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Archive for August, 2011|Monthly archive page

Come on Irene

In Dispatches from the Wild Wild East on August 30, 2011 at 3:48 am

Sunday’s hurricane proved to be rather uneventful around these parts. After watching news reports recommending people don’t go outside, complete with reporters on location somewhere desperately experiencing sound problems while trying to prevent their loosely-fitted hats from being blown away, the power suddenly shut off all over town. We were bored, so I grabbed two of my children and decided to do the unthinkable and… go outside.

We found what could be described at its most extreme as a blustery day as featured in the classic Winnie the Pooh tale; this in contrast to what the Daily Beast proclaimed “Hurricane Fury”. I headed down to the beach with my children to witness the power of nature and thereby cultivate a healthy, antitranscendentalist respect, newscasters be damned. 

Instead, we discovered a plethora of natives frolicking among medium-sized surf. Children darted in and out of rocks while dogs played fetch with the hands that feed them. Surfers graciously rode the whitecaps. After walking the beach for a while, we decided to head home. On the way, we ran into our next-door neighbors, who were coming from a “packed bar” down the street and a little tipsy. This reminded me that I could drink some wine if I wanted to, which I did. After that, I made Buffalo wings with my wife on our gas stove which we lit with a match. Then, we ate it by candlelight. The power came back on just in time to prevent our dairy products from spoiling and for me to catch the latest episode of Breaking Bad. 

Featured Find: Banks, Bailouts, and Moral Hazard

In Specific Facts on August 26, 2011 at 12:01 pm

Dave Schuler responds to a question from a reader. Here is an excerpt:

This post is a response to a question asked of me in comments. Here’s the meat of the comment:

“My main point is its the incentives. Bailouts create a bad incentive structure and trying to stop that is going to be costly. The longer it goes on the costlier it gets. Since we’ve already done this round of bailouts we have to wait for the next, and my claim/prediction/forecast/whatever is that the next round will be even bigger. And the fallout from not bailing out will be even larger than if we hadn’t done it now.”

and, if I understand it properly, the question is what do I think?

I disagreed with the way the major banks were dealt with in 2008 and 2009. I thought it was costly, created moral hazard, and, worst of all, didn’t address the underlying problems of the banks. My preference was to do something analogous to what the Swedes did with their banks in the early 1990s and to what we did with S&Ls following the S&L crisis here in the late 1980s.

To refresh your memories as a result of misfeasance, malfeasance, and nonfeasance nearly 750 S&Ls and roughly 1,600 banks failed between roughly 1985 and 1991. Volumes have been written about the crisis, its aftermath, and its implications and I’m going to explore it much farther here. I only want to make two points about it:

  • The facts of it should dispel any claims of our having any particular aversion to nationalizing banks.
  • The scale of it should call into doubt any ideas that dealing with one very, very large bank or even several very, very large banks is impractical. If dissolving Citibank is more complex than dissolving 750 S&Ls, I cannot take arguments about increased returns to scale seriously.

I also think there are two distinct issues both of which are sometimes bundled together under the heading “moral hazard” but which are actually quite different. Moral hazard is properly considered the actions a particular course of actions incentivizes going forward. When you reward banks by giving them the largest payday loans in history to tide them over until their next binge, pay interest on reserves, and allow them to earn interest on Treasuries, you convince the managers of those banks that they have a property interest in the U. S. Treasury which will indemnify them against loss, come what may. When you bestow these gifts only on the largest banks while closing the smaller banks so their business can be gobbled up by larger ones, the ensuing consolidation increases the necessity of preserving future institutions whose failure would present systemic risk down the road. If a bank is too big to fail it is too big to exist.

The piece is short and offers what is probably the most cogent and concise description of the present moral hazard with regard to bailouts I’ve come across.

Hack Yglesias on Dr. No

In Specific Facts on August 25, 2011 at 2:54 pm

Matt Yglesias sums up his views on Ron Paul:

After looking at his positions and statements, the most remarkable thing is that if it weren’t for his loud fanbase of self-proclaimed libertarians you wouldn’t really think this is the platform of a libertarian. He’s loudly trumpeting his plan to impose criminal penalties on women who terminate their pregnancies and he makes it clear that his interest in freedom doesn’t extend to the freedom of anyone unfortunate enough to have been born in a foreign country. His campaign slogan of “RESTORE AMERICA NOW” is strongly suggestive of conservative impulses and nostalgia for the much-less-free America John Boehner grew up in. The mainstay of his economic thinking is the ridiculous proposition that “[t]here is no greater threat to the security and prosperity of the United States today than the out-of-control, secretive Federal Reserve.” Not only is Paul’s goldbuggery nutty on the merits, like his affection for forced pregnancy and severe restrictions on human freedom of movement it’s difficult to see what it has to do with freedom. The freedom of the government to set a fixed dollar price of gold? America’s current monetary policy—a fiat currency that’s freely exchangeable for other currencies and commodities—is the free market position.

