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July 2009 Archive for Economic Sense

RSS By: Matt Bogard, AgWeb.com

Matt's primary interest is in the biotech industry and ag policy.

Wal-Mart and Green Labels: What will it lead to

Jul 31, 2009
By Matt Bogard


In a recent New York Times article ( here) Wal-Mart's plan to add labeling to food that indicates a 'green index' was laid out. This brings up several questions.

First, is this an example of markets generating information that consumers value? Will consumer choice as a result drive prices that reflect our true impact on the environment? Will this come about voluntarily with no government intervention?

This could be a good thing. But it all depends on what the standards are. In the last couple of years Kroger decided that they would stop buying environmentally sustainable milk made with rBST and only stock organic and less sustainable conventional milk. They said that they were doing this in response to consumer demand, and not overhyped environmentalism ( