Tag Archives: economics

what’s going on with mad cow?

Mad cow disease is scary because there is such a long time between when someone is infected and when they begin to show symptoms, the kind of disease that could spread through large portions of a population before anyone realizes it is there. I am not saying it has, I don’t know. This article in Alternet doesn’t really address the current status, but it goes through some interesting history of the first outbreak in the U.S.

On December 23, 2003, the USDA announced that a Holstein cow, imported from Canada and slaughtered in Moses Lake, Washington, tested positive for mad cow disease. Ann Veneman, USDA secretary at the time and other USDA officials, said the cow was discovered because she was a “downer”––unable to walk—which was how the system screened for mad cows. In other words, the system “worked.” The problem was three workers said the cow had walked just fine suggesting that the entire federal mad cow testing program was worthless. Congressional hearings ensued.

As it turned out, congressional troubles were the least of cattle producers’ problems. Within hours of the mad cow announcement, China, Mexico, Russia, Brazil, South Africa, Hong Kong, Japan, Singapore, Taiwan, Malaysia, South Korea and ninety other countries banned US beef and 98 percent of the $3 billion overseas beef market vanished. (The only reason the EU didn’t ban US beef was it was already banned for its hormones oestradiol-17, trenbolone acetate, zeranol and melengestrol which EU officials said increased breast and prostate cancer risks.)

After the first mad cow, things got worse. Two more mad cows were found in the US in 2004 and they weren’t from Canada. One was born in Texas and the other Alabama. Worse, a USDA export verification report admitted that 29 downers at two unidentified slaughterhouses went into the human food supply and twenty were not tested for mad cow disease.

Most of the countries mentioned lifted their ban shortly afterward, but China apparently is just lifting it now, according to NPR:

Cooked chicken from birds grown and raised in China soon will be headed to America — in a trade deal that’s really about beef…

The Chinese appetite for beef is huge and growing, but American beef producers have been locked out of that market since a case of mad cow disease cropped up in the U.S. in 2003. In response, many countries, including South Korea, Japan, Mexico and China, banned imports of U.S. beef…

Many people long had seen China’s refusal to lift its ban on U.S. beef imports as a negotiating tactic, a tit for tat aimed at allowing Chinese chicken imports into the United States. The negotiations that led to the new trade deal have been going back and forth for more than a decade, stalled at one point by worries in Congress over China’s food-safety practices.

This might be good for the U.S. beef industry in the short term, but an exploding demand for beef can’t really be good for the world in the longer term. Maybe this is not the kind of industry of the future that the U.S. should be focusing on. I’ll admit I’m a hypocrite – I love a good cheeseburger, but I try to treat it as an occasional treat rather than a staple food.

The Retail Meltdown of 2017

The Atlantic has an article about “the retail meltdown of 2017”.

There have been nine retail bankruptcies in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Last week, several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of several brands to abandon that iconic thoroughfare…

So, what the heck is going on? The reality is that overall retail spending continues to grow steadily, if a little meagerly. But several trends—including the rise of e-commerce, the over-supply of malls, and the surprising effects of a restaurant renaissance—have conspired to change the face of American shopping.

A lot of people like the car-dependent suburbs because they are perceived to be quiet, safe, and have good public education. But do people actually like sitting in traffic or have they seen that as a necessary price to pay. I like how the Place Shakers blog talks about this:

So what was the motivation [for the rise of auto-dependent retail]? I’d suggest it was (and still is, really) a desire for the easiest possible access to the stuff we want at the time — a desire so strong, it seems to me, that we began structuring our entire built environment around its fulfillment…

That’s why we built bigger arterials which fed bigger chain stores with more of the items we wanted to get our hands on. And why we built malls, where the variety of available goods seemed to increase exponentially. And it’s also why we established hefty parking minimums. Because you’re not effectively delivering on the promise of easy access to goods if you can pave the way to a warehouse full of stuff but leave no space to park within a few feet of the door. And parking within a few feet of the door is a fundamental part of the need being fulfilled.

But what happens when times and technologies change, and new ways of addressing our needs emerge? Suddenly we’re afforded new opportunities to prioritize how we spend our time and money.

In other words, we can get the stuff we want without spending so much time sitting in our cars, and we have figured out that there are other, better ways to be spending that time. I think something very similar is playing out with the trend of a lot of people working from home, at least on Fridays. By saving that commuting time to and from the office, your free up hours of your day for sleep, family, leisure, or extra productivity.

value added tax

Here is a Fresh Air interview with T.R. Reid explaining how great the VAT is.

This is the most important innovation in taxation in the last 60 years. This is a tax that’s like a sales tax on steroids. It’s a tax – our sales tax is called a retail sales tax. The tax is only collected when the retailer sells you the book. But on a value-added tax, a tax is collected when the paper mill sells the paper to the publisher and when a publisher buys ink from an ink company and then the publisher sells it to a wholesaler and a wholesaler sells it to a distributor, distributor to the bookstore and the bookstore to you.

That tax is collected at every level, and every time you pay the tax to the other guy, you report it to the government to get a credit for the tax you paid which means every penny of tax that’s paid is reported to the government. So the VAT turns out to be a very easy tax for government to collect and a very hard tax for taxpayers to avoid. And so if you put in a value-added tax, they’re very steady collections, and it’s hard to cheat on.

And you could use that money to reduce the rate of the corporate or the personal income tax. So 176 countries have adopted this innovation. It’s a great idea. The only countries that don’t have it are a bunch of countries so poor they have no taxes and the United States of America. So I say in my book in taxation, Americans are still banging out letters on a typewriter and dropping them in a mailbox, and everybody else is texting and using Instagram.

So let’s do it. There are actually some signs the Trump administration might consider it. But instead of eliminating income tax, they may be thinking of going after the Social Security payroll tax.

March 2017 in Review

Most frightening stories:

  • La Paz, Bolivia, is in a serious crisis caused by loss of its glacier-fed water supply. At the same time we are losing glaciers and snowpack in important food-growing regions, the global groundwater situation is also looking bleak. And for those of us trying to do our little part for water conservation, investing in a residential graywater system can take around 15 years to break even at current costs and water rates.
  • Trump admires Andrew Jackson, who I consider a genocidal lunatic and the worst President in U.S. history.
  • Fluoridated drinking water could eventually be looked back on as a really stupid idea that damaged several generations of developing brains, like leaded gasoline. Or not…I’m not sure who to believe on the issue but caution is clearly warranted.

Most hopeful stories:

  • A new political survey says there is a chance that a majority of Americans are not bat-shit crazy. Which suggests they might not be too serious about Steve Bannon, who believes in some bat-shit crazy stuff. There are a number of apps and guides out there to help sane people pester our elected representatives when they fail to represent our interests.
  • South Korean women are projected to be the first to break the barrier of an average life expectancy of 90, with a 50% probability of this happening by 2030.
  • Advanced power strips can reduce the so-called “vampire loads” of our modern electronic devices that are never really off.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • This long NASA article first gets you excited about the possibility of life on eight new planets it has just discovered, and then throws cold water (actually, make that lethal X-rays) all over your excitement.
  • Bill Gates has proposed a “robot tax”. The basic idea is that if and when automation starts to increase productivity, you could tax the increase in profits and use the money to help any workers displaced by the automation. In related somewhat boring economic news, there are a variety of theories as to why a raise in the minimum wage does not appear to cause unemployment as classical economic theory would predict.
  • CRISPR could be used to create new crops out of the wild ancestors of our current crops.

choosing a college major

For some reason, I was thinking today on what advice I would give a high school senior on picking a college major. Now, I believe in education for its own sake, and I believe there is a difference between education and training, but I would still have to advise someone who asked to consider a major with significant economic value. I think I would recommend a fairly traditional science or engineering degree to most people, because this leaves open many options for specialization in graduate school.

I think computer science will continue to be a hot field for the foreseeable future, and genetics is probably the emerging hot field right now. You really couldn’t go wrong picking one of these two majors.

If you want to go the computer science route, the obvious major is, well computer science. There are also computer engineering programs out there, and either electrical or mechanical engineering would be a good undergraduate foundation while leaving options open for a number of different careers. Good old mathematics is also an option.

If you want to go the genetics route, biology is the obvious major. Chemistry or chemical engineering would also lead to your knowing your way around a laboratory, while leaving all sorts of possible career options open in the chemical, energy, and pharmaceutical industries. Some schools have programs in biological, biomedical, and agricultural engineering that might have relevant training.

If these majors just aren’t your thing, other remaining traditional professions like law, medicine/nursing, architecture, and accounting should still be reasonable career paths. Teaching and child care are honorable professions but don’t get paid what they are worth to society, at least in the United States. You have to be a little careful with accounting, because you hear so much about basic bookkeeping functions being automated. But people who really understand the tax code and helping companies comply with financial laws should always be in demand. I might put my own profession of civil and environmental engineering in this category – it is not a path to fantastic wealth, but it is not likely to go away. Chemical engineering probably gives a person more flexibility to work in either the public or private sector, but it was just not my thing. I have no regrets about the path I have chosen and would recommend it to anyone if the field really interests you.

Now, if you really have your heart set on a liberal arts or fine arts degree, I think that is great. I might advise someone to do some training in a skill on the side or over the summers. You can still make a living as a plumber, electrician, or mechanic, for example. You can also learn to work with specialized software such as geographic information systems.

minimum wage and unemployment

In this Atlantic article, James Kwak summarizes several theories on why a higher minimum wage doesn’t seem to increase unemployment in the real world as the simple supply-and-demand theory would predict.

The idea that a higher minimum wage might not increase unemployment runs directly counter to the lessons of Economics 101. According to the textbook, if labor becomes more expensive, companies buy less of it. But there are several reasons why the real world does not behave so predictably. Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. (Imagine a local copy shop: No matter how fast the copy machine is, there still needs to be one person to deal with customers.) Therefore, some companies can’t lay off employees if the minimum wage is increased. At the other extreme, very large employers may have enough market power that the usual supply-and-demand model doesn’t apply to them. They can reduce the wage level by hiring fewer workers (only those willing to work for low pay), just as a monopolist can boost prices by cutting production (think of an oil cartel, for example). A minimum wage forces them to pay more, which eliminates the incentive to minimize their workforce.In the above examples, a higher minimum wage will raise labor costs. But many companies can recoup cost increases in the form of higher prices; because most of their customers are not poor, the net effect is to transfer money from higher-income to lower-income families. In addition, companies that pay more often benefit from higher employee productivity, offsetting the growth in labor costs. Justin Wolfers and Jan Zilinsky identified several reasons why higher wages boost productivity: They motivate people to work harder, they attract higher-skilled workers, and they reduce employee turnover, lowering hiring and training costs, among other things. If fewer people quit their jobs, that also reduces the number of people who are out of work at any one time because they’re looking for something better. A higher minimum wage motivates more people to enter the labor force, raising both employment and output. Finally, higher pay increases workers’ buying power. Because poor people spend a relatively large proportion of their income, a higher minimum wage can boost overall economic activity and stimulate economic growth, creating more jobs. All of these factors vastly complicate the two-dimensional diagram taught in Economics 101 and help explain why a higher minimum wage does not necessarily throw people out of work. The supply-and-demand diagram is a good conceptual starting point for thinking about the minimum wage. But on its own, it has limited predictive value in the much more complex real world.

Even if a higher minimum wage does cause some people to lose their jobs, that cost has to be balanced against the benefit of greater earnings for other low-income workers. A study by the Congressional Budget Office (CBO) estimated that a $10.10 minimum would reduce employment by 500,000 jobs but would increase incomes for most poor families, moving 900,000 people above the poverty line. Similarly, a recent paper by the economist Arindrajit Dube finds that a 10 percent raise in the minimum wage should reduce the number of families living in poverty by around 2 percent to 3 percent. The economists polled in the 2013 Chicago Booth study thought that increasing the minimum wage would be a good idea because its potential impact on employment would be outweighed by the benefits to people who were still able to find jobs. Raising the minimum wage would also reduce inequality by narrowing the pay gap between low-income and higher-income workers.

do we want a strong or weak dollar

This Economist article tries to explain whether a stronger or weaker dollar is better. The answer is both or possibly neither. A strong dollar makes imported stuff at the store cheaper for consumers, but it lowers the demand for exports and makes it hard for those same consumers to get well-paying jobs making stuff to export. It encourages trade deficits (more imports than exports) for this reason. Because it holds down wages for the working and middle classes, it makes income inequality worse. All other things being equal, the value of the currency should fall relative to foreign currencies in this situation until things are in balance again. This doesn’t happen to the U.S. dollar because it is the world’s reserve currency, meaning other countries are always willing to buy it – people consider it a safe investment even if it is paying very little interest. So this is one thing that is holding our interest rates artificially low. The author concludes that being the only reserve currency is actually not in the country’s long-term interests.

An overvalued currency and persistent trade deficits are fine for America’s consumers, but painful for its producers. The reserve accumulation of the past two decades has gone hand-in-hand with a soaring current-account deficit in America. Imports have grown faster than exports; new jobs in exporting industries have not appeared in numbers great enough to absorb workers displaced by increased foreign competition. Tariffs cannot fix this problem. The current-account gap is a product of underlying financial flows, and taxing imports will simply cause the dollar to rise in an offsetting fashion.

