Economics: we know it all

You probably thought that there were some things economics didn't claim to know about. Little did you know, we economists think we have a handle on any and all decisions.

From Ejrnaes, Mette, and Claus C. Pörtner. 2004. “Birth Order and the Intrahousehold Allocation of Time and Education.” Review of Economics and Statistics 86(4, November): 1008-1019.

Distributed costs in food

In the last post I mentioned how it can be problematic when a few benefit while the costs are spread among many. In that case it was investments in safety while drilling for oil, with consequences that the Gulf will be feeling for a long time. Another example is back in agriculture, where a recent New York Times editorial calls attention to the plight of a food safety bill languishing in the Senate. The toolkit the FDA has at its disposal has been limited for a long time, and it's time for an update. Without adequate policing, we get problems like the salmonella-contaminated peanut butter, because it's often easier to continue selling contaminated product than it is to clean up. Seems to me like protecting the country's food supply is a pretty basic role of government! I hope the bill gets the attention it deserves, unlike the climate change legislation that's slipped away from us this year. We'll see!

If anything can go wrong....

Murphy's Law seems to have claimed the ill-fated Macondo well not through a single failure but through a litany of slipups, penny-pinching, and poor governance. Much investigation remains to be done, but the first reports on where and how the failures occurred are already coming out, including in this article in today's Washington Post. Government failed and the market failed, and yet another investment goes bad for which the potential rewards would have come to relatively few people while the risks are distributed among millions of us.

I haven't heard anything for weeks about the continued use of the dispersant Corexit, of which as much as 2 million gallons have been added to the spill basically to hide the oil and gas from view. As more tropical storms and hurricanes come into the Gulf this hurricane season, the cocktail will spread far and wide. I guess we'll see what happens!

The benefits of factory farming

As an undergraduate I had a really difficult time figuring out what to major in. I took classes in 13 disciplines, but I have a distinct memory of flipping through the class list and smiling as I found the one area that had absolutely zero appeal: "Agricultural Economics." Ugh! Manure maximization just really had no appeal.

Well, look at me now- got my Ph.D. in it. Wish I'd know that my undergraduate major in Sociology, minors in Math & Computer Science, and interest in environmental issues meant that maybe no area was more appropriate for me to study. As noted by an article in a recent New Scientist (h/t to Marginal Revolution), "agriculture produces more greenhouse gases than all methods of transport put together, and it contributes to a host of other problems, from nitrogen pollution to soil erosion." If you want to solve environmental problems, you'd better take a look at agriculture!

To me the interesting part of the article is when it notes that factory farms are in some ways lighter on the environment than pasture-grown livestock. Pigs and chickens who are fed a diet of grains produce more meat for less grain than cattle in grassy pastures, and they produce much less methane as well. (Methane is a problem not just because it smells bad, but because it's a potent greenhouse gas.) Obviously diverting grain from people to animals is inefficient in many ways, but livestock can still eat crop residues and milling wastes that we can't. Of course, animal rights advocates have a separate set of issues that, well, generally aren't that compelling for me.

Vegan fantasies about worlds without meat not very realistic, though encouraging people to eat less meat seems like a good idea. Just be aware of all of the related issues!

Certainty & energy markets

Friedman's column today in the NYT reminds us that energy companies are waiting for the other shoe to drop on climate change-related carbon regulation. The writing's been on the wall for awhile about the need for government to act on limiting carbon emissions, but so far nothing's been done. Republicans like Oklahoma's Senator Inhofe (who treated Towson's Invisible Children club well last year!) have called climate change a "hoax" and South Carolina's Senator DeMint saw this February's snowfall as evidence that climate change isn't happening. And while we'll miss Steven Schneider, a climatologist and leader of the Nobel-winning IPCC research team calling attention to the phenomenon of climate change, most people still agree that something needs to be done.

It surprises me when stock prices go up after an industry gets an added burden of regulation, but that's usually the response to certainty. When they know something's coming but they don't know what, markets don't like that. Better a regulation you know than one that might be anything. That quest for certainty is what Friedman's hoping will drive Congress to give the energy sector the regulations they know are coming. The US relies on some pretty dirty energy sources, and we could be cleaning those up, but people won't until they have to. Friedman thinks that knowing they have to will be a load off their minds- I wonder if they agree!

Assault on batteries

I'm stunned that technology is still so bad for storing energy. Energy production is hard enough, but to have to use it immediately makes things that much more inefficient. Wind energy, for example, can't be sure it will produce enough to satisfy people's needs at any given time, so it must be supplemented with other generators, which usually turn out to be coal or natural gas-based. If only we had good batteries!

The more immediate need, of course, is for small batteries we can fit into cars and such. Even if we can produce clean power on a large scale, we'll still be dependent on less clean portable fuels for transit unless we can harness large scale power production for use on a small scale. That's one reason for the push for investments into electrically powered cars and batteries, which the President has recently pushed as part of a $2.4 billion investment into the technology. Given the potential positive externalities it seems an arguably appropriate government investment, but in addition to the usual notes that increasing the deficit isn't a good idea, detractors note that Asian countries like China, Japan, and Korea already have a head start, and we may or may not catch up.

It's always tough to predict winning investments, and as far as I know, governments don't have a better track record than anyone else. It would be great if this turned out to be a winning bet, but who knows?

The environmental risks of fracking

While the dream of natural gas-based energy independence for the U.S. beckons from the horizon, the path there is not an easy one. Earlier this month the Wall Street Journal had this article describing the thousands of jobs and billions of dollars that may come from the industry, but they also noted that the Department of Environmental Protection in Pennsylvania is developing regulations to keep extraction as clean as possible. A new report out recently from the Worldwatch Institute reiterates the dangers and the potential benefits. Careful regulation can make the dream a reality, but as always, oversight is necessary.

Small scale power solutions?

On a day when the nation is holding its breath to see if BP's cap will stay intact, it's worth thinking about small scale power power solutions. The sight of solar panels on rooftops is a familiar one, but I didn't realize until recently that proponents of wind energy envision a similar approach. For $15,000 or so you can get a 60 foot tower with a wind turbine on it and get your house powered. For half a mil, you can apparently power a small waste treatment plant.

Do I need to point out they don't spew millions of gallons of filth into any nearby bodies of water?

Poorly treated crab pickers

One of our state's most famous resources is our blue crab. The Chesapeake is the source of half the blue crab produced in the US. From 1997-2001, crabmeat production was a $20-$30 million per year business supporting over 1000 jobs, of which 3-400 were pickers, brought in mostly from Mexico. Total employment has probably declined due to regulations limiting harvesting over the last few years, and I can't find more current information that's split out by job types. 1900 people were involved in seafood production in Maryland in 2008, but that includes non-crab people, obviously....

Anyway, the Baltimore Sun has a writeup about a report by human rights groups who investigated the the process by which the Mexican workers are brought in. The investigators say the process has been pretty nasty, with workers charged lots of fees they initially aren't told about, being forced to live in unsavory conditions, and being easily hired and fired, brought in and deported at the whim of their employers.

The reality of economics is so much less clean than the lines we draw on a chalkboard! We economists say, "Here's the cost curve- the more we produce, the more it costs to produce it." But in reality the costs are shifting all the time, and consumers and producers are doing everything they can to shift things in their favor. Hopefully the problems that are discussed in this report will be addressed, and the true, full costs of hiring are paid for. Also, hopefully Maryland crab producers will continue to be competitive even when paying a higher price for labor!

Strawberries

Strawberries as a crop are sensitive to a variety of pests, so most growers fumigate the soil with methyl bromide or other pesticides before they plant. Methyl bromide is fairly nasty stuff (which is why it makes an effective pesticide & fungicide) and in addition it damages the ozone layer. A number of years ago, the EPA called for a phaseout of methyl bromide use to protect the environment, and strawberry farmers were in an uproar, since their crops to some extent depend on the substance. Eventually the farmers got a "critical use exception" and were allowed to continue using the substance in spite of the problems it creates.

A new proposal is to switch from methyl bromide to methyl iodide. The latter doesn't harm the ozone, but is perhaps even nastier. This is a good thing for farmers trying to kill bugs and fungi, but a less good thing when you live or work near (or in) a field where it's been applied. Responding to the pressure to phase out methyl bromide, the California Department of Pesticide Regulation is pushing methyl iodide. It has a couple of strikes against it: first, it's expensive, so smaller farmers couldn't really afford it. Second, its toxicity is so intense that scientists don't believe it can be used safely.

