Word of the Day: Elasticity...

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

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

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

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

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

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

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

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

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

Not totally alone...

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

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

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

Pretty damn well, I'd say. 

Your tuition dollars at work...

You wacky Purdue parents.

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

Some inflation stings more...

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

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

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

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

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


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

I stand corrected...

Yeah - he's talking to me.

Trust me...

I'm American.

May be not so much.

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

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

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

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

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

By popular demand...

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



Now you know.

[via the dish]

Out of the darkness....

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

It was so...Medieval!

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

I need a hug drink.

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

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

Better words than mine...

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

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

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

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

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

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

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

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

Just on the edge...

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

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

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

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

[Source] [Click to enlarge]


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


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

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

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

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

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

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


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

Lost Comment...

Once again a comment arrived in my mailbox but not in the comments section.  Sorry for the mixup.

"I will miss him. The guy seems pretty sensible in his reasoning. I found this article about him to be quite informative. I don't think he has put a timeframe on his inflation predictions. He only says that the lag time of the effects of monetary policy are "lengthy and variable." By the time we can see a problem developing, it will be too late to control it. History has shown us that by the time we see a bubble, it pops rather than deflates. How can there be any argument to his views on "too big to fail?" Extremely low interest promotes investment in purely speculative instruments that do nothing to grow the economy.
Maybe I just don't have as much to lose on my balance sheet by agreeing with Hoenig. I will say that my admiration of his ideas on dissent probably makes my life more difficult than it needs to be in my service on boards." 

Fair enough. But the Fed is not just your average school board, and if during my career I had consistently been the lone voice of dissent among them I would have some doubts.

There is an old story about two mothers watching the school band go by. One says to the the other, "Look, there's my Tommy - and he's the only one in step!"

My objection is not his lone voice (been there), but that I think he has been seriously wrong for too long. 

A real "death tax"...

If Farm Bureau can categorize the estate tax as a death tax, then this line of thinking surely holds up even better.

That's the understanding being challenged by Rep. Paul Ryan's "serious" budget plan. I've been trying to find the way to convey what it would mean to go back to the pre-Medicare era in which each family had to prepare for unknowably large late-in-life expenses. Merrill Goozner, on his GoozNews site, has just nowput it in the way I was looking for. He writes (emphasis added):>>Here's the real argument young and middle-aged people need to hear, and the real reason why the "more skin in the game" argument can never work for seniors or other vulnerable populations, including them when they reach that age. Seniors and the poor account for over half of health care spending. Within those groups, 5 percent of the population accounts for 50 percent of health care costs; and 20 percent of the population accounts for about 80 percent. These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.
That's why a voucher program for Medicare, which will shift an increasing share of those inevitable costs onto the elderly themselves, can fairly be categorized as a 100 percent estate tax or death tax. People under 55 need to know that if the plan crafted by Rep. Paul Ryan were passed, most of them will never have a cent to leave to their children. It will all go to the health care industry to support the American way of dying.<<Here's a bit of real world evidence supporting that view: Why is the savings rate so unbelievably high in China -- as much as 50 percent of the GDP? There are many reasons, crucially including exchange-rate policy. But a very powerful individual motivator is each family's knowledge that there is no Medicare-like system for their older members. Health care is on cash-payment basis there, and so every family must save like crazy against the risk that the parents or grandparents will require very expensive late-in-life care. More savings would be good for America, but that's not the right way to induce them. It's hard to believe that the Republicans will seriously embrace a plan to undo Medicare. [More]

I have been critical of the misapplication of the term "death tax" since it does not touch all (or even many) deaths. Everybody dies, but only big estates pay the tax, after all. But the power of the words have made the epithet irresistible to the wealthy as they defend unlimited inheritance. But I have to admit, this comparison strikes me as apt, so maybe the term could become co-opted, if not actually stolen.

I guess it's similar to husbands...

We're getting closer to answering a question that concerns many: are wild animals happier (less stressed)? 