Unless I’m misunderstanding something, I’d consider this rare hackery from Yglesias. Ron Paul’s opinions on the Fed and the gold standard may be unorthodox, but they are not “ridiculous” or “nutty” simply because Matt Yglesias asserts that they are. The Congress has the constitutional authority to coin money and manage the money supply. This is a power the Congress gave to the Federal Reserve a hundred years ago. Ron Paul thinks the Congress should take that power back since the Fed is at least somewhat complicit in the last recession. I partially agree with Ron Paul, in that I believe there should be more Congressional oversight of the Fed à la the recent audit bill Paul co-sponsored with Barney Frank. How exactly is the idea that a democratically elected Congress at least have the final say on how currency is administered in this country “ridiculous”?

Tagging the currency to the intrinsically useless fiat gold is the same as tagging the currency to the intrinsically useless fiat word of the present government. In advocating a return to the gold standard, Paul is not saying that we should all buy gold and hand nuggets over to the cashier at Walmart. He’s making the claim that gold represents a safer store of value than the word of the present government. Essentially, he’s downgrading the U.S. government’s credit rating and suggesting instead that we tether our money supply to something which empirically throughout the ages has been a continuous and relatively safe store of value for hundreds of generations. This is not “nutty”. If anything, it’s unnecessarily cautious.

 

h/t Erik Kain

My Latest at the League of Ordinary Gentlemen

In General Principles on August 12, 2011 at 6:56 pm

I’ve decided to stop cross-posting altogether. Cross-posting cheapens posts and reeks of empty self-promotion. Go read and comment at LoOG. Here is a link and an excerpt:

In order to pretend to have a meritocracy, there must be some semblance of fairness. Since there are only limited resources available to devote to finding the person most deserving of a particular station, some element of abstraction is necessary. Hence, the cover letter-resume one-two punch. (Japan maintains its meritocracy – more successfully I’d argue – via an elaborate public examination system.) The errors wrought of abstraction are enough of a problem to begin with that when (1) gatekeepers and applicants alike forget the reason why cover letters and resumes exist in the first place and start seeing them as ends in themselves; and (2) the number of people tasked to evaluate resumes and cover letters decreases significantly while at the same time the number of resumes and cover letters thrown at a particular job increases significantly, the entire meritocratic job procurement system begins to hemorrhage à la BNET. LinkedIn, a guerrilla wielding a double-machete, jumps out of the jungle to cut through the staggering and blood-gushing meritocracy. Investors applaud. LinkedIn is pro-NMJP, in contrast to BNET’s cargo-cult pro-meritocratic posture. LinkedIn is also favored by companies and well-organized. Before joining LinkedIn, it took me several days to find one job I was interested in, write a cover letter, tweak my resume, and not get any kind of human response; in the same amount of time using LinkedIn, I can fire off ten or fifteen applications and get immediate and cordial rejections to them all. This represents a major increase in productivity; plus, constructive negative feedback is priceless.

More Farms, Smaller Farms

In General Principles on August 9, 2011 at 12:00 pm

Now made with real fruit!I’d like to respond to Josh’s last post by modeling what I see as the obverse. Economies of scale in agriculture are desireable when the alternative is crippling poverty. Nevertheless, in developed economies where starvation remains of secondary concern to self-inflicted overeating, more food of less homogeneous nutritional composition and higher quality even at higher costs is sorely necessary for the public welfare. Looming over all of this, the Mathusian insight that gave birth to both modern agriculture and modern economics remains true – the human population will always increase at a greater rate than food production efficiency. (My theory is that the Mathusian condition is an emergent consequence of the tendency for humans to be unrealistically optimistic about the future.) 

For this reason, in developing economies, it remains prudent to hedge against economies of scale in agriculture and some of the evils born of placing ourselves too far from the source of our sustenance via extreme and unnatural occupational specialization. (Indeed, it’s possible that all of culture comes from food. And “you are what you eat” is wise on several levels.) The Summer 2011 issue of Lapham’s Quarterly does a good job of balancing and weighing all the complex considerations at the intersection of development, agriculture, poverty, and nutrition.

