Marketing Pork

by on September 2, 2015 at 1:10 pm in Economics | Permalink

Here is a great little story by Danny Vinik from Politico’s The Agenda on how so-called marketing boards are surreptitiously turned into lobbying boards.

Industries with a large number of producers find it difficult to organize collectively because of the free rider problem. Mostly, that’s a good thing because it prevents cartels. Collective action, however, could also be used to perform research or marketing that’s good for the industry as a whole but too expensive for any small subset of producers. In theory, therefore, some type of collective action could be beneficial and in agriculture governments have created checkoff programs which force producers to pay a tax to fund collective goods.

pigsCheckoffs exist for dairy farmers, mushroom producers, and even popcorn processors. Critics say they violate economic freedom and distort the market; big corporate farmers, they allege, easily find ways to influence the boards and siphon the money off to push their own causes.

“In one sense, it’s a classic case of the larger producers are the more powerful political forces within these organizations,” said Dan Glickman, the Agriculture Secretary at the end of the Clinton administration who largely supports checkoff programs.

For the unhappy hog farmers, the current problem started with the 1985 Pork Law, when Congress set up the National Pork Board and required all farmers to contribute. Today, hog farmers must hand over 40 cents out of every $100 in revenue from pork sales. The board uses the money, totaling nearly $100 million a year, to conduct research and promote the pork industry, but is not allowed to lobby.

But as Adam Smith said “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Quite so. And in this case by creating a National Pork Board the government is providing the meeting hall and paying for the conversation. According to the law, the money from the checkoff program isn’t supposed to go for lobbying but here is where the story gets interesting.

You may recall the slogan, “Pork: The Other White Meat.” The slogan hasn’t been used for years but the National Pork Board still pays $3 million a year every year for the rights. Why would the Pork Board pay millions for an unused slogan? The key is who they are paying. The slogan is owned by National Pork Producers Council. The NPPC is a lobby group and you won’t be surprised to know that it is closely connected with the NPB (having once even shared offices).

…critics say the two groups have never been as separate as the law calls for, and now are essentially colluding through a deal that lets the Pork Board funnel money to the NPCC by assigning an absurdly inflated value to the “other white meat” slogan; the money then goes to promote the NPPC’s lobbying agenda.

A neat trick. The story is also a good object lesson in Mancur Olson’s thesis about how special interest groups grow in power over time, slowly choking off innovation as they cartelize the economy.

Wednesday assorted links

by on September 2, 2015 at 12:11 pm in Uncategorized | Permalink

1. The Chinese local debt situation is getting worse.

2. Will self-driving cars have windscreen wipers?  And are the cars too safe and hesitant?

3. First fully automated restaurant, hope you like quinoa.

4. Has the U.S. economy become less interest rate-sensitive? (pdf)

5. Why Christopher Balding doesn’t believe Chinese gdp figures.  And Europe, according to China, funny, recommended.

6. Eduardo Porter on Mexican migration.

There seems to be genuine uncertainty about what the Fed will do, or not do, this September.

At a superficial glance, the good news scenario is if the Fed’s decision doesn’t matter much for the markets.  Woe unto you if your economy is so fragile that a quarter point or so in the short rate, mixed in with some cheap talk, were to matter so much.

So if at first prices were to stay steady, following any Fed decision, then equities should jump in price.  That is the “no news is good news” theory, so to speak.  It’s a better state of the world if it is common knowledge that the Fed’s actions don’t matter so much in a particular setting.

What if prices jump right away, following a Fed decision?  The market might then see that price jumps rely on the Fed making good decisions, whatever those might be.  The risk premium might then go up.  It is even possible that prices should on net fall in response to that, but in any case it seems that some further price adjustment is in order, perhaps in the downward direction.  (That ought to come rapidly.)

Most generally, it seems the initial price move, in response to the Fed’s choice, cannot itself be correct, but that first price move must itself induce further price movements.  The price move in response to the Fed’s decision is the economy telling us how much it is relying on the Fed, which right now we do not know.

Maybe the Fed would like to know this too.

I’ve covered these ideas before a number of times, but now the Chinese slowdown is common knowledge, so let’s put them in one place:

1. You can’t invest 45-50 percent of your gdp very well forever.  It’s amazing how long China’s run has been, but it is over.  The quality of their marginal investments is now low and that means their growth rate will be much lower too.  The low hanging fruit is gone, at least for the time being.  They might later on resurrect some new low-hanging fruit through institutional reform, we’ll see if they end up stuck in the middle income trap but right now they are at a sharp discontinuity.