That’s a much harder question to answer, in part because we don’t have good baselines for wild animals. Until recently, studying stress hormone levels meant drawing blood - which, as you can image, is a stressful event in and of itself for a wild animal. However, newer methods have been developed that can measure the stress hormone levels in scat and urine left by wild animals, so it’s now possible to get an assessment of stress that doesn’t involve capturing the animal first.What we do know so far is that evidence suggests wild animals can be as happy in captivity as they are in nature, assuming they are treated well. Confinement alone doesn’t mean an animal is automatically worse off. If we give an animal all the good things they would have in the wild (food and water, fellow members of their species, a certain amount of space) and take away that stresses or hurts them (predators, parasites, extreme weather), then it can live just as happily in an enclosure. Zoo animals with proper care and enrichment, for example, have similar hormone profiles, live longer, eat better, and are healthier than their wild counterparts. Why? Because life in the wild is hard. In captivity, it’s easy.We also know that when we change our care of an animal to try to decrease stress, we succeed. Stress hormone levels drop, for example, when leopards are given a larger enclosure or things to play with. This means we are able to modify our standards of care to ensure that any animals we place in captivity, domesticated or wild, are as happy as they can be.So overall, are wild animals happier? While there is a lot more science that can be done to answer that question, the answer seems to be: no, not if they’re cared for well in captivity. The more we study animal behaviors, the better we get at figuring out what they need to pursue their own happiness, even when they are not allowed to be ‘free.’ [More]

While I believe we could do more to improve farm animal care in the US, and should do, the basic premise of natural being better and wild better than domesticated doesn't seem to hold up.  The author sums it up well:

This bias for what is "natural" is pervasive, affecting our judgement on everything from sexual orientation and medical care to farming practices and clothing fibers. But there is nothing inherently better about something being natural, and the idea that something that occurs in nature without us is somehow better than something we have altered or taken part in is a dangerous fallacy (the use of Rotenone by organic farms, a natural but unbelievably awful pesticide that was still usable in Europe until 2009, is a prime example). I love the natural world. I became a biologist because of my passion for all kinds of creatures, and conservation is one of the core tenants of what I do on a daily basis. But while I appreciate and fight for the beauty and brilliance that is our planet, I firmly believe we need to see ourselves as a part of it, not above or below it. We are, after all, "natural," too.

I am so saving this one...

The always quotable Thomas Hoenig is still masterfully keeping his prediction record unblemished by accuracy. Today he coughs up this gem:

Federal Reserve Bank of Kansas City President Thomas Hoenig said that an increase in interest rates could trigger a 33 percent decline in the price of agricultural land.“If interest rates rise we could lose a third of the value of that land in a very short time,” Hoenig said today in a speech in West Lafayette, Indiana.Land prices are possibly being driven by “inflationary impulses,” and “it’s also driven by interest rates” at unusually low levels, he said in a lecture for the Purdue University Department of Agricultural Economics.Prices for irrigated cropland during the fourth quarter of last year rose 14.8 percent in parts of the seven states in the Kansas City Fed region from a year earlier, the bank said in a February report. The increase was 12.9 percent for non-irrigated land. A majority of rural bankers surveyed by the regional bank said land values would climb in the next few months.Hoenig, speaking later in his presentation, reiterated his view that the Fed should raise the benchmark interest rate to 1 percent and then pause. He was the lone dissenter from every Fed meeting in 2010 and has repeatedly said the Fed’s near-zero interest rates and record monetary stimulus could lead to instability in financial markets and the broad economy. Hoenig plans to retire from the central bank in October,High land prices are “perhaps where they’re supposed to be. I doubt it,” he said, noting that interest rates on loans to purchase agricultural land are far below the longer-run average of 7 percent to 7.5 percent. [More]

It does make you wonder about the FRB whenever this guy opens his mouth. Frankly, I think he just enjoys the notoriety, but even if sincere, he has a long track record of being wrong.

Won't miss him.

But in case he's right, call me first before you sell at 67%.

He may be on to something...

The "science" of bubble-calling is debatable, but this is about as reasonable as I have read lately.

Instead, for Thiel, the bubble that has taken the place of housing is the higher education bubble. “A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

Like any good bubble, this belief– while rooted in truth– gets pushed to unhealthy levels. Thiel talks about consumption masquerading as investment during the housing bubble, as people would take out speculative interest-only loans to get a bigger house with a pool and tell themselves they were being frugal and saving for retirement. Similarly, the idea that attending Harvard is all about learning? Yeah. No one pays a quarter of a million dollars just to read Chaucer. The implicit promise is that you work hard to get there, and then you are set for life.  It can lead to an unhealthy sense of entitlement. “It’s what you’ve been told all your life, and it’s how schools rationalize a quarter of a million dollars in debt,” Thiel says.