The short version of my counterpoint to Josh is that what we need in America is different than what we need for countries that can’t feed themselves. It might even be that there’s a natural developmental arch that all civilizations must follow, and the stage that a particular civilization is in determines what course of action that country should take to maximize welfare: first (1) there’s a community wrought of nature based on equality and living harmoniously, where everyone is a subsistence farmer or hunter/gatherer and everyone lives and dies at the whims of the seasons; then (2) primitive accumulation goes down and a primitive capitalist society develops – whether this is a result of contact with other capitalist societies or natural forces, it’s safe to say this is where Africa is; next (3) capitalism matures until it can mature no more – intra-industry national power emerges concentrated in few hands, and these hands – instead of toiling honestly to coordinate supply and demand for the well-being of all – begin to build walls and moats around their citadels (see regulatory capture, patent over-filing, health insurance tethered to corporate employment, credentialing and licensing, etc.); (4) diminishing returns compel a premium to be placed on solving social problems or coerced egalitarianism – this is the stage where the United States and other mature social democracies find themselves; Marx went on to speculate that societies after this stage advance to (5) perfect, blissful communism as the profit motive is grdually removed from aspects of socety where it is (deemed) detrimental to the general welfare. Many others (generally social democrats) think (4) is as far as we can and should go. I think these intellectual frameworks are dangerously naïve and/or cowardly; we can combine lessons learned from (3) and (4) in a self-similar federalist/libertarian/anarchist structure that allows for unfettered individual expression and positive-sum cooperation while minimizing the effects of individual recklessness and coercive association.

Anyways, the last twenty or thirty years have given us the opportunity to see that food suffers from some of the same problems as health care and many other sectors: we’ve regulated it so much that we’ve created a system where having institutional knowledge carries an advantage over having real knowledge (This is the story of modern America if you ask me): economies of scale have progressed beyond the point of diminishing marginal utility to increasingly negative utility in the form of companies spending a plurality of revenue on branding or marketing or building bureaucratic walls around themselves and not devoting efforts towards selling food, but towards selling nutritional components rehashed and assembled from other components bought from the lowest bidder and fortified with just enough sugar and salt to siren consumers into the neutron-star-gravitational-pull of the “bliss point“.

It is precisely because of the success of the capitalist structure that food has become what it is today; that we have to apply the special label “organic” to anything not created in a lab instead of vice-versa speaks volumes to just how unnatural our diet – and by extension our sense of what’s normal – has become. That the label “organic” has itself become a brand adds new twists and turns to our labyrinth of cynical existence. The otherworldly body shapes that spring up from the ether around us manifest the system’s back-end (pun intended).

That all may be rather confusing, so I’ll use more basic parlance: economies of scale is the idea that as a particular company gets larger there is less investment in capital equipment and fewer inefficiencies necessary to produce more of a product, hence the product gets cheaper to produce as more is produced. To produce five ears of corn may cost three dollars an ear, but to produce five-hundred ears of corn costs thirty cents an ear. Economies of scale is the basic premise behind Josh’s argument, that concentration of means of production results in more-cheaply-produced food, and that this is the key to feeding Africa. This is fine up until food companies come up with ever-more-clever ways to reduce costs. Instead of paying thirty cents an ear to produce “corn”, which then can be sold as “corn” and net a revenue of $10,000, companies can pay thirty cents an ear to produce “corn” which is then sold to chemical processing refineries which extract the individual components, remix them, and resell them in profitable ways to generate a revenue of $25,000. Add some shady chemicals pushed through FDA-approval processes to prevent spoilage and net revenue approaches $40,000. The result is that the “iced tea” in my fridge is not composed of ice or tea at all, but it is composed of water, high-fructose corn syrup, citric acid, lemon juice concentrate, sodium hexametaphosphate, natural tea flavor, phosphoric acid, potassium sorbate, acesulfame potassium, gum arabic, glycerol ester of rosin, calcium disodium ethylenediaminetetraacetic acid, marketing, graphic design, a well-paid team of competent lawyers and brilliant scientists, and an amoral c-suite and board of trustees.

This is our civilization. It is precisely because we are so successful at food production that our children, who cannot make up their own minds about what is fit to put in their own bodies, are being diagnosed at an alarming rate with metabolic diseases normal for individuals age fifty or sixty. In the succinct words of David Quammen (admittedly writing about something else entirely): “ecological disturbance causes diseases to emerge.”

America’s Most Wanted

In Specific Facts on August 6, 2011 at 8:59 pm

My twelve-year-old stepson is not from America, and I wanted to teach him the time-honored, American tradition of kids making a few bucks selling lemonade. We modified our approach a little bit and decided to sell smoothies and green tea which we had brought from Japan after the earthquake. Yesterday, we went to the store near our house, and we bought watermelon, peaches, mangos, orange juice, apple juice, whole milk, ice, cups, and three poster boards for signs.

The two of us woke up early this morning and made our signs along with my two-year-old daughter, who indicated that she wanted to help with the drink stand as well. (She didn’t understand that she was supposed to color inside the bubble letters I had written and spread pink crayon all over the board. But that’s okay.) After some experimentation around the middle of the day, we created the perfect fruit punch with whipped cream on top and, in the early afternoon, we headed down to the end of our street, where we’d sell iced tea for two dollars and smoothies for three.