2. There is no simple way to switch to a “consumption-driven” economy without the growth rate both falling and staying permanently lower.  Structural reforms are absolutely called for, but in this context they represent a surrender to a lower rate of growth and thus they are especially difficult to pull off in a politically sustainable manner.

3. The Chinese have been growing at ten percent or nearly ten percent for about thirty-five years.  More than a generation of Chinese is used to treating the risk premium as if they don’t have to worry about it.  I shudder to think what economic and also political decisions have been made on that basis.

4. The Chinese economic response to the dwindling of their low-hanging fruit is sharp rather than smooth because there is a sudden revision of expectations, as people realize the risk premium isn’t zero after all.  And seeing the others see that causes the new set of beliefs to spread pretty quickly.  That is a very painful process for a macroeconomy, and it is not well captured by simple AD-AS analysis, although of course it has implications for both AD and AS.

5. I would not so quickly infer that the Chinese government is stupid when it comes to economics.  It is true their actions do not correspond to what professional economists would recommend.  But they are painted into a very unpleasant corner and have lots of interest groups to feed.  Their observed response is possibly explained by some kind of public choice-constrained, nested game, internal conflict-driven seventh-best response.  They were smart a few years ago, and they are still smart now.  That doesn’t mean they will end up doing a good job.

6. Avoid mood affiliation!  You can be a pessimist about the Chinese recession now without being a) a pessimist about China in the longer run, or b) a pessimist about Chinese political stability.  Those are separate albeit related questions, and you are not forced to have the same mood response to all of them.

Keep this primer on hand at all times.  It is more useful than trying to twist the C + I + G tautology into a series of causal statements about China.

Her new The Silo Effect: The Peril of Expertise and the Promise of Breaking Down Barriers is a tour de force of economics, anthropology, Pierre Bourdieu, management theory, and anecdotes about Sony and Facebook and UBS and Cleveland Clinic.

It turns out Gillian wrote her doctoral thesis in anthropology on Islamic marriage practices in Tajikistan.

In Mississippi, 7.3% of all workers in the state are manufacturing workers who make less than $15 an hour. Losing many of these jobs would have a serious negative impact on the state.

Because of its sample size, the CPS is of more limited use for small geographies. However, there is a relatively large number of observations for Los Angeles County, CA. Almost 400,000 manufacturing workers live in the county, and 55% of them make less than $15 an hour. Many of these workers will be affected by $15 minimum wages that have been approved for the City of Los Angeles and the unincorporated parts of Los Angeles County.

This data suggest that if the minimum wage was increased to $15 an hour across the U.S., it would impact a significant number of manufacturing workers, with some states being hit harder than others. This reflects the fact that lifting the minimum wage to $15 an hour would not just be quantitatively larger than previous U.S. experience, but qualitatively different in that it would affect a different set of workers and industries. Leisure/hospitality and retail make up 54% of the workers who make less than $8 an hour, but only 34% of those making less than $15 an hour. As the minimum wage rises it affects other sectors. For manufacturing, at least, the effect is likely to be greater.

That is from Adam Ozimek, more at the link.

I will be doing a Conversations with Tyler with Luigi next Wednesday, eight days from now (do sign up!).  He is a brilliant and multi-faceted economist, and an Italian — what should I ask him?

Tuesday assorted links

by on September 1, 2015 at 11:29 am in Uncategorized | Permalink

1. Laura Miller on Elena Ferrante.

2. In praise of law reviews and jargon-filled academic writing.  And more on the marginal value of a good teacher.

3. Why do people do good spontaneously?  And Harvard responds to complaints about its faculty health planMore on the crack team of Chinese monkeysDramatic but not ridiculous claims about China.

4. Scott Sumner dissents on reach for yield.  I don’t think easier money will boost the American economy right now.  So I think you just get a loanable funds effect and then possibly a reach for yield.

5. Peak things?

6. “The world’s longest yard sale runs for nearly 700 miles along a mostly vertical line connecting Alabama and Michigan, from the first Thursday in August through the first Sunday. It’s called the 127 Sale, since most of it takes place along US Route 127, but that road ends in Chattanooga.

The culture that is Iceland (Syria)

by on September 1, 2015 at 9:31 am in Current Affairs | Permalink

Ten thousand Icelanders have offered to welcome Syrian refugees into their homes, as part of a Facebook campaign launched by a prominent author after the government said it would take in only a handful.

After the Icelandic government announced last month that it would only accept 50 humanitarian refugees from Syria, Bryndis Bjorgvinsdottir encouraged fellow citizens to speak out in favour of those in need of asylum. In the space of 24 hours, 10,000 Icelanders – the country’s population is 300,000 – took to Facebook to offer up their homes and urge their government to do more.

