Reluctant pessimism...

One unspoken reason for my posting pause was a fear I was becoming just another grumpy fault-finder. My theory was I would wait until the clouds cleared and I was able to ferret out good news and how it could apply to agriculture. I thought the myriad changes occurring in our farm and lives were distorting my views.

This could still be the case. But it could also be the reasons I am unsettled have some basis in reality. For example, while I am moderately secure in the outlook for Jan and I, and confident our sons will manage well, I am troubled by the future I see for our grandchildren.

Turns out I'm not alone. (And I am aware that this mindset will incline me to seek out confirming data.) But consider typical look forward from someone whose judgment I value.

It’s certainly possible that we’re on the verge of a pay surge, much as we were in the mid-1990s, when the situation also seemed bleak. It’s also possible that the forces behind the great wage slowdown – from globalization to our often-sclerotic government to (at least for many workers) technological change – are still more powerful than the positive forces. In that case, the wage slowdown won’t end until the country makes much more progress in improving education, cutting medical waste and energy costs and creating a more responsive, nimble government.Either way, the great wage slowdown, or the end of it, will help set the tone for American life in the coming decade. It has already done so in the century’s first 15 years, causing widespread unhappiness with the country’s direction and leading voters to shift partisan directions multiple times. The political turmoil isn’t likely to end until the economic reality changes. [More of a short must-read]

The value of a meritocracy has always struck me as worth the strain to operate under. The competition will keep you strong or some such nonsense. But two things seem to have intruded on the theoretical workability of such a system.

First, we now can choose between the merits of 7B people instead of those in our local community. This meant that before there was room for the mediocre to achieve mediocre rewards simply because they were the best around at that level. Now we sort out the best from the globe, which means the fortieth-best is still the best ever somewhere. 

The second is the growing possibility of not enough work. This is what Leonhardt (above) talks around, and Ryan Avent addresses full on.

The world has more than enough labour. Between 1980 and 2010, according to the McKinsey Global Institute, global nonfarm employment rose by about 1.1 billion, of which about 900m was in developing countries. The integration of large emerging markets into the global economy added a large pool of relatively low-skilled labour which many workers in rich countries had to compete with. That meant firms were able to keep workers’ pay low. And low pay has had a surprising knock-on effect: when labour is cheap and plentiful, there seems little point in investing in labour-saving (and productivity-enhancing) technologies. By creating a labour glut, new technologies have trapped rich economies in a cycle of self-limiting productivity growth.Fear of the job-destroying effects of technology is as old as industrialisation. It is often branded as the lump-of-labour fallacy: the belief that there is only so much work to go round (the lump), so that if machines (or foreigners) do more of it, less is left for others. This is deemed a fallacy because as technology displaces workers from a particular occupation it enriches others, who spend their gains on goods and services that create new employment for the workers whose jobs have been automated away. A critical cog in the re-employment machine, though, is pay. To clear a glutted market, prices must fall, and that applies to labour as much as to wheat or cars.Where labour is cheap, firms use more of it. Carmakers in Europe and Japan, where it is expensive, use many more industrial robots than in emerging countries, though China is beginning to invest heavily in robots as its labour costs rise. In Britain a bout of high inflation caused real wages to tumble between 2007 and 2013. Some economists see this as an explanation for the unusual shape of the country’s recovery, with employment holding up well but productivity and GDP performing abysmally.Productivity growth has always meant cutting down on labour. In 1900 some 40% of Americans worked in agriculture, and just over 40% of the typical household budget was spent on food. Over the next century automation reduced agricultural employment in most rich countries to below 5%, and food costs dropped steeply. But in those days excess labour was relatively easily reallocated to new sectors, thanks in large part to investment in education. That is becoming more difficult. In America the share of the population with a university degree has been more or less flat since the 1990s. In other rich economies the proportion of young people going into tertiary education has gone up, but few have managed to boost it much beyond the American level.At the same time technological advances are encroaching on tasks that were previously considered too brainy to be automated, including some legal and accounting work. In those fields people at the top of their profession will in future attract many more clients and higher fees, but white-collar workers with lower qualifications will find themselves displaced and may in turn displace others with even lesser skills. [More good stuff]

I am coming to the reluctant conviction the system I have thoroughly believed in is not so much broken as superseded - no longer applicable. We simply never envisioned machines that are doing what they do today, let alone a population as large as we now support fairly easily if not evenly.

While I do not think agriculture will be exempt from this questionable advance of progress, there are intrinsic brakes that may slow the concentration in crop farming, at least. Land ownership, cultural patterns, relative isolation from faster evolving urban areas, and other factors could retard but not redirect this trend.

IF this is even close to correct, what should we do as a profession and individually? Those answers I think are contradictory - a tragedy of the common future, as it were. The things I think important for family survival will almost certainly diminish the outcomes for the community.

This has slowly been uncovered as the great weakness of free market systems - without constraint they tend to proceed to wildly unequal systems. Sort of like gravity forming planet, in my mind.

In this at least, Marx was correct. Preventing, or even slowing this, confounds us economically and especially politically.

Proposed solutions all seem an enormous reach from current entrenched positions. Historically, only political turmoil - even revolution has been able to effect such drastic changes. Which leaves us in an uncomfortable position. 

Even as we know our goals will worsen the problem, they make the most sense individually. It's becoming obvious there will only be a few winners in our future. This is the grim future I cannot see how to avoid. And it gets worse. As the competition gets more intense, even broad rules could be discarded. Judging from the accounts of the world of finance, this seems to be verified by fact. Social capital and human links will dwindle and the divide will grow.