Almost as soon as we got down there, my daughter said she was hungry and wanted to go home to eat something. It wasn’t the best timing in the world, but these things happen with little kids. My twelve-year-old stepson is quite mature for his age and he’s experienced a lot more than most twelve-year-olds, so I had no problem leaving him in charge of the drink stand while I went home to make my daughter some food. Plus, he was just at the end of our street, so if I wanted to check on him, I could just walk out into the street from my front door a bit and have a look. 

After my daughter finished eating and as we approached the end of our street where the drink stand was, I could see from afar that the sign was pulled up and put away, the cooler was shut with everything which we had so carefully arranged on the tray table put away, and my stepson was huddled up and sitting on the rail, staring out between his knees at the ocean. 

“What happened?” I asked when I got down there. I wondered if he had gotten discouraged that no one was buying his drinks or maybe that no one could understand his accent. Or maybe he was just lonely down there by himself. 

“The police told me to pack up and go home,” he said. Or, more accurately I discovered after making a few phone calls, the town police swung by and wished him good luck, and then afterwards, “someone in brown” came by and made my stepson stop selling drinks at the end of our street, because this required a permit, and my stepson did not have a permit to sell drinks.

After hearing a little more from my stepson and talking to the town police, I discovered that the drink stand was on land under the jurisdiction of the Massachusetts State Police. After attempting several times to contact the State Police, I reached only answering machines. Apparently, having someone on call on weekends is not in the Massachusetts budget (but breaking up lemonade stands is somehow cost-effective).

In what world is it acceptable to go around breaking up kids’s drink stands? What are we teaching our children?

 

UPDATE 8/29/2011:

There has been some controversy over my assertion that it was the Massachusetts State Police that broke up my stepson’s drink stand. I admit that I may have jumped to conclusions and apologize for my ignorance of Massachusetts state organizational structure and corresponding uniform color. I have amended the piece above accordingly. I wish to reiterate that I mean no ill will towards the Massachusetts State Police or law enforcement in general. This post is clearly not about demonizing any one police officer or policing entity.

Let me reiterate: this post is about how ridiculous – and how obviously ridiculous – it is that a twelve-year-old isn’t allowed to sell green tea because it is in violation of some ill-conceived or ill-applied regulations.

Go Find Your Own Top Ten

In Dispatches from the Wild Wild East on August 6, 2011 at 3:14 pm

Every time I turn to my twitter feed there’s somebody, or several somebodies, or one hyperactive somebody, tweeting relentlessly trying to outdo all the other somebodies, linking to an article or a blog post centered around a numbered list: Top Ten Mistakes New Tweeters Make. Seven Kinds of Shoes You Should Never Wear to a Job Interview. Thirteen (13? Really?) Words You Need Right Now To Get You More Traffic!

I hate these lists, partly because I read them knowing full well they are written because research shows most people gravitate toward numbered lists when they want information, advice or more traffic. And I hate being most people. Sounds snobbish I know, but Yogi Berra wasn’t like most people and look, people still remember and repeat his advice. I doubt anyone is going to remember WebBizMan for all those great numbered lists he tweeted to his 152,804 followers (149,934 of whom he himself follows, very closely no doubt). Given the choice, I’d much rather be Yogi Berra than WebBizMan.

Despite my curmudgeonly wishes, these Nine/Top/Best/Most Dangerous/Sexiest Whatevers to Get You That Job/More Hits/Fired lists seem indeed to draw the attention of the masses. (Christ, even pieces about lists have lists.) And it isn’t just your blogosphere pseudo-savants. Time magazine flushed their dignity down the drain about five years ago, putting out a piece of rubbish – thrown together I’m willing to bet by someone’s idiot nephew who should never have been offered an internship in the first place let alone been handed a pen – on the 100 All-Time Albums (their apparent disclaimer to intellectual liability or possession being they didn’t include an adjective). The trolling hoi polloi were in an uproar. ‘Backstreet Boys? Are you kidding me?’ ‘Where the @#%& is Janis Joplin?’ ‘Burn in hell, Kansas haters!’

A much more appropriate response might have been something like ‘100 All-Time Most Moronic Time Articles: #1 – 100 All-Time Albums’. Or, alternatively, ‘You forgot Levelling the Land by the Levellers.’

The catalyst for this, my latest in a long and distinguished (and un-numbered) list of diatribes, was, as you might imagine, a top ten list. I found it thanks to the folks at Yahoo, who are above writing articles of lists but are fine with linking to them ad nauseum. The article, found here, gives a run-down of the (ostensibly) ten best restaurants to watch a sunset – according to someone who, it can be reasonably assumed by the photo credits (Xoopla, Flicker, TripAdvisor) and the descriptions that scream Lonely Planet, has never been to any of them.