Thiel isn’t totally alone in the first part of his education bubble assertion. It used to be a given that a college education was always worth the investment– even if you had to take out student loans to get one. But over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligensia. [More]

From law school grads amazed to find no interviews after graduation to humanities majors looking at dismal salaries, the cost benefit ratio has shifted fro college educations.

Worse still, we've only started shrinking the state contributions to higher ed. And education is one of the the biggest losers in the budget cutting frenzy. But as Thiel points out even when obvious, bubbles last longer than they should.

What I wonder about is what the collapse if this purported bubble will look like at large universities? How will it affect private colleges?  Who will ge to college in the future?

Looking in the wrong place...

How do farmers stack up against other occupations when it comes to income tax honesty?

From one frame of reference - income reporting - kinda below average. At least we're better than truckers and contractors.

But this is only one side of the equation. It is the deductions of expenses to get to taxable income that is the true ethical challenge. Since most farmers use tax preparers this is somewhat "supervised", but I suspect if more of us used tax software and did our own accounting, the results might be even more unflattering.

Business income reporting has a large scope for potential underreporting, because the I.R.S. cannot as easily match third-party transaction reports to business tax returns the way it can with, say, employee W-2s.For example, the construction trades do not appear to value integrity as much as other occupations do – Dr. Vela found the occupation to be ranked third from the bottom, based on the Occupational Information Network. Construction is also one of the top occupations in terms of underreporting business income.Another finding is that the much-disparaged legal occupation is near the top in terms of valuing integrity, and that lawyers underreport a relatively small fraction of their business income.Dr. Vela also examined other times of tax cheating and other demographic factors that were correlated with it, such as education (education and tax compliance were positively correlated).He concluded that taxpayer integrity cannot be taken for granted, and that it evolves over time according to changes in a nation’s education and occupational structure. [More]

Not that I am using me as an example (pdf), of course.

Of course, that pickup is 100% business.

And those tools.

And the 'gator.

Economics above all...

I have noted that the EPA-AFBF battle seldom centers on the actual pollution numbers. Or effects from it.  It is all about farmers making money. This is apparently the winning strategy farm organizations and their allied business partners intend to use going forward.

This isn't an important story simply because of the groundwater issue, however. It's true that it would be a landmark decision if the new regulations limiting runoff were to stand. What makes it important is the nature of the two sides' arguments. On the one side, you have environmentalists detailing the hazard to the health of humans as well as wildlife. On the other, you have "more than a dozen growers of rice, hay, grain and other crops in the Sacramento Valley" declaring that they are "'adamantly opposed' to a requirement for electronic reports on their discharges. 'Being a small diversified farmer has become increasingly difficult with regulatory burdens exploding over these last few years.'"That's what they call a non-denial denial. There is clearly not a dispute over the underlying facts -- the farm groups didn't even bother denying them. This is the increasingly universal strategy of Big Ag -- reduce safety or environmental issues to an attack on the viability of agriculture, facts be damned. They suggest that we have to accept -- if we want our cheap, mass-produced food -- that there will be collateral damage, in this case to the idea of clean water. It appears to be of little concern that much of the Central Valley population is made up of low-income Latino farmworkers.Of course, this issue isn't limited to California's Central Valley. The struggle over runoff is playing out across the country, from the Chesapeake Bay to the Midwest to the Gulf states. And with anti-regulatory fervor, along with food prices, on the rise, Big Ag's desire to be free from "regulatory burdens" may be that much closer to reality. [More]

This strategy will pay off perhaps in the short run, but as the problem persists seems to ne to be untenable longer term. It follows the theme of climate change arguments as well: "It's too expensive to fix (even if it did exist)".

And it should be said, we will clearly discover which threats have been overblown, and which are not a big deal this way. Curious science, but the high stakes will make it interesting.

The other half of this strategy obviously is to enact tort reform, just in case doing nothing is a really bad idea.

OMG!  Fuel prices are rising!...

Meh.

Aaron and I have been blown away by the remarkable efficiency of our CIH MX305. And our (relatively) new tandem, a 2003 IH 7400. [Look - it was a 20-year jump from the previous truck].