This all seemed far too unlikely as it required broad participation from individuals and groups, and went against moral and religious teaching. But with technology empowering the need for fewer participants in the economy, and weaker belief systems, such an outcome is more imaginable.  Not in my lifetime as much as my children and grandchildren.

As I stated, these could just be words arising from my own personal funk. But I'm having great difficulty finding plausible alternative outcomes to argue for.

A Yellow Swan, maybe?...

Could the remarkable yields from much of the southern and eastern Corn Belt be classified as a Black Swan event? I don't think anyone came close to predicting it until late in the summer, and I don't think any crop observer would have given even 1% odds of a national yield over 175.

For example, this is Darrel Good as late as August:

Our analysis of USDA yield forecasts for corn over 1990-2013 did not reveal any evidence of bias in August, September, October, or November.   There is compelling evidence that the accuracy of USDA corn yield forecasts has improved over time, particularly since 2011.  It is especially interesting to note that USDA corn yield forecast errors in 2012 were extremely small, with the August forecast exactly equal to the final estimate.  This performance was exceptional given the severe drought that occurred in the summer of 2012. What, if anything, do these results imply about the ongoing debate about the direction of USDA corn yield forecasts in remaining Crop Production reports during 2014?  While it is, of course, true that longer-term trends in accuracy will not necessarily dominate in any particular year, an unusually large August forecast error this year (5 percent or more) would definitely be counter to the trend towards increasingly accurate USDA corn forecasts over time. (More)

USDA August = 167.4, so 5% error = 8.4.

Anything over 175.8 would be a greater than 5% error.

I'd say the unpredictable part is confirmed.

The second characteristic - disproportionate consequences, suddenly looks more likely as well. We don't know when the freefall will end or how we will use up this ~15B bu. of corn. Business plans and retirement calculations for producers are in shreds. Fertilizer applications have stopped. Seed dealers are not popular.

The third characteristic - it seems obvious looking back - is already occurring.

And we can't stop talking about cash rents.

Oddly enough, on that note there could be a double whammy here. As high payers are trying negotiate lower, more word about what the going rate actually was is filtering out, I think. People who have been getting the same $180 while the next door field was paying $350 are finding out and are not amused. Again, unforeseen and disproportionate consequences.

How resilient each operation is depends on a variety of factors, but regardless nobody is going to be hauling much margin out of the field with the prices where we are now, let alone where they could go. What happens next spring if we are looking at corn in the $2.75 or lower range and beans around $8?

• Will banks lend for a deeply red ink budget?
• Will there be a rush to the exit from Boomers?
• Will seed and fertilizer retailers blink?
• We we surprise the market again with Black Swan acres?
• Will Washington step in?
• [Fill in your speculation here]

 I don't think we can rule out wild reactions if this isn't a spike down but a splat. Frankly, I'm not sure what our plan will be.

You drunken sailors... 

 I've already ranted about this, but if anything the Ag Meme of the Year is getting stronger.

"The year 2014 will be the sobering up period," said Michael Swanson, an economist and senior vice president with Wells Fargo, the largest private lender to U.S. agriculture. [More that will tick you off]

I wrote about the characterization of the last few years as a party in TP recently. In fact, I think I'll just save some time and repeat myself:

Party? What party?

It’s hard to turn a page in ag media without encountering a description of recent years as a party, which is now sternly declared “over”. The metaphor is inaccurate at best, and faintly insulting to farmers at worst.  There is scant evidence of either mindless revelry or foolish extravagance. 

This image of farmers squandering prosperity originates, I believe, with critics who remember 1973. Returning in ‘75 after a decade away I discovered fellow Boomers exhilarated by that still unrivaled income spike. We put our name on lists to buy a new tractor; men who seldom drove 150 miles to Chicago flew often to Las Vegas; we couldn’t buy big enough pickups. Goaded by government policies (10% investment tax credit), equally giddy lenders, and elders we delighted in defying, many did go overboard. 

But agriculture had just emerged from a grim economic period, and was still an occupation of exhaustive effort and financial naiveté. Children didn’t just leave the farm – they fled. The socioeconomic gulf between farm and city was wide. Young men urged off to college (like fathers drawn off to war) saw other lives and decided they knew what “better” looked like. Mostly it centered on living large. Returning home, they already had an idea of how to celebrate, and only needed the resources. In hindsight, the results were unsurprising.
During the Eighties, the survivors grew up. So when this current run of good fortune occurred, the response was markedly different, which is reflected in USDA financial reports. 

We have used prosperity to reinvest in our long-term future. When critics point to “outlandish” land prices, remember, regardless of price, land is an investment, not a consumable. We have installed tile, terraces, and pivots at an unprecedented pace. We have built homes and bins and buildings that will serve our grandchildren and beyond. We have paid down debt to historic ratios. The balance has been herded into long-term notes with rock-bottom fixed rates. These aren’t the actions of people at a particularly fun party. 

Unnecessary New Paint? Even this supposed failing is not without rationale: “Yeah, but we can go X years without buying another machine”. Farm machinery is correctly classified as a “durable”, and dealers fear demand has just been pulled forward. Our sheds are better seen as a well-stocked tool chest. We have also learned that even if we admit to being “over-machined”, the narrower fieldwork windows of our era of climate change often prove we have barely enough. 

Above all, after decades of laments, we took the earliest profits and finally, in the words of my father, “outbid the world” for our sons and daughters. We “bought” our best and brightest home. 

To be sure, our living standards (expenses) have increased. However, a 20% increase while net farm income was more than tripling does not strike me as disproportionate. Even the notable upswing in farmer leisure from golf to getaways is better seen as an overdue revision of an all-work-all-the-time ethic that only served to drive our children from the land, stress our marriages, and narrow our vision. Rural lifestyle rebalance and firsthand global experiences were valuable investments.