To be fair the article starts with a rather promising entry: The Oasis restaurant in Austin, Texas, an apparently semi-swanky joint that sits above a 450-foot cliff overlooking Lake Travis (yeah that sounds like Texas all right). Personally I didn’t think there was anything that high in Texas since Yao Ming left town (unless you count Ron Washington but that was only temporary). Sadly, perhaps predictably, the list swiftly turns antiseptic. San Fran, Maui, San Diego? Seriously, you could find a McDonald’s in these places with fantastic sunset views.

I refuse to be fed such uninspired drivel spewed out by self-appraised champions of the best anything whose experience begins and ends with search engines. And I know you feel the same way. That is why I’ve decided to offer my own lineup of superlative somethings – compiled from actual experience, in the order they pop into my head, limited not to a number but to my bedtime, and unfettered by whether you agree with my reasoning, because I don’t much care.

The Best Places I’ve Ever Sat and Watched the Sun Set.

–  Sakurajima, Oga Peninsula, Akita, Japan –

Despite the typically unattractive parking lot, this gem along the East Sea on a hook of land crossing the 40th Parallel is one of my favorite spots in all of Japan. There are no amenities outside of the decidedly pungent public bathrooms and the trash can that needs to be emptied, but once out of nare-shot the place is paradise. Pine trees dominate the (unbelievably) free campground that overlooks the water splashing lazily against the rocks below. Pick a spot, set up your tent, settle down (carefully) on your cushion of pine needles or, if you prefer, one of the few park benches, and take in the cool, quiet evening. I’ve been to Sakurajima twice, and both times the sunset has been spectacular, with no loud obnoxious and/or drunk foreigners to ruin the atmosphere since Sakurajima is not listed in the Lonely Planet – or wasn’t at the time. If you have the chance, walk down to the rocks. Just don’t go barefoot, those suckers can be sharp. In August the water is impeccable for swimming. March is a different story.

– Some Old Dock in Nice, France –

How quaintly touristic you say? I would agree with you if you were correct, which you are not. Much of the Riviera might be reserved for the wealthy and unimaginative, this I will grant. But commandeering your own rickety dock as the sun hits the hills to the west, letting your feet dangle over the water, rabble-rousing and passing around the bottle of Southern Comfort you and your comrades spent an hour searching for and thirty-five dollars acquiring is the very definition of la belle vie. Until a certain age I suppose.

– Essaouira, Morocco –

The walls of the Medina loom high above the rocky coast in this important and increasingly artsy-fartsy fishing town, located about seventy-five miles north of the hoity-toity beach resorts of Agadir. The stone promontory is still decorated with cannons resting on their wooden bases; the walls are plenty wide and therefore safe to stand on even in the strong evening gales that will blow your one-year-old clear over into the Sahara if you don’t hold onto him. A big plus here up on the parapet is the girl with the straw basket of homemade cookies. For about a dollar, slightly more if you haven’t already indulged in a grilled cow’s brain sandwich, you can fill your belly while watching the waves crash on the rocks as the gulls fight over the leftover fish down at the port. If you have a cheap camera it’s easy to get great silhouette shots of you and your traveling companions posing on the wall in front of the setting sun.

– South Rim, Grand Canyon –

Are you kidding me? If God is anywhere, He’s here at sunset. (Tip: Push anyone who can’t keep their mouth shut for it over the edge.)

–  Arctic Circle, From 35,000 Feet –

Totally mind-bending experience to witness the sun’s light reaching over the top of the Earth. Trust me. Pop Quiz: It is Summer. You are flying high over Anchorage, Alaska, heading due east. The sun is low in front of the plane, at about eleven o’clock. The sun, therefore, is directly over…?

–  Atacama Desert, Chile –

Okay, we didn’t witness the actual setting of the sun because if we’d waited until dark to try to find our way back we wouldn’t have. Nearby Valle de la Luna is a spectacular alternative – and you can’t get lost for all the tourists with their flashlights heading back to the bus. Of course the downside here is having to share the sunset with a scattering of yappy tourists and it is difficult to push someone off a sand dune.

–  Ban Lai, Koh Chang, Thailand –

The main road on this soon-to-be-detroyed-by-developers island off the coast of Trat in the northeast part of the Gulf of Thailand takes you up over a steep pass and down into the glazed resort area around Million Dollar Beach or some such name reeking of dignity and historical distinction. Keep pedaling and you start hitting, after more hills, villages that are striking in that they don’t look like Club Med. Ban Lai, close to the southern end of the island, offers cheap bungalows connected by dirt and sand footpaths and natural-smelling outhouses that sit defiantly devoid of toilet paper. But the real draw is the fantastic bamboo and grass deck that reaches out over the water. There are no chairs, only low tables and triangular pillows to avail yourself of as you sip your colored coconut drink and watch the sun tumble over India and the Bay of Bengal beyond – while perhaps wondering how long they’ll let you hang out before you have to go back to your bungalow next to the outhouse.