So much so that fuel prices can pretty much do what they want from our perspective. It's about energy intensity.

First, it's clear that energy intensity is decreasing. Figure 1 depicts log quads of primary energy consumption versus log real GDP. Holding all else, one might think that reduced energy intensity would result in lower sensitivity to energy price shocks. Unfortunately, as Jim Hamilton points, out, there's no clear relationship between intensity and output sensitivity to energy shocks (on a sectoral basis).

[More]

That's why a rise in oil prices doesn't mean quite what it used to.

Still, it’s not time to panic. This spike in prices, while annoying, is smaller and less likely to last than previous spikes. More important, the American economy is better prepared to deal with it. The oil shock of 2008 pushed Americans to buy fewer S.U.V.s and trucks, and more fuel-efficient vehicles, and the cash-for-clunkers program took hundreds of thousands of gas guzzlers off the road. On top of this, the downsizing of American car companies leaves them less exposed to drops in demand than they once were. Previously, falling sales of S.U.V.s and trucks forced American automakers to lay off tens of thousands of workers, further punishing the economy. Now G.M. and Ford are already employing fewer people and making fewer big vehicles, so any drop-off in demand will be less damaging.What’s more, not all gas-price increases put a significant dent in growth; between 2002 and 2006, for instance, oil prices rose a hundred and fifty per cent, yet the economy continued to grow briskly. And not all price spikes are created equal; much research suggests, instead, that consumers become somewhat inured to higher oil prices, and really tighten their belts only when prices hit new multi-year highs. Given that we remember, all too well, paying more than four dollars a gallon in 2008, the recent price jump may be less disastrous. Hamilton has argued that only if prices get to be around a hundred and thirty dollars a barrel (they hit a hundred and ten last week) will we experience an oil shock like those in the past. [More]

The moral here is while fuel prices ripple through our inputs and shave our received prices, they can't hurt us as much as before if we have been adjusting like most Americans: buying hybrids, driving less, etc.

Update: Other people seem to see this differently.

Who loves the free market?...

Answer: a lot of people.  And some more than us.

[Source]

Germany, I could understand. Even China.

But Italy?

Sobering sentence of the day...

Via Andrew Sullivan:

While traffic fatalities remain a top U.S. killer, the historical decrease is impressive and heartening. Did you know that there are now fewer traffic deaths each year in the U.S. than suicides? [More]

Yay?

Whew - my DCP's just got deposited...

Had some delays reconstituting our farm as we transition to Aaron, so the electronic money squirt was accomplished last Friday.  And goodness knows that whopping $5/A payment is desperately needed for shoes for the kids!

Little did I suspect how timely that could be in light of the next Washington battle over the debt limit.

It’s a two pronged strategy. The first one is a credible, repeated commitment not to surrender anything in exchange for getting congress to agree to the debt ceiling being increased. After all, why should anything be given up. Everyone knows that increasing the debt ceiling is the right thing to do. If the government were operating under uniform Republican control, the GOP would be increasing the debt ceiling. There’s nothing to bargain over. If some members of congress genuinely think that no increase in the debt ceiling is a superior options to raising it, then they’re entitled to be wrong. But there’s no reason that Obama should be trading votes with guys like John Boehner who know perfectly well that an increase is in order. This frames the issue correctly as one of whether or not Republicans who think an increase is warranted will nonetheless refuse to allow one in order to extract unrelated concessions.
The second prong, important for credibility, is to move to thinking about what happens as we reach the ceiling.
This isn’t a sudden “shutdown.” Nor is is true that we have to default on obligations to our bondholders. Rather, it means that government outlays are now limited by the quantity of inbound tax revenue. But for a while, the people administering the federal government (to wit Barack Obama and Timothy Geithner) will be able to selectively stiff people. So the right strategy is to start stiffing people Republicans care about. When bills to defense contractors come due, don’t pay them. Explain they’ll get 100 percent of what they’re owed when the debt ceiling is raised. Don’t make some farm payments. Stop sending Medicare reimbursements. Make the doctors & hospitals, the farmers and defense contractors, and the currently elderly bear the inconvenient for a few weeks of uncertain payment schedules. And explain to the American people that the circle of people who need to be inconvenienced will necessarily grow week after week until congress gives in. Remind people that the concessions the right is after mean the permanent abolition of Medicare, followed by higher taxes on the middle to finance additional tax cuts for the rich. [More]

A few months ago I would have thought this strategy a little shabby, but events have shown that coarseness is the rule of the day. Many political combatants really want to turn government into the WWF. Unfortunately, in my view, it is almost impossible to prevent this degradation.