Perhaps the transition from lower-middle class to upper-middle class was simply easier than the abrupt change from lower to middle class in the ‘70’s. Or maybe 21^st century producers had already learned what money could not buy.

Nag, nag, nag. Meanwhile, we have been regularly harangued about our historic tendency for financial excesses. (We heard you, already.) Perversely, the only example of embarrassing indulgence that comes to mind involves one perennial haranguer: the Farm Credit System. (More soon) 

I have been a relentless – OK, tiresome - critic of our profession for our subsidy addiction and brazen boasting, but on this issue I am convinced it’s a bum rap. While we gratefully rejoiced to advance long–desired goals, producers managed this bonanza with remarkable self-discipline and forward thinking. 

So, regardless what happens to farm income, this party isn’t over. It never happened in the first place.

There are many possible strong rebuttals to this condescending characterization that are conveniently left out of media quotes:

• There was not party in the protein sector: from hogs to milk to chicken. In fact, the last few years have been multiple trips to heck and back.
• I think the financial community is pissed because we invested in farmland, where they couldn't get their hands on the wealth to churn and derive commissions. Once we bought land, that money was put of reach and they were holding a 30-year 4% mortgage which was the best they could charge. 
• Bankers have been prophesying interest doom for over a decade now. Swanson has to my sure knowledge, as I have followed him at conferences over that time period. Even by their self-serving standards they are starting to look a little foolish, even making Chicken Little a calm comparison. These aspersions to the character of agriculture are simply a way of diverting attention from their clueless doomsaying.
• The lending community truly does hold agriculture in contempt. While they tell us what we want to hear face-to-face, they tell Wall Street what irresponsible adolescents we really are.

If I banked with Wells Fargo, I would be sure to point out this derogatory description and customer disrespect and suggest it may be one reason why WF needed bailout money during the recession.

Farmers are quick to rail against anti-GMO or CAFO opponents. It's time we realized much of image problem could actually be generated by people like Swanson describing us as incompetent drunks, while claiming to be on our side.

Something different: Exhibit A...

Stuff I think merits considering as preludes to whatever future we are hurtling toward.

Exhibit A: Amazon and the USPS

By launching Sunday deliveries, the Postal Service has moved to where its longtime competitors aren't. Hardly anybody in any industry delivers on Sunday, with the exception of newspapers. As a business idea, this makes total sense — and while USPS doesn't exactly threaten FedEx or UPS, it might cause those companies to strike agreements with other e-commerce businesses. The deal will effectively shake up the shipping industry.The other reason it's disruptive? This is one of the few cases we've seen of what we'll call reverse contracting — when the private sector hires a government agency to fill its need rather than the other way around. We haven't seen much of this, in part because there are so few publicly run, consumer-facing services like USPS at the federal level. There's Amtrak, the Corporation for Public Broadcasting, and a handful of others. But the pact between Amazon and USPS might open the door to further reverse contracting. If this venture takes off, Amazon may unintentionally wind up pioneering a new model for public-private partnerships.

The deal with Amazon won't single-handedly save USPS. And at this point, officials from both parties are keeping quiet about the terms of the agreement. But it puts the Postal Service in an aggressive posture that's as refreshing as it is surprising. [More]

Suppose this idea migrates to the other quasi-government entities listed above. Suppose a health insurance company contracted out to Medicare for some of its policies?

But maybe there could be even more.

Now, let's turn to Amazon. The company has been investing heavily in ways to deliver more products faster, cheaper, and farther than the competition, including dozens of warehouses in the U.S., a fleet of trucks, and even "lockers" for people to pick up their goods at local convenience stores. It's expensive: Fulfillment costs amounted to $1.96 billion, or 11.5 percent of revenue, last quarter alone. Amazon considers it an investment in the future, as part of its strategy to provide anything customers might need as fast as they could possibly get it (as well as a tax strategy, since it knows it'll lose the benefits of lacking a physical presence in states soon anyway). The embodiment of this gambit is AmazonFresh, which doesn't yet make a profit, but is supposed to ease the transition towards delivering more and more goods.Owning the Postal Service would get Amazon the rest of the way there. It's got 31,000 post offices and 461 mail processing centers, which represent significant excess capacity. The USPS is still the best last-mile mail delivery service provider, and Amazon is perhaps the most aggressive warehousing logistics innovator, which could enable a partnership — similar to one proposed by a group of former postal leaders and partly approved by the National Academy of Public Administration — that would leverage the strengths of both. [More]

As enormous amounts of money pile up in companies, expect business deals that stretch the imagination.

This keeps popping up...  

No wonder the food industry is a tough market - consumers are a restless bunch. One particular idea that keeps popping up in new forms is the anti-carb concept. Three anecdotes:

1. A former NCGA president is dropping white carbs from his diet.  When I raised my eyebrows he ascribed it lamely to his wife, but did say he felt better and had lost weight. The better mental attitude was the claim that struck me.
2. At dinner the other night in a slightly too-trendy-for-me restaurant in the Chicago suburbs, I had to ask what the abbreviation "gf" stood for. (Gluten-free) The waiter explained it wasn't that people were gluten-sensitive, but rather a range of reasons why they wanted to avoid it.
3. Then there was this hidden note in an article about the most-highlighted passages in Kindle books. [For those who don't use a Kindle, it shows you how many people have highlighted a given passage, and of course, Amazon keeps track of such things. I have always been mystified by most of the selections]:

The bleakness of the worldview suggested by those passages is striking. It’s no surprise then, to find self-help passages appearing alongside them: They help us cope with our inherently flawed human selves. Stephen Covey’s The Seven Habits of Highly Effective People appears several times—“It’s not what happens to us, but our response to what happens to us that hurts us”—as does Dale Carnegie’s How To Win Friends and Influence People. Quotes about the healing power of God also make a strong showing, as do musings on the nature of marriage, and work, and leadership, and white carbohydrates. [More] [My emphasis]

Really? Carbs are one of the existential questions of our day? The fact this curious aversion has been around now since the Adkins diet suggests it may have enough penetration and longevity to seriously affect the American diet. Jan has decreased our potato/bread/rice intake surreptitiously enough I haven't really noticed anything except a deeper apprecation for French fries at the occasional meal out.