– The Sundowner, St. Croix –
This place is right in line with the greatest establishments in the world; it consists of a wooden shack at the edge of the sand on the west coast of this, one of the three US Virgin Islands. Drive north (I think) out of Frederiksted, park along the lightly-traveled road, amble up to the shack, grab a drink from the guy and settle down in a plastic chair or right there on the sand. La belle vie indeed.

I think that’s eight. But it doesn’t matter.

For some of these, it was the circumstances surrounding the sunset as much as it was the sunset itself that made it memorable. None of them included a tablecloth. All of them were outside. (Likewise, the glass-encased corporate box at the stadium was cool, but I had a much better time out in the bleachers.)  But if fancy hotels and fine dining and postcard views from a window are your thing, great, go for it. Just don’t let anyone tell you what the best place for anything is – particularly if they’ve never even been there themselves for criminy’s sake. Hit the road and go put together your own list. Then let us know what you found.

Featured Find: Stabilizing into a Crisis

In Specific Facts on August 5, 2011 at 1:20 pm

Joe reads Ezra Klein regularly. I read him sometimes. I find him unusually penetrating and accurate but rather boring and irrelevant most of the time (just my opinion); so while I don’t hate reading him, I simply consider reading other writers to be better investments of my time. This time is different. This Ezra Klein piece is passionate, it resonates, and I think, it’s accurate – it’s perhaps one of the best descriptions of our (economic) time I’ve come across:

But the Dow Jones industrial average isn’t diving because spending has risen, deficits have grown or stimulus policy has changed. It’s diving because of forces Washington can’t control, and in many cases, doesn’t understand very well. How many members of Congress do you think could give a coherent account of what has happened to oil or steel prices over the past three years? Or what’s happening in the euro zone? Or to the yuan?

A dramatic gap has opened between the economy as Washington sees it — and wants to intervene in it — and the economy that exists. Whatever weak recovery we might have hoped for is being hindered by global commodity prices, consumer deleveraging, fears of flagging demand in emerging markets, earthquakes in Asia and much more. Globally, it’s been an almost uninterrupted run of crises and bad luck. Meanwhile, Washington just spent two months arguing over whether it would pay its bills or spark an unnecessary financial crisis. 

The whole article can be read in three minutes. I highly recommend it.

Why Are Liberals So Pissed?

In Specific Facts on August 4, 2011 at 6:20 pm

Nader Voter – By David ShankboneI am really mystified about the left’s level of anger at Obama over this debt deal. Not only do liberals believe the debt deal was an unmitigated disaster (Why? What are the concrete consequences of this deal? I haven’t seen anyone explain what specific program, policy, or vulnerable community has been harmed by this deal), but they believe that Obama is actually a closet Conservative!  A sampling of the vitriol from Corey Robin’s facebook chat with notable liberals (in all cases they are referring to the President):

Rick Perlstein‎: ”The fellow’s not quite well.”

Jay Driskell: “I’d like to think he’s in the thrall of capital, but more and more of me thinks that he is naive and clueless and out of his depth. That is, if he were in the thrall of capital, that would at least be comprehensible (and reprehensible) to me.”

Doug Henwood: “Plus, he needs Wall Street money for a billion-dollar re-election campaign. … Jay, “If he were in the thrall of capital”? In who else’s thrall is he?”

Jodi Dean: “I’m not sure moderate right fits someone to the right of Nixon and Reagan.”

Katha Pollitt: “IMO, he’s weak. I don’t exactly disagree with Doug — clearly, he is Wall St’s man –but I think a more skillful politician, one less in love with being above the fray, could have handled this a lot better and gotten more on the other side.”

Adolph Reed: “He’s a one-trick pony, always has been, and that trick is performing judiciousness, reasonableness, performing the guy who shows his seriousness by being able to agree with those with whom he supposedly disagrees and to disagree with those with whom he supposedly agrees. He has never — not at any moment in his political career — stood for anything more concrete than a platitude.”

Corey Robin: “I tend to think people like Obama really don’t believe the bullshit they preach; what they do believe is that moderation is the mark of maturity and that Wall Street types are smarter than the rest of us.”

Doug: “Corey, the personal angle with O, I think, is the fact that he was nurtured from an early age by elites – fancy universities and foundations and then the Dem leadership. He’s in awe of them, and grateful for all they did. Cf. FDR, who emerged from the elite and had the confidence to challenge them. … I also wouldn’t go too far with the contentlessness of his reasonableness: it’s always about loyal service to power. Not to belabor the obvious, but it’s extremely useful to the bourgeoisie to have a mixed race, cerebral Democrat imposing the austerity program. I’m reminded of Dinkins telling Wall Street skeptics, who thought he didn’t have the balls to impose austerity after the 80s went poof, back during his first campaign: “They’ll take it from me.””