This political theater has left others uninspired as well.

I think it's worth remembering a few important things. First, the federal government did not need to cut spending in this fiscal year. There is no immediate fiscal crisis; on the contrary, yields on American government debt remain extraordinarily low. Second, macroeconomically speaking, now is a bad time to be cutting spending. The economy remains very weak, state and local governments are already trimming back public spending and placing a big drag on economic activity, and there's plenty of contractionary developments in the pipeline already, from the impending end of QE2 to the impact of rising oil prices. Since the government didn't need to cut and shouldn't, from a macroeconomic perspective, have been cutting in the first place, it's hard to understand why anyone thought it was a good idea to threaten a damaging government shutdown in order to cut.
Third, had America actually been facing a crisis or had it simply been an opportune moment to trim back state spending, this was just about the worst way to go about cutting. The cuts don't touch on the real sources of the long-term budget problem. They impact important programmes and are therefore of questionable sustainability. Little to no effort was made to identify cuts with the best economic return. And the Republicans made a joke of the whole process by larding their demands with fiscally irrelevant riders, most of which seem tailored to enrage Democrats.
Everyone involved should be embarrassed. But few journalists seem to think that this absurd sequence of events will in anyway reduce the likelihood of an even greater mess down the road when it comes time to raise the federal debt ceiling. The case for raising the debt ceiling is incredibly strong. For one thing, not raising the debt ceiling could be end up being really bad; the government would have to engage in major gymnastics to avoid a default. For another, not raising the debt ceiling would not address the government's deficits; deficits and debts are residuals. If you want to actually limit them you have to identify spending that should be cut and taxes that should be raised. What's more, the leaders of both parties say that the debt ceiling should be raised. Most everyone wants to do something which most everyone agrees should be done.
And yet, the government will likely be pushed to the edge of crisis. These fights are risky and counterproductive. Sadly, I suspect that the reaction of most of the Washington press corps will be to—once again—get so caught up in the tick-tock of the dramatic showdown that they'll neglect to point out just how magnificently the elected leadership in Washington is failing its citizenry. [More]

Like any conflict, there are significant rewards to those who can stomach such confrontation. What is more concerning is the paucity of historical examples of cultures climbing back to civility and compromise.

5 12 minutes you won't get back...

Things you only see in America.

[Oh, yeah, there are more]

Junkbox, Episode NOPE...

My PBS station had alerts and maps hogging the upper left corner of my shows last night urgently displaying...nothing.  We ended up with 0.3" and distraction. Somebody needs to invent a pop-up killer for TV.

• A health care reform plan that I really like (where were these guys last year?)
• The natural gas discovery explosion (no pun intended) may change everything
• What will Europe do with nitrogen applications?
• Possibly the best summary of the Ryan Plan
• Possible the best Medicare reform advice
• A great population change map, especially for rural areas.
• Scientists
•  Community (highly recommended)

The Virtual Choir...

I continue to marvel at what we can do with the Internet. This "choir of individuals" is either genius or another blow to our social infrastructure.



Nonetheless, it is beautiful music.

What passes these days for courage...

I have been trying to do some research before commenting on the the Ryan - and it is presumed, Republican - plan for deficit reduction.  It's a big document and many details are still murky, but I think the overall thrust is clear: it serves the Republican constituency pretty well. At least the current voters.

So the Ryan plan isn't really serious, but is it courageous and uplifting? Only if slashing services for low-income Americans and denying Medicare to tens of millions of older people is somehow brave and inspirational -- and only if courage is defined by doling out still more tax cuts to the country's wealthiest families (like the construction magnates in the Ryan family).
Greenstein calculates that at least two-thirds of the cuts proposed by Ryan would have to come from programs for people with low and moderate incomes, including food stamps, Pell grants, housing and Medicaid. Meanwhile, he would literally ask nothing from the rich or corporate special interests, except perhaps to cash their enormous tax refund checks with a smile. Moreover, he would exempt one group from his scheme to abolish Medicare, which just happens to be the voters now over 55 years old who are the most reliable Republicans.
What might be truly courageous for a Republican politician, of course, would be to urge sacrifice from his party's rich contributors as well as from the poor and the middle class. That would be the start of serious budgeting, too. [More]

However, given that it is really a political document, and that I recognize it is an opening shot, I think we may have taken a [small] step: we gotta rein in spending on health care for old people.