The full story is here.  And here is one such message:

“I’m a single mother with a 6-year-old son… We can take a child in need. I’m a teacher and would teach the child to speak, read and write Icelandic and adjust to Icelandic society. We have clothes, a bed, toys and everything a child needs. I would of course pay for the airplane ticket,” wrote Hekla Stefansdottir in a post.

Facts about Mexicans

by on September 1, 2015 at 1:36 am in Uncategorized | Permalink

In 2012, 5.9 million unauthorized immigrants from Mexico lived in the U.S., down about 1 million from 2007. Despite the drop, Mexicans still make up a slight majority (52% in 2012) of unauthorized immigrants. At the same time, unauthorized immigration overall has leveled off in recent years. As a result, net migration from Mexico likely reached zero in 2010, and since then more Mexicans have left the U.S. than have arrived.

There is more at the link, might I have found this reference through Michael Clemens?

From the FT:

The likes of Zambia, Ethiopia, Rwanda, Kenya, Ghana, Senegal, and Ivory Coast have all issued foreign currency dominated sovereign bonds in recent years.

Ghana is one African nation with a history of debt crises (pdf), and also dating back to the 1980s (pdf).  Tanzania was another offender, both current and past (pdf), and for a while a lot of lending to Africa dried up and that limited the number of possible debt crises.  But now…?

Here is Amadou Sy at Brookings, telling us it is not yet time to worry.  Here is the African Development Bank worrying a bit more than that:

Today, a third of African countries have debt to GDP ratios in excess of 40 percent. The outstanding sovereign debt for Africa as a whole increased 2.6 times between 2009Q2 and 2015Q2. In contrast, total debt in developing countries rose 2.3 times over the same period. The appreciation of the dollar has raised the nominal currency values of dollar denominated debts. Thus Africa’s outstanding bond debt is already 29 percent higher today in real terms than it would have been had the dollar remained at its March 2011 level…

Here is Andrew England at the FT:

A recent note by Fathom Consulting highlighted a 40 per cent year-on-year dip in Chinese imports from Africa for July. Martyn Davies, chief executive of Frontier Advisory, a group that specialises in Africa-China investment, says there is anecdotal evidence of an easing in Chinese activity on the continent. “The hurdle rates of Chinese sovereign wealth investment, or part sovereign wealth fund invested projects in Africa have been raised so the capital is more discerning and seeks greater profitability,” he says.

Here is my previous post on which countries are most likely to experience the next financial crises.

This is quite long, so it goes under the fold…class starts tomorrow night! Read More →

Monday assorted links

by on August 31, 2015 at 1:07 pm in Uncategorized | Permalink

1. Human capital leading up to the Industrial Revolution.

2. How will European cinema fare under a single digital market?  “Is he a collaborator?”

3. In America, is there too much TV?

4.  What the Chinese 2008 stimulus looked like.  And the Chinese use a bevy of animals to clear the parade skies.

5. How is the Greek election shaping upExit interview with Olivier Blanchard.

6. Consumption inequality tracks income inequality by more than we used to think.  Is scalping ruining the Disney dining experience?

Romer on Urban Growth

by on August 31, 2015 at 7:25 am in Economics | Permalink

Here’s one bit from an excellent interview of Paul Romer on urban development:

Q. How are economics and planning and development of cities related each other?

Urban Expansion is an exception to the usual rule that an economy does not need a plan. Creating new built urban area requires a plan for the public space that will be used for mobility (sidewalks, bus lanes, bike lanes, auto lanes …) and for parks. At a minimum, this plan should provide for a network of arteries big enough to allow bus travel and dense enough that no location is more than 0.5 km from such an artery. This is the only thing that needs to be planned up front for land that is not yet developed. Everything else can wait. But if informal development comes first, it is too late. The area will never have enough public space to allow successful urban development.

I think Romer is correct. What surprised me most when studying Gurgaon in India was that despite strong demand, there wasn’t a lot of common infrastructure being built. The transaction costs of ex-post planning were simply too high.

In addition to transport arteries, I would also mention the importance of setting aside space and access points for sewage, electricity, and information arteries. It’s not even necessary that government provide these services or even the plan itself (private planning of large urban areas is also possible) but a plan has to be made. By reserving space for services in advance of development, developers and residents can greatly improve coordination and maximize the value of a city.

A simple, minimal urban plan is analogous to the rules of the game.

Will Syria *ever* come back?

by on August 31, 2015 at 7:07 am in Uncategorized | Permalink

In just 4 years, over half of Syria’s population of 22m has been killed, displaced or fled the country.

Tweet here, by Paul Kirby.