On and on, further down the rabbit hole. Beyond confusion that anyone could think these are the simpliest explanations for Obama’s performance as President (here’s my simple version of Obama: he wants to get liberal stuff done but he’s very risk adverse about his election prospects), I just think this is an incredibly disproportionate response. 

Liberals seem upset that social program cuts could be included in the plan put out by the “supercommission” that hasn’t been formed yet! That’s like giving up in disgust with the game tied at halftime.  

Yes, we should be focused on jobs right now.  This does smell like 1937, when FDR tried to balance the budget and sent the economy back into a recession.  Except, that’s not what is happening (at least yet).  There is no significant deficit reduction this year or next year. You’re dreaming if you think a fat infrastructure stimulus package was there for the taking but for Obama’s incompetence as a negotiator. So the only justified complaint is Obama’s failure to use the bully pulpit to convince the American people of the righteousness of the liberal cause. Fair enough, but that hardly makes him history’s greatest monster.

It seems like Liberals are completely ignoring the fact that there was (is?) a hardcore conservative mass movement that swept 63 Republicans into office 9 months ago. Unlike the liberals speculating about Obama’s psychological motivations, I won’t try to spin a grand theory about why that happened. But I suspect that at least some of those Tea Party [1] folks were motivated as a reaction to all the liberal stuff that happened in the first two years of the Obama administration.[2] 

It’s quite possible that the marginal benefits of doing even more liberal stuff would have outweighed the marginal costs of further enraging the most conservative people in the country. I’d be pretty happy to have cap and trade in the bank right now, even if it meant the Republicans had more seats in Congress. My point is that Obama isn’t acting in a vacuum; actions have reactions. One day you are talking about comprehensive immigration reform and cap and trade, and suddenly you are trying to playing defense.

I personally think we are pretty lucky to have Obama.  He’s not perfect, but I remember the Bush administration, the McCain campaign, and I don’t look forward to President Romney, Perry, or Bachmann.

I’m tired of hearing liberals cast down fellow travellers for insufficent loyalty to organized labor or the belief that the market does a pretty good job most of the time.  I vote Democratic, donate to Obama and the DNC, volunteer to make calls and knock on doors, write about policy on the internet, have worked at a left-leaning nonprofit, and I lead an LGBT student group.  Yet, I feel like they think I’m playing for the other team because I like textbook economics.

If you don’t like the sharp right turn we’ve taken in the past six months (and I don’t!) then let’s start building a coalition.  Step one: don’t throw out the people who mostly agree with you, because the team isn’t big enough as it is. Step two: stop crying wolf about the mild pain of the debt ceiling bill and get back in the game before something really bad happens.

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[1] Part of the problem is that these liberal elites, and I say that with no malice, have wished the Tea Party out of existence.  Here’s a quote from Gordon Lafer from that conversation: “I think it’s important not to call them “the Tea Party” since there is no such thing, while there are real actors at work here.” He mentions the Koch Brothers and Ari Fleischer. I think the Tea Party is at best deeply wrong and quite possibly just confused (“Keep the government’s hands off our Medicare”), but can we at least all agree that it did happen? The moon landing wasn’t filmed at Disney world and astroturfing doesn’t get 60+ Republicans into the House.

[2] Again, to these liberals nothing progressive happened in the first two years! The stimulus was too small, the Affordable Care Act didn’t have a public option, Dodd-Frank was too easy on the banks, and Obama still pretends he doesn’t support gay marriage. Meanwhile, we’re still in Afghanistan, Iraq, and now Libya. Guantanamo Bay is still open. Card check, the Dream Act, and cap and trade are dead. So is Osama bin Ladin, but that just proves where Obama’s heart really is.  He’s not a liberal, he’s a neoliberal. Scratch that, a neoconservative!

Fewer Farms, Larger Farms

In Specific Facts on August 3, 2011 at 12:00 pm
Right now, the world is in the midst of a food crisis. Some might contend that we never fully recovered from the food crisis of 2008, but what is certain is that food prices are rising. The reason for the spike is open for debate, but some combination of a growing demand due to population growth, an increase in the frequency of extreme weather events (floods in Pakistan, the Moscow heatwave, etc.), an expanding middle class with a growing taste for meat and dairy, global trade policy, commodity speculation, agribusiness lobbying, ethanol, and many other factors is likely. The success of the Green Revolution beginning in the 1960’s caused food prices to fall year after year for decades. With the world assuming that the food problem had been solved, the limited number of development dollars went to researching other global problems, namely solving public health issues like HIV/AIDS, tuberculosis, and malaria.
 
Global warming was another issue. Over the last two decades, economists and climatologists have been contemplating the effects of global warming on food production. The consensus was that, while climate change and the corresponding shift in weather patterns would have an adverse impact on agriculture in certain regions of the world, a rising temperature could actually open up new pockets of arable land. The one bright spot of climate change was that the increased amount of carbon in the atmosphere would actually improve crop yields. Unfortunately, that hypothesis proved to be overstated, at best, and quite possibly downright wrong. It turns out that a warmer world, despite what the computer models may say, is not good for food production.
 