Even though Ryan gives me a pass (neener, neener), a better solution is to spread the pain. I should be expected to pay a whole lot more for Medicare, but I should be able to get insurance, too. And if you read carefully, the differences between Ryan and ACA aren't so clear. In fact, the likely compromise becomes obvious.

To make an individual insurance market possible, you need to get everybody – or, at least, a reasonable cross-section of everybody – into the risk pool together. That’s what the mandate and the regulated exchanges were supposed to do. And other changes, such as the tax on “lavish” employee benefits, provided a further incentive to move more and more of the insured out of employer-provided insurance and into the new individual-insurance market.
What was left out was Medicare beneficiaries. Serious cost controls were contemplated for Medicare, but they were going to be imposed by the insurer, in this case, the government. One problem with this is that since consumer choice would not be driving the cost controls, it might well be that these would be sub-optimal from a consumer point of view. But another problem is that consumers would know exactly who to blame for any cost controls they didn’t like, and how to get them to change their ways. If every cost control is a political decision, every cost control carries political risk, and therefore is less likely to be made. If, on the other hand, the cost controls are imposed by private insurers, there is a layer of politically plausible deniability insulating politicians from the specific decisions made.
Leaving the specific details aside, Ryan’s and Obama’s health care initiatives are complementary, not competitive with each other. Without a functioning individual insurance market, you can’t voucherize Medicare. And without pushing most individuals into the individual insurance market, that individual market won’t really be the giant risk pool you need to drive the health care system in a more efficient direction. Obama’s plan nudged beneficiaries of private, employer-sponsored insurance into the national pool. Ryan’s proposal shoves the beneficiaries of government-provided insurance into that same pool. [More]

There is simply no getting around an insurance mandate or some other mechanism to nudge (OK, force) all to buy insurance.

More anon.

Update on wind power...

It's still useless, essentially.  Other than providing jobs for turbine companies and farm developers, its pretended contribution to our energy future is a triumph of wishful symbolism and bad math.

Well, the numbers just got worse.  I have always used 30% or even 1/3 as a working factor to reduce nameplate turbine capacity to what it really generates, i.e. a "2 MW" turbine can be counted on to give you on average about .6 MW of real electrons.

But folks who have more history with wind farms are finding out "your results may vary".

A new analysis of wind energy supplied to the UK National Grid in recent years has shown that wind farms produce significantly less electricity than had been thought, and that they cause more problems for the Grid than had been believed.
The report (28-page PDF/944 KB) was commissioned by conservation charity the John Muir Trust and carried out by consulting engineer Stuart Young. It measured electricity actually metered as being delivered to the National Grid.

In general it tends to be assumed that a wind farm will generate an average of 30 per cent of its maximum capacity over time. However the new study shows that this is actually untrue, with the turbines measured by the Grid turning in performances which were significantly worse:

Average output from wind was 27.18% of metered capacity in 2009, 21.14% in 2010, and 24.08% between November 2008 and December 2010 inclusive.

In general, then, one should assume that a wind farm will generate no more than 25 per cent of maximum capacity over time (and indeed this seems set to get worse as new super-large turbines come into service). Even over a year this will be up or down by a few per cent, making planning more difficult.
It gets worse, too, as wind power frequently drops to almost nothing. It tends to do this quite often just when demand is at its early-evening peak:

At each of the four highest peak demands of 2010 wind output was low being respectively 4.72%, 5.51%, 2.59% and 2.51% of capacity at peak demand.

Farmers are in love (mostly) with the idea of a turbine sitting on a corner of their field generating monthly checks and maybe a little electricity. And those of us who drive by can reflect how wonderfully "free" and green that energy is.

But this is both bad economics and bad fiscal policy.

Land inflation could be worse...

Consider China and land for graveyards.