How do we balance these things: ozone, worker health, and strawberries? Lots of issues!

New rules for deep water drilling

Interior Secretary Ken Salazar came out with new regulations yesterday to restrict deep water drilling in the Gulf after the last set of regulations were overturned by the courts. They want to be sure that better safeguards are in place, and the information requirements include proof that the equipment will do the job it's designed for and evidence that increased cleanup capacity can and will be on hand when extraction happens.

After the Minerals Management Service was revealed to be literally in bed with the energy industry, we've started learning more about how (little!) this part of our economy was regulated. I hate bureaucracy and red tape as much as the next person, but when we have spills in the Gulf like this we remember why these institutions exist. Adequate regulation is crucial to maximizing social benefits- actual and potential externalities need to be counted alongside profits as part of the value of industry. Obviously profits are, and should be, protected (though in the news we usually hear references to "lost jobs" rather than "lost profits") but some balance needs to be maintained, and if this spill isn't a siren call for more attention to be put on this industry, I don't know what would be.

More opinions on the new regulations are here.

Subsidies for oil

Although the US thinks of itself as importing huge amounts of oil (which we obviously do), the Gulf spill has also refocused attention on how much we produce ourselves. Domestic production, when it is adequately regulated, is a wonderful thing. Like many domestic industries, though, it has considerable influence in Congress, and over the years it has secured itself some serious tax breaks. Yesterday's New York Times features an editorial about how once useful but now outdated tax breaks for the oil industry could save taxpayers as much as $80 billion! Hopefully my colleagues who advocate small government will join me in supporting the cutting of these subsidies....

A Miner Point

This quote from an article in today's Washington Post catches my eye:

"The story of 2010 is not that nothing happened after the BP spill, or after the coal-mine explosion that killed 29 in West Virginia on April 5. It's that much of the reaction has focused on preventing accidents -- on tighter scrutiny of rigs and mines -- rather than broader changes in the use of oil and coal."

While the major issue in the article is the failure of environmentalists to use incidents to provoke wider change, I want to talk today about the "miner" issue. I haven't even heard that much of that scrutiny is happening, particularly with respect to the coal mine incident. This US government website says that from 2001-2005 an average of 30 people died each year in coal mines, but 65 died in 2007. 41 have died so far this year in coal mines and another 11 in metal mines.

Given that we're so reliant on coal, it seems likely that the mining companies are getting decent returns on their investments. I'd like to see a little more pressure from the government on companies to turn some profits back to investments in safety! I wonder how the free market contingent feels about OSHA and MSHA. Some West Virginians, for example, often have few economic alternatives, so they can't easily turn down mining jobs- the mining companies are monopsonists (i.e. the only buyers) for people selling their labor. Those are problems with the market process that the government should correct!

South Asia & Climate Change

Bangladesh faces a huge poverty burden made worse by a lack of water for long periods each year. Adding to the difficulty, wells come up laced with arsenic when someone actually has enough money to drill one. As if that wasn't bad enough, scientists say that climate change is expected to profoundly exacerbate problems across South Asia, says this article in the Wall Street Journal. In just 20 years, the area is expected to lose what amounts to the total amount of fresh water used in the country of Nepal every year- 275 billion cubic meters. Crop yields, including wheat and rice, could drop by 30-50% in India and China. 50-70 million people could end up displaced.

Just thought you'd like to know!

Horse-powered stables

We can't find enough to do with our chicken poop here in Maryland, but across the "pond" they're working toward a good solution in one place. A military stable will soon be powered entirely by horse manure. The initial cost is significant- I wonder how long it will take to pay itself off, if ever?

China & Climate Change

A 48 percent increase in car sales? In the depressed market of 2009? It's true: in China, car sales are going through the roof. As the 1.3 billion Chinese "warm up" to the joys of consumer capitalism, the climate too is likely to do some significant warming! Tough time to come of age as a country. Sounds like they are doing what they can to improve efficiency, but it will take a lot of efficiency tweaks to bring that many people into a Western lifestyle!