America’s privilege also increases inequality, since lost jobs in factories hurt workers while outsize investment performance benefits richer Americans with big portfolios. Because the rich are less inclined to spend an extra dollar than the typical worker, this shift in resources creates weakness in American demand—and sluggish economic growth—except when consumer debt rises as the rich lend their purchasing power to the rest.

Chalk the headaches generated by low interest rates up to the dollar standard, too. Some economists reckon they reflect global appetite outstripping the supply of the safe assets America is uniquely equipped to provide—dollar-denominated government bonds. As the price of safe bonds rises, rates on those bonds fall close to zero, leaving central banks with ever less room to stimulate their economies when they run into trouble.

One thing I know from painful experience is that when you live abroad, a falling dollar can hurt, because I was getting paid in U.S. dollars and had to pay my rent in Singapore dollars. So my rent was going up every month in U.S. dollar terms, and also going up every year in Singapore dollar terms. Ouch. Well, the life experience gained had a certain value I suppose. That was one of the only times lately that the U.S. dollar has been falling relative to Asian currencies, so I am just unlucky.

peak bacon?

This headline in USA Today says Nation’s bacon reserves hit 50-year low as prices rise. That pretty much covers it. The reason is not lack of supply but increased foreign demand.

In December 2016, frozen pork belly inventory totaled 17.8 million pounds, the lowest level since 1957, according to the U.S. Department of Agriculture.

As a result, prices are on the rise. The council reports pork belly prices have increased 20 percent in January. Officials said increased foreign demand might account for the decline in inventory. Hog farmers export approximately 26 percent of total productions, the council said.

The Great Equalizer

The Great Equalizer by David Smick book is #8 on the New York Times nonfiction best seller list. Here’s the Amazon description:

The experts say that America’s best days are behind us, that mediocre long-term economic growth is baked in the cake, and that politically, socially, and racially, the United States will continue to tear itself apart. But David Smick—hedge fund strategist and author of the 2008 bestseller The World Is Curved—argues that the experts are wrong.

In recent decades, a Corporate Capitalism of top down mismanagement and backroom deal-making has smothered America’s innovative spirit. Policy now favors the big, the corporate, and the status quo at the expense of the small, the inventive, and the entrepreneurial. The result is that working and middle class Americans have seen their incomes flat-lining and their American Dreams slipping away. In response, Smick calls for the great equalizer, a Main Street Capitalism of mass small-business startups and bottom-up innovation, all unfolding on a level playing field. Introducing a fourteen-point plan of bipartisan reforms for unleashing America’s creativity and confidence, his forward-thinking book describes a new climate of dynamism where every man and woman is a potential entrepreneur—especially those at the bottom rungs of the economic ladder.

Ultimately, Smick argues, economies are more than statistical measurements of supply and demand, economic output, and rates of return. Economies are people—their hopes, fears, dreams, and expectations. The Great Equalizer is a call for a set of new paradigms that inspire and empower average American people to reimagine and reboot their economy. It is a manifesto asserting that, with a new kind of economic policy, America’s best days lie ahead.

 

Bradford Delong on…I’m not sure what

I have a sense that this long blog post by Bradford Delong contains some key insights or kernels of wisdom, but I just don’t quite have the language skills to translate from econospeak to English. I’ll give it a shot:

  • The human economy consists of two layers – the supply-and-demand market system governed by prices as envisioned in economics 101 textbooks, built on top of something more biological, our “propensity to be gift-exchange animals”.
  • Gift-exchange animals want to form relationships. We want wealth, but we want to feel like we have earned that wealth. We want to give, but we don’t want to feel like we are being taken advantage of.
  • What we are paid actually has a lot to do with what country, city and family we were born into, and all the knowledge and groundwork that was laid by the people who came before us in that location, and in the world/economy more generally.
  • Based on the above, he claims to be for some system of fair income or wealth allocation – “we need to do this via clever redistribution rather than via explicit wage supplements or basic incomes or social insurance that robs people of the illusion that what they receive is what they have earned and what they are worth through their work.”
  • He never quite explains what this would look like. He quotes another blogger, who suggests infrastructure, education, entrepreneurship, and something about removal of urban land use regulation that doesn’t quite make sense.

So I don’t quite know what my personal take-away from all this is but I feel like there is something there and if I ruminate on it for awhile it might come to me.