Like other seemingly hopeless trends in the US, perhaps a series of relatively small adjustments, rather than a massive campaign can actually affect a curve bending change. The last thing anyone expects is for people to solve the obesity problem on their own, but it's not impossible, I guess.

Sprawl returns ...  

And probably sooner than we think. The recession, especially in housing combined with gas prices, and gridlock to bring urban expansion into the country to pretty much a halt. In fact, it has been reversing.

Now, with crop prices soaring and housing in a deep slump, the economics of land investment have turned upside down. Farmers and investors are buying land that had been slated for development and using it for agriculture. And they are paying a small fraction of what housing developers paid for the same land before the recession.
The trend, if it continues, could represent a historic shift away from development in the far reaches of metropolitan areas. These properties had fueled much of the housing industry's bubble last decade.
In September, the Vanderweys, an Arizona dairy farming family, paid $8 million for a 760-acre alfalfa and cotton field that had fallen into foreclosure in Buckeye, Ariz., about 30 miles west of Phoenix. That same parcel, called Liberty Farm, had been sold to real-estate speculators in 2005 for $40.8 million. The Vanderweys want to plant hay.

California farmer Paul Singh bought this land from housing developers.

"These prices are becoming the new normal," said Nick Vanderwey, one of four brothers who purchased the farmland. "Everything in this area is coming back into farmers' hands."[More]
(Note: this article was from 2011)

 But wait!  This song isn't over, and Google may be writing the next verse with its autonomous car. There are others working on this, but Google provides a convenient benchmark. And it has a powerful argument about feasibility.

Watch and marvel.


The implications for such vehicles are simply staggering, and one may be a chance for those exurban farmer super-fortunates to sell their land again to developers as cities begin to expand.

Many anticipated consequences of driverless cars have already received attention on this blog and elsewhere, such as their impact on the mobility of the elderly, on taxis and car sharing services and on the future of the car industry. A crucial aspect which has escaped attention is the impact of driverless cars on urban form, which I anticipate will follow two broad predictions:

• Cities will greatly expand, again: Faster and more efficient transportation will convert locations that are currently too remote for most users into feasible alternatives, abundant with space. Like suburban rail in the early twentieth century and the mass consumer automobile that followed, driverless cars will generate a gradual, but dramatic expansion of cities.
• Buildings and parking will be uncoupled, freeing up valuable land: After dropping off passengers, driverless cars will independently seek parking (or their next car-share customers) and they will show up for the return ride at the tap of an app. As soon as driverless cars are common enough, the demand for adjacent parking will dwindle and parking lots in areas where land is sufficiently valuable will be ripe for conversion to other land use. As parking in high-value areas is thinned out or altogether purged, the micro-structure of cities will change – you guessed it – dramatically!

Why will cities expand?

Driverless cars will make it less “costly” for people to travel a given geographic distance, partly because they will be free to engage in other activities while travelling, but primarily because of reductions in travel time. Unlike human drivers, autonomous vehicles will follow optimal routes given real-time traffic conditions without fail. More crucially, as soon as suitable roads such as freeways (or lanes thereof) are declared off limits to manual driving, driverless cars will travel – safely – at much higher speeds than we do today. Gains in efficiency will follow from coordinated traffic management protocols, too. Once vehicles communicate with each other traffic through intersections and merges will flow much more smoothly than permitted by today’s traffic signals, stop signs and merging lanes, leading to substantial gains in travel time (a partial, human-mediated step in this direction is explored in this article).
If people currently forego affordable, spacious dream homes because the associated commute is too long, a technology that condenses the time needed for commuting along the same route – and allows doing so in the back seat – will make those homes more agreeable. Similarly, businesses whose location depends chiefly on access to appropriate labor or clientele will find that potential locations which are currently too remote will become feasible. It will still be crucial for them to sit “close” enough to their talent pools or their customer base, but because what matters for “closeness” is travel time rather than geographic distance, these firms will be able to reap the benefits of more remote locations without giving up “closeness.”

How far will cities expand?

The extent to which cities expand will be determined by the extent to which travel times are reduced. The more efficient traffic flow becomes the broader the geographic range in which living and working becomes feasible.
Will we ever hit a point at which people are no longer interested in the extra space offered by more distant locations? This is unlikely. Today swimming pools and three car garages are common in suburban homes, but who would have imagined that possible before the advent of the mass consumer automobile? Perhaps the current equivalent is the wish voiced by some home buyers – typically just beyond the urban fringe – that neighbors’ homes be out of sight. That seems like a lot to ask in today’s suburbs, but it could well become the norm looking forward.

When will this happen?

Most estimates suggest that the arrival of the fully self-driving car on the consumer market will occur within a decade. Provided that it will be possible to install these systems in existing manually driven cars – much as hands-free cellphone devices can be installed today – then there will be no need to wait for the entire stock of cars to gradually be replaced, and a much faster process of adoption will ensue. The speed of the process will be determined by people’s willingness to give up the driver’s seat, and by the adaption of the legal environment, first to permit driverless cars and then to secure them an exclusive right of way (a separate lane on the freeway). Google and the automakers will go to great lengths to ensure that legal barriers are removed and that the driverless car is adopted quickly. The devotion of a separate right of way may be a more challenging feat, but it will be difficult to reject in light of the gains it will offer.
Following these developments, the gradual process of city expansion will take place over many decades, much as the ramifications of the mass consumer automobile continue to play out almost a century after its arrival. [More worth reading despite my generous excerpting]

I fear the autonomous car will arrive about 20 minutes after I end my career at USFR and don't have to make my 3 hr. 7 min. commute to South Bend. That's OK. But I wonder what farmers could get up to in our ever-expanding off-season if distance were less of a hassle.

If any group in the US should grasp the possible impact the autonomous car could have, it is we farmers. Let's face it - I'll probably lose control of my grain cart before long.

Forget the Segway - I'm betting on this as the Next Big Thing.

Preparing Plan B...  

While I am seriously concerned that the Republican mindset is simply about power, the members who seem to be driving the bus having given some signals to indicate what a broad Republican victory this fall might mean.

Curiously, in a few ways, I might support their goals.

We can, I think, forget about the deficit reduction as likely. The goal for the right is to cut programs they hate and taxes. The first is a trivial amount (shutting PBS down won't dent the budget), and they have shown little regard for other supposed spending targets. 

One of which is, (ahem), the farm program.

A target price supporter discounted the idea that Tea Party House members would rebel against the notion of government set prices.
“It never comes up with them,” one said.  
Key members of the freshman class are seen as allies.
Reps. Martha Roby (R-Ala), Austin Scott (R-Ga.). Steve Southerland (R-Fla.), Steven Fincher (R-Tenn.), Renee Ellmers (R-N.C.), Alan Nunnelee (R-Miss.), Steve Palazzo (R-Miss.), Rick Crawford (R-Ark.) and Robert Hurt (R-Va.) are seen as in the peanut camp.  [More]

This is just one example of unwillingness to cut anything other than stuff outside a your own district. This especially holds true for defense. Meaningful reform of major entitlements/defense look pretty low probability to me right now.

“The whole point here is to try to get some economic growth, job creation, to get out of this recession,” Kyl told POLITICO. “Why would we risk going backward with policy that even CBO says would be the wrong prescription right now?”

Arizona’s other senator, John McCain, the top Republican on the Armed Services Committee, dismissed Reid’s comments as “unfortunate.”

“I think it makes it pretty clear what Senator Reid doesn’t understand are the devastating effects on our nation’s security that Secretary Panetta has so graphically described,” said McCain, a Vietnam veteran and retired Navy captain.

“I wish [Panetta] would take a trip down to 1600 Pennsylvania Ave. and tell the president we cannot afford this from a national security standpoint,” McCain added. “That isn’t John McCain’s opinion; that is Leon Panetta’s opinion.”

Sen. Lindsey Graham, an Air Force reservist, chimed in as well: “Gutting the military should be the last thing we want to do.” [More]

Keep in mind this was the deal they agreed to last summer. Which makes me pretty sure they will renege on any campaign-promised spending cuts in that huge block of the budget.

On the other hand, I don't think I can even guess how many tax targets they will aim for. And hit. Revenues will almost certainly drop to great cheers, even as corresponding cuts bog down. And a new war somewhere will suddenly become more feasible, along with some costly bullets.

Simple history tells us Republicans are bigger spenders and deficit producers, and especially unfunded spending. While they have neatly convinced many that Obama has been a big spender, he pales in comparison to Bush, and Reagan. They have, however failed to convince people who can do the math.

 [Source]

 Obama has indeed presided over the slowest growth in spending of any president using raw dollars, and it was the second-slowest if you adjust for inflation. The math simultaneously backs up Nutting’s calculations and demolishes Romney’s contention. The only significant shortcoming of the graphic is that it fails to note that some of the restraint in spending was fueled by demands from congressional Republicans. On balance, we rate the claim Mostly True. [More]

I was as surprised by these numbers as critics, but being a Keynesian, I support government spending increases during recessions, but not expansions. Thanks largely to the wind-down of the Iraq war and, in fairness, a less than cooperative Congress, the Obama "splurge" simply never happened.

My point is not to continue the did-too/did-not charges, but to estimate what a Republican sweep of power might mean for spending. Romney gave us a hint, I think in a recent interview with TIME.

Halperin: I want to get to a lot of those, and let’s go to spending, which is a big thing for you, one of the bases of comparison – you say you’d cut spending a lot more than the President has.  And like most governors I know, you can get down in the detail.  A lot of people don’t know that about you; you can really get your arms around a policy issue and go deep, so let’s talk about spending.  You have a plan, as you said, over a number of years, to reduce spending dramatically.  Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office?  Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.  What you do is you make adjustments on a basis that show, in the first year, actions that over time get you to a balanced budget.  So I’m not saying I’m going to come up with ideas five or ten years from now that get us to a balanced budget.  Instead I’m going to take action immediately by eliminating programs like Obamacare, which become more and more expensive down the road – by eliminating them, we get to a balanced budget.  And I’d do it in a way that does not have a huge reduction in the first year, but instead has an increasing reduction as time goes on, and given the growth of the economy, you don’t have a reduction in the overall scale of the GDP.  I don’t want to have us go into a recession in order to balance the budget.  I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline. [More][My emphasis]

Another way of putting this is expressed well by David Frum, a conservative heretic whom naturally I read. "We're all Keynesians during Republican administrations." Romney is at least smart enough not to try drastic cuts while the recovery is still struggling. The problem is while I agree with this, Congress may force just enough reductions to slow us to a halt, or alternately, after getting back to 4% growth, decide deficits don't matter again.

Where is all this leading me? Well, in discussion with my family this weekend, it dawned on me there are some things we could anticipate in a Romney win that would allow us to better cope during the ensuing administration.

• My taxes will likely be lower than otherwise. Thanks to $6 corn, etc. I'm in the coddled sliver of 1%. We'll get ours first. And no, I won't be creating any jobs. In fact, I will be investing in technology that lowers labor needs (autonomous chainsaws, 600 hp.wheelbarrows, etc.) But given where demand will go, I won't be expecting big sales surges.
• I think it puts a real horizon on low interest rates. I'm not too sure how fast the bond market will respond, but it could be faster than I think, raising interest rates despite Fed actions to the contrary. So my long-standing bias against piles of cash will be at least mitigated by seeking protection from interest costs. Sooner or later we'll have to inflate this debt, but the time delay for interest rates could be bigger than I imagine.
• The economy could plunge (see also: UK), but more likely meander back into recession, in my best guess. The right has shown little finesse in fiscal policy and our delicate balancing act to encourage our fragile growth will succumb to policy lurches like SNAP cutbacks, unemployment cutoffs, and more government layoffs - especially at the state level. Meanwhile, tax cuts for the wealthy will have minimal stimulative effect on consumer spending, but could fuel asset inflation significantly. This could, in turn, keep farmland price growth strong, even as commodity prices stagnate or decline.
• The effect of the resulting deficits will be hard to predict politically. Given the intransigence of the right on revenue increases (taxes), and the simultaneous reluctance to truly reform health care - which is THE problem - they may just be ignored as long as we remain the least ugly currency and can attract the immense hoard of free-floating cash in the world.
• One sure thing is the end of health care reform for a while. Even so, the numbers on that problem might force even reluctant Republicans to try something. I just can't see them cutting off their largest demographic - the elderly - with any serious Medicare decreases. As for Medicaid, we too often forget it's increasingly about nursing homes, not just welfare moms/children. (Interesting note on this problem: it may not be enough to exhaust Mom's assets to qualify her nursing home costs for Medicaid coverage. Junior's assets may have to go as well.) One thing seems likely, large increases in the uninsured.

All of this speculation is worth the paper it isn't written on, of course. But the one scenario I think has the lowest possibility is a realistic long-term grappling with the deficit-causing problems, unless the economy is roaring and tax revenues growing by November, allowing some funds to actually be used to address the deficit.

But in that case, Obama is more likely to win.

As for farm prices, I think soon we'll suspect, at least, the yield curve has been altered by climate change, and assumed yield growth will be re-thought. We may realize our supply issues are real after a couple more below-trend yields.

So be lucky with rain, but avoid floods, stay in the 1%, don't have children/grandchildren to put through college or expect to have jobs for, don't lose your health or health insurance before 65, and you should be fine.

Are we close to...  

A replicator?

 
Full Printed from nueveojos on Vimeo.

Hope...  

I drew the short straw and represented the clan at morning worship. Even with the meager crowd, I was struck by how many cancer references filled the "Joys and Concerns".  While I have looked and hoped for progress against this Hydra of disease, I offer this clear-eyed look at the growing reasonableness of such dreams.

After four decades of largely unfulfilled hopes—Dec. 23 marks 40 years since President Nixon declared war on cancer—scientists have hit on a potential cure that few thought possible a few years ago: vaccines. If they succeed, cancer vaccines would revolutionize treatment. They could spell the end of chemotherapy and radiation, which can have horrific side effects, which tumor cells often become resistant to, and which often make so little difference it would be laughable were it not so tragic: last week, for instance, headlines touted two new drugs for metastatic breast cancer even though studies failed to show that they extend survival by a single day. Vaccines could make such “advances” a thing of the past. And they could make cancer as preventable, with a few jabs, as measles. [More for reading]

The writer, Sharon Begley, used to be the science writer for the WSJ, and is no lightweight. The whole article reinforces my hopes for generations to follow, and I thought it was an appropriate thing to share the Christmas Day.

The really big problem...  

I have become more convinced than ever our global economy is confronting a growing obstacle in the form of human-obsolescence on the producer side. Sure we need consumers to buy goods and services, but our demand for workers to supply them languishes without signs of a turnaround. (Which also explains the lack of consumers, duh.)

It is hard to look at technology and not see the the reason. The recession has had the odd consequence of promoting technical upgrades to lower production costs, lowering even further the need for people.

The question for me is not when where will the consumers come from, but what will they do to earn a living?

FEAR of displacement from one's job by a superefficient machine is as old as modern economic growth (which is to say, about two centuries old). It is somewhat surprising that there has not been more made of the possibility of technological unemployment during the recent recession and lacklustre recovery. Technological unemployment was widely cited as a problem in the 1920s and 1930s, a time during which productivity was soaring, inequality and unemployment were high, and instability was the norm.
The argument that rapid technological change may be generating labour market problems is given a lift in an interesting new ebook by Erik Brynjolfsson and Andrew McAfee, entitled Race against the machine. The opening chapter attempts to cast the book as a means to understand present high unemployment, which is a little unfortunate; most of current labour market weakness can be explained by weak growth, and weak growth is well explained by weak demand. It is, however, a useful contribution to the discussion of what has gone wrong in the American economy in recent decades.
The stylised facts of that poor performance are increasingly well known. Real median income has stagnated, especially over the last decade. Inequality has risen dramatically, driven by huge increases in top incomes. Employment growth has disappointed. At least some of the blame for all of this, the authors argue, can be laid at the foot of new technology. It's an interesting twist on the themes developed by Tyler Cowen in his ebook The great stagnation. Mr Cowen argues that a major slowdown in innovation is constraining potential growth, while new progress in information technology isn't providing benefits to most workers. Mssrs Brynjolfsson and McAfee tweak the argument, writing that innovation has been gathering pace and having an increasing impact on labour markets. In a nutshell, new technologies are displacing workers faster than the economy can find new uses for them. [More worth reading]

The standard answer is education, but there are signs that solution isn't working like it used to as well. Demand for college graduates is slow, salaries are dropping, and meanwhile education costs spiral upwards.

Adding more graduates to this scenario seems like pouring fuel on the fire to me. What is often ignored is technology is replacing all kinds of workers - not just those on assembly lines. In fact, the very lowest level jobs may be the most secure: hotel maids, garbage collectors, nurses aides, janitorial workers, etc.

Stanley Aronowitz and William DiFazio wrote a pretty gloomy book in 1994 with the striking title, The Jobless Future. Here is a Harvard Educational Review discussion of the book (link). What is most discomforting in reading the book today is the degree to which the factors they identify seem to be today's headlines. What does jobless mean here? In a word, it means that the US and other OECD countries will never recover the number and quality of jobs they need in order to regain the middle class affluence they had in the 1950s and 1960s. The future will involve work -- but not enough jobs to ensure a low unemployment rate. Here is their assessment in 1994:

For there is no doubt that we have yet to feel the long-term effects on American living standards that will result from the elimination of well-paid professional, technical, and production jobs. At the same time, nearly everyone admits that many of these jobs are gone forever. (xi)

The central structural factors they identified in 1994 are still key parts of our economic environment today: technology innovation replacing labor, rising productivity producing persistently flat labor demand, shifts in the structure of the economy towards finance and service sectors, and internationalization of production. [More gloomy pondering]

I cannot see why our profession will be exempt. In fact, only land ownership seems to be a guarantee against displacement: when your buy a farm, you buy the right to name the farmer.

We are currently in the process of attracting many young and youngish farmer aspirants back to rural America. More than a few I suspect are doing so because of lack of alternatives such as mentioned above. Like professions such as law, medicine, administration, management, etc. demand for workers in our industry - regardless of how highly trained - will be limited.

We know what happens when labor demand falters. It can be seen in history books in examples as diverse as Middle Age economies (guilds) to the USSR (an economy based on who you knew). Jobs will be THE commodity of the future, I'm afraid. And the social and economic gaps between those who do and do not have one will widen and worsen.

Time to buy a Kindle...

Not just because I've been droning on and on about them, but to read "The Great Stagnation" by Tyler Cowen. It is only available in e-book form. I've followed his jaw-droppingly prolific and thoughtful econblog for years, and this short e-book captures many assertions he has made with clarity and solid supportive argument.

Basically the thrust of the book is America has captured all the "low-hanging fruit" - culture changing technology and business innovations like the cars, electricity, antibiotics, etc. that had the effect of lifting the whole economy regardless of income level. Progress (and especially income growth) from now on will be much more incremental and he is not at all sure it will trickle down far beyond the top layers.

Most well-off countries have experienced income growth slowdowns since the early 1970s, so it would seem that a single cause is transcending national borders: the reaching of a technological plateau. The numbers suggest that for almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities.

Although America produces plenty of innovations, most are not geared toward significantly raising the average standard of living. It seems that we are coming up with ideas that benefit relatively small numbers of people, compared with the broad-based advances of earlier decades, when the modern world was put into place. If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.

Will the Internet usher in a new economic growth explosion? Quite possibly, but it hasn’t delivered very good macroeconomic performance over the last decade. Many of the Internet’s gains are fun — games, chat rooms, Twitter streams — rather than vast sources of revenue, and when there have been measurable monetary gains, they often have been concentrated among a small number of company founders, as with, say, Facebook. As for users, the Internet has benefited the well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.

Beyond the income slowdown, there is a further worry: an increasing share of the economy consists of education and health care. That trend is not necessarily bad, but in these two areas, results are often hard to measure. If health care costs rise 6 percent in a year, for example, that counts as higher G.D.P., but how much is our health actually improving? It’s an open question. America spends more on health care than other countries, but those expenditures don’t seem to produce uniformly superior results. And while there have certainly been gains in medical treatment, we may be overvaluing them. In education, we are spending more each year, but test scores have stagnated for decades, graduation rates are down and America’s worst schools are disasters.[More of his op-ed that summarizes the book]

There is plenty of fodder for discussions and the e-book has triggered an avalanche of response, the ones I thought best I include below. 

3. How do we get more value out of our health care and education dollars? This is where a lot of our money is going, and it's also where advances could do the most good. Unfortunately, the current trend is toward rapid growth in costs and, at best, stagnation in quality. If health care comes to consume 25 percent of our economy and we're not living substantially longer or healthier lives than we are today, that'll be a lot of growth we wasted. And growth we waste is little better than growth we don't have. But education and health care are firmly part of the political argument, and the political argument is becoming less and less focused on solutions and more and more about acting out resentments and anxieties and arguing about things we know how to argue about. In the health-care sector, for instance, we spend a lot of time talking about insurers and very little time talking about how to coordinate care for the chronically ill. Given what we want out of the system -- lower costs and more health -- that's downright backwards. In education, we talk often about unions but rarely about poverty or early-childhood programs. [More]

This above point by Ezra matches my greatest concern about our economic future: we will become a culture dominated by universities and hospitals, and we are already hurtling toward it, as factory workers re-train for visiting home care jobs.

One great virtue of Cowen’s account is that he brings into the picture several overlooked trends that have played a large role in America’s historical economic ascent. Once accounted for, the more politically-motivated accounts of the country’s economic performance of the last 40 years are revealed to be incomplete at best (in the case of conservatives) or cartoonish at worst (in the case of Krugman). By upending the standard narratives that describe where the nation has been and where it’s headed, the book will influence your sense of the politically and economically possible.

Of course, there’s something deeply upsetting about his story, since it suggests there’s not much that can be done about some problems the nation faces: if the low-hanging fruit is gone, slower growth and lower rates of innovation are likely inevitable. And when Cowen says we simply must accept that as a nation “we thought we were richer than we were,” that’s tough for any optimistic American to hear. [More]

We are already rewriting history in our heads to imagine the past as free from many of the problems that plague us today, but the truth as Tyler points out, is probably closer to the explanation we simply didn't pay close enough attention to economic symptoms we now obsess over, such as median income going flat.

Going forward, Tyler raises several important questions. How do we encourage technological progress? How do we manage slow growth? And if and when we get a new round of technological breakthroughs, how do we manage those? These are his suggestions:

• Raise the social status of scientists
• Be part of the solution to the current rancor, not part of the problem. Don’t demonize those you disagree with.
• Have realistic expectations.
• Be ready for when more low-hanging fruit actually arrives because sometimes low-hanging fruit is dangerous
• Be prepared for a recession that could last longer than we are used to.
  

Let me comment on two of these. First, the point about raising the social status of scientists. In his state of the union address, President Obama made a big deal about innovation. But he did not highlight a single current scientist. Instead, he featured two brothers, Robert and Gary Allen, who own a Michigan roofing company. Good politics–but perhaps not the right message to kids.
Second, don’t demonize those you disagree with. The point Tyler is making that politics becomes a lot harder in a slow-growth economy, where expectations have to be ratcheted down. The center has a real purpose. [More]

On that note, I will stop quoting the many, many available commentaries. It is a good idea to resurrect a center. Not the center the right thinks we have now moved to, but one that is supported by solid research of what Americans truly value and what they are willing to trade to get it. I am encouraged moderates will once again become the action figures of the future as the extremes simply have no answers for Tyler's questions.

After considerable thought, I have begun to wonder is our tiny sector is immune from the stagnation. After all, we are seeing record incomes. But as he points out, this rise is only enjoyed by fewer and fewer of us. Even as a relatively fertile age of ag innovation helps to keep our output relatively low-priced, benefiting everyone else, it is also a powerful tool for concentration of farm income.

The problem with comparing our profession with other economic activities is this disconnect between macro statistics and individual well-being. In fact, we will likely see that the upcoming years of plenty will be enjoyed a very, very small number of farmers. Technology is, as Tyler says, labor-displacing.

What am I missing here?...

There has been a recent spurt of media about "vertical farming". I have dismissed this idea as fundamentally flawed for one simple reason: energy constraints.

Amazingly, even fairly detailed plans gloss over the solar energy input problem.

For building constraints, we assumed we would be working with a space approximately the size of a turn of the century tenement building typical in New York City: six floors tall with a ceiling height of 9 feet and an average of 1500 square feet per floor. Given this size, we expect to grow two rows of crops per floor on the top five floors of the building thereby doubling our yield capacity. Calculations for crop yield are based on 3000 square feet. Based on the calculated square footage, our expected yield is (see Appendix 2 for the conversion to metric units, the editor):

• Lettuce: 688 lb.’s/100/square feet, 20,640 lbs/3000 square feet (42)
• Cucumbers: 932 lb.’s/100 square feet, 27,960 lbs/3000 square feet (43)
• Tomatoes: 835 lb.’s/100 square feet, 25,050 lbs/3000 square feet (44)
• Sweet potatoes: 1,200 lbs/100 square feet, 36, 000/3000 square feet (45)
• Strawberries: 333 lbs/100 square feet, 10,004 lbs/3000 square feet (46)

The growing media chosen for the crops is perlite. Perlite is a processed mineral that allows a constant concentration of water and nutrients (47). If maintained properly, perlite can withstand many years of use without degrading (48). Two concerns with using perlite are its poor pH buffering capacity and propensity to encourage algal growth (49). However, with proper inspection and maintenance of the growing equipment, we will avoid any of these potential drawbacks. Figure 1 details the nutrients as well as certain other environmental conditions required for proper growth of each crop. All nutrients will be drawn from the composting and black water, both detailed elsewhere in the paper. We will not need to rely on outside sources of fertilizer. This self-reliant closed system serves to greatly reduce the amount of pollution related to transportation, fertilizer, pesticide and herbicide production. Manual pollination performed by employees will be used for those plants requiring it. [More]

Tell me again how, say, the 3rd floor down produces squat away from the windows.  Mostly these proposals gush over water reclamation systems and "closed loops" efficiencies.  (We do love the idea of nothing going to waste!)

Consider just one design:

[Click to embiggen][Source]

Basically stated these buildings won't get enough sunlight to power the growth of floors of plants.  Think about it - other than those crops at the wall and on the top floor, the every thing else is in shadow.  And the walls are in shadow at least half the time, right?  While they may steal some light from neighboring buildings who are now in shadow more, how much of a gain is that?  Their share of available sunlight is close to the same as the building footprint.

This also assumes sombody doesn't build an eqully tall building next door as well.

So are they using artificial light?  That sure screws up the economics. [Ask pot growers]  This whole idea seems terrifically illogical, albeit futuristically attractive.

Simply put, there is a reason we cover mucho flat acres with crops.  It's how you harvest the dilute energy from the sun, which is essentially the real business of agriculture.  It's also why the corn rows next to the woods are about 50% yield even in good years.

Surely somebody has pondered this problem.  But just in case, it will be interesting to watch one of these follies get built.  Consider this assertion in Scientific American, no less:

A one-square-block farm 30 stories high could yield as much food as 2,400 outdoor acres, with less subsequent spoilage. [More]

 OK, why not build it umpteen miles high and eliminate all the farmland?