The Economist recently had a special report on the feeding the world. The articles were thought-provoking and alarming, and should galvanize a stronger response from the developed world. As food prices increase, the people who are hit the hardest are those spending the highest percentage of their annual income on food. So, for a person of the developed world, a dramatic increase in the price of maize is less apparent on his grocery bill than it is for the rural farmer who is spending 60% of his income on maize. For this reason, the 2008 food price crisis led to riots in some countries and was hardly acknowledged in others. For the 100 million people driven into extreme poverty as a result of the spike in staple crop prices, the prospect of another food crisis in 2011 is likely terrifying, particularly if they understand the challenges in feeding nine billion people over the next half-century.
 
The Economist is quite expensive in Kenya, unless you buy an old copy from the street newsstand vendors. Yesterday I picked up the issue immediately following the one with the special report on food, and perused the letters in response. One response from Chris Haskins of the House of Lords stood out:
 
SIR – Regarding the future of food (Special report, February 26th), there are two additional factors to existing and new technology that will raise farm output significantly. Large tractors and combines have transformed agriculture in the developed world, enabling far more land to be cultivated and crops to be harvested at speed, which reduces the loss caused by weather. Sixty years ago my father needed six men to grow 100 acres (40 hectares) of crops. Today my son can farm 1,000 acres with one man.
 
Agriculture in the developing world could also be transformed by this existing technology, but there needs to be fewer and bigger farms to make use of large equipment and to raise the collateral to invest. That means far fewer rural workers, and controversial social consequences.
 
New technology, such as satellite mapping, will enable farmers to identify wide variations of soil quality across every field and to adjust their equipment to apply their seeds, fertilisers and chemicals precisely at varying rates, depending on the fertility across the field. This makes great economic and environmental sense.
 
This is a controversial position, but one with which I happen to agree. Large-scale commercial farming offers economies of scale that drive down the cost of production through mechanization, irrigation, and the consistent application of GAPs (good agricultural practices). In northern Ghana, it is difficult to offer mechanization services profitably to smallholder farmers because, frequently, the plots of land are not contiguous, meaning the tractor has to travel longer distances to serve the farmers, increasing fuel costs and adding to the per-acre cost. Not to mention, smallholder farmers often don’t have the resources to remove all the stumps and stones from their land, which, if run over by a tractor, will destroy it. The cost of importing replacement parts into the country is high, which is why, invariably, if you go to northern Ghana, you will see tractors gathering rust on the side of the road.
   
Zimbabwe was once called the “breadbasket of Africa” due to its massive agricultural output. Commercial farms operated by the predominantly white settlers were highly efficient, with yields that rivaled other parts of the world. After Robert Mugabe redistributed the land during his controversial land reform program, farm output fell. Now, Zimbabwe can hardly feed itself, sending many Zimbabweans into neighboring South Africa to find work. Say what you will about colonialism, but Zimbabwe’s agricultural prowess was once the envy of Sub-Saharan Africa (SSA).
   
The last point about Mr. Haskins letter I’d like to address is his call to reduce the number of farms. So much money is invested in helping farmers in SSA improve production and increase profits. FAAB – “farming as a business” – programs are designed to get subsistence farmers to think about their input costs and yields as components of a rudimentary profit-and-loss statement.
        
In Ghana, an exasperated colleague lamented the fact that, unlike in other places she’d worked in Africa, including Kenya, Mozambique, and South Africa, farmers in Ghana were lazy. Instead of transplanting rice by hand, or individually planting soya bean seeds in rows, Ghanaian farmers were content to broadcast the seed, throwing it haphazardly into the soil. The result is higher seed costs and lower yields. A Canadian friend and I were listening to this exasperated colleague, and after she left, I asked my Canadian colleague’s opinion. He’s been living in Ghana for the better part of three years, working with the Ministry of Food and Agriculture and living in the rural communities with farmers. Maybe it isn’t that farmers in Ghana are lazy, he related, but rather that smallholder farmers anywhere – be it in Africa or the rest of the developing world – don’t actually want to be farmers! They are farmers because they have to be farmers, and farming is all they know. Maybe they would prefer to draw a salary from working on a large-scale commercial farm – a steady salary, unlike the lump sum payment they get for their crop at harvest time. 
   
I agree with Mr. Haskins: fewer farms and larger farms are the answer.
    
I once asked another colleague how make Ghanaian rice competitive against Thai, Vietnamese, and U.S. imports. “Give me 200,000 acres below the Volta Dam with full irrigation and three growing seasons, a warehouse in Tema (the port), and I’ll feed all of Accra.” The unfortunate reality of 200,000 farmers – each with an acre of land – will never come close to feeding all of Accra.