and he has done nothing tangible to increase trade –just more words.
This is what kids call an "epic fail."
Right after the elections, Obama confessed to a "shellacking" by voters. His failure in Korea is a variation on the same theme--a shellacking suffered at the hands of Big Labor, which rigidly opposes just about any trade policy that doesn’t involve economic isolationism. [More]
Well, guess what, Tim? By taking some time (all of two weeks) and doing the hard work while ignoring right-wing critics who can't imagine letting trade negotiators pass up political photo ops to nail down details, the administration got a fair deal not just for Tim and his friends but the American car industry.
According to what is known so far, the South Korean side has made big concessions in the automotive sector, agreeing to postpone for five years the abolition of the 2.5 percent US tax on South Korean auto imports and at the same giving the green light for more US made cars to be exempted its safety standards. Now, any automaker can bring into South Korea 25,000 vehicles, compared to 6,500.

The American automotive industry sees the FTA as a major success, with GM being among the first to express its satisfaction. In a statement released today, the car maker says it now has time to “assess whether Korea's market has opened as negotiated before reducing its tariffs.” [More]
In  other words, the tightly controlled Korean car market now represents an opportunity for people who depend on that industry for their future. But since there is no biotech involved, Tim didn't seem to care about that particular group of Americans.

So wipe the spittle off your monitor, Tim, and come up with some other niggling issue with this accord so you won't have to acknowledge THE TRUTH of an Obama success.
I would suggest using the words "epic success". 
And "gnarly".

Thursday, December 02, 2010