Today millions will go to their parents’ gravesides, sweep away the autumn leaves, burn wads of fake paper money and place offerings of small items once enjoyed by their loved-ones – a fistful of a favourite brand of cigarettes or a slice of homemade cake.

However mourners are becoming increasingly bitter about the price of graves. In the southern manufacturing hub of Guangzhou a small 16 sq. ft plot in a high-end cemetery is now reported to be selling for almost GBP5,000 while a larger 50 sq. ft plot – suitable installing the plinths and marble sculptures favoured by China’s new rich – costs upwards of GBP10,000. [Note: GBP = Great Britain Pounds] [More]

Meanwhile 99% of Japanese deceased are cremated.

Driven by limited space and government nudging, the percentage of Japanese who are cremated has grown steadily, reaching 99 per cent in 2009.
Cremation is also considered a purification rite before the next life. Some people interviewed by Japanese news media over the last week said they faced a life of despair if they didn’t find their relatives’ bodies. Others fear their loved ones’ spirits will haunt them without a proper burial.“Indeed, some people believe ghosts of the dead killed violently that are not cared for can cause problems,” said Ian Reader, professor of Japanese studies at Britain’s University of Manchester. “And places like Tohoku, with an aged population and a more ‘traditional’ orientation than, say, Tokyo, might hold to such views more strongly.” But cremation requires 10 or more gallons of kerosene, which is in short supply, and some local governments have started burying the dead, an option some consider unclean. A further complication is that many of those grieving have no place to store an urn containing a loved one’s ashes. “We’re trying to preserve their memories,” said Wataru Takahashi, 36, whose cousins, a mother-in-law and a sister-in-law are missing. “But we need a house first.”Some say kerosene should be used for the dead even if it leaves the living cold and hungry. “I’ll do what it takes to get the fuel, and I don’t care if they say I’m a bad guy,” said Bunkai Abe, chief priest of the Jouan Temple in Miyako, which was relocated in 1618 up a steep road from the port after being flattened by a tsunami. [More]

I wonder if Chinese culture will bend to accept more cremations. Economics can force belief changes. Just like politics.

The cash rent smoking gun?...

One familiar gripe from tenants who are asked to switch to cash rent from shares or have to compete with strong cash rent bidders is that cash renters mine the soil.  This actually one way I try to argue for longer term contracts, since there would an obvious incentive to take care of fertility if you are reasonably assured you will be there in 10 years or so.

As Illinois is one of the leading cash rent states, a recent study may add some strength to that argument.

The most consistent P declines since 2005 occurred across the Corn Belt and Central Great Plains. The median P level for the 12 major Corn Belt states plus Ontario declined from 28 ppm in 2005 to 22 in 2010. This decline has major agronomic significance since a high percentage of samples from this region now test below critical levels (Figure 3). Considering that soil P levels are highly buffered, such large declines for a population of over 3 million samples over a 5-year period are surprising. The high sample volume and limited diversity in cropping systems of the Corn Belt offers opportunities for additional evaluation of aggregate data to gain insights into the cause of these declines. [More (pdf)]

 Consider these maps:

Of course, there are several other reasons why P1 tests are dropping, but as the article points out, this is about the best data we can come up with. And the study was done by the fertilizer industry, so the point of view must be taken into consideration.  Even with those sampling flaws and disclaimers, I think there is some cause to be concerned.

The report also details the drops in K as well as micronutrients, but it was the phosphorus that stuck out in my mind. Checking our own tests, I can't see it, but soil tests can wander all over a wide range.

Still maybe our tests aren't dropping because we haven't enjoyed the killer yield increases that all the other farmers seem to be getting. Seriously, since it takes considerable time to correct soil deficiencies, I think owners and farmers both should be paying closer attention to what is happening with fertility.

It's still about coverage, however...

Great cell phone ad.




The tune is Jesu, Joy of Man's Desiring, J. S. Bach

Google sets the menu...

I had no idea so many people use the whole Internet as their recipe book. (What would Jan do without her clipping files from food mags?) Anyhoo, like most foodies I seldom go past the first page of search results, so when Google changes the rules for search, a whole lotta suppers are decided differently.

In late February, when Google announced that it was adding a new kind of search, specifically for recipes, it seemed like good news for a site like ours -– at last Google was shining its searchlight on content we deeply care about. But then came the bad news: once you get your new recipe results, you can refine the results in just 3 ways: by ingredient, by cooking time and by calories. While Google was just trying to improve its algorithm, thereby making the path to recipes easier and more efficient, it inadvertently stepped  into the middle of the battle between the quick-and-easy faction and the cooking-matters group.
Before these new changes, Google recipe results favored sites with lots of content and good Search Engine Optimization (that is, those that organized their pages and chose their words with Google's preferences in mind) – e.g. AllRecipes and Food. Now, recipe results favor these sites, but also those with lots of additional information, such as ratings, calories, cooking times, and photos.
Imagine the blogger who has excellent recipes but has to compete against companies with staff devoted entirely to S.E.O. And who now must go back and figure out the calorie counts of all of his recipes, and then add those numbers, along with other metadata. That’s not going to happen. So the chance that that blogger’s recipes will appear anywhere near the first page of results is vanishingly small. (See Craig Goldwyn's piece on this in the Huffington Post.) [More]

It seems to me the accumulated nudges of such minor information flow influences could be considerable. Given the intensity of SEO (Search Engine Optimization) efforts by businesses, all those plans by the myriad of "ag advocates" planning to use search engine results to tell their story might be a tad naive.

While we have been worrying about the right and FNS or the left and the MSM, geeks have been undermining both on the Web. It also presents a real challenge for ag organizations who are deciding what medium to communicate through to various audiences.

I have always depended on Google and have been satisfied with the results and efficiency. But the rise of content farms and similar "first-page hogs" has diluted the results for even my arcane searches.

I may have to go to page 2!

Timing is everything...

If you have wanted to add a standby generator to your rural home (blogger-recommended), I'd be getting my hands on one right now.

Portable power generators made by Honda Motor Co., Fuji Heavy Industries Ltd. (7270) and Yamaha Motor Co. are running out after Japan’s largest earthquake crippled production while simultaneously stoking demand.
Orders for the generators, used to provide hot baths and meals to survivors of the magnitude-9 temblor and ensuing tsunami, surged after the disaster knocked out power plants, causing electricity shortages.
“We’re completely out,” said Ryuzo Nishikawa, who runs his own company in Tokyo selling generators made by Fuji Heavy and Yamaha. “We ran out three days after the quake, but we’ve been receiving orders from hospitals and factories every day.” [More]

Nothing makes anticipating bad weather slightly more less nerve-wracking that knowing you can last for many days without power.

I also think we underestimate what rebuilding Japan will mean for the global economy.

I think we're going to make it...

Carpet layers at work as  I post, thumping and banging. NH3 going on about as perfectly as I have ever known until today, but only .25" out of the storm, so we should finish up tomorrow.  The fertilizer plant needed a day to haul in ammonia anyway.

I'm toying with shifting a few acres to corn, not so much for the profit differential but because as I decrease acres (Aaron becomes the tenant) my Cargill grain bin loan commitment soaks up so much of my production I worry about selling too much ahead.

All in all, things are looking up here, and I expect posting will accelerate somewhat.

Thanks for checking in during the hiatus.

People unclear on the concept...

Fashion doth make fools of us all.

[via carpe diem]

This is "leading the way"?...

Much has been made about our booming (relatively speaking) ag exports. So much so that surprisingly knowledgeable observers are touting ag as the engine of our recovery.

One small problem: ag exports are not a big part of our total export picture. Try this test.

Estimate our ag exports in $.  If you guessed a number around $100-130B, congratulations!

But now for extra credit tell me what total US exports are?*  Anyone? Anyone? Bueller?

I've never met a farmer who could put our share of any economic number in perspective to the whole picture, and hence I think we fall prey to flattery that essentially whispers "It's all about you" in our ears.

Anyhoo, here is where the "boom" fits in with the whole export picture for the US.  This is the growth in exports since 2009.

[Source]

(We're the 'Food" sliver at the bottom, BTW)

Lookit, we're an important part of a huge economy. That's a reality we should be able to live with without making all about us.


*About $1.3T.

An economist's analysis of antibiotic resistance...

Truly interesting and worth 12 minutes. Megan McCardle shows why our economic system isn't working for antibiotics.

It's about market forces and market rules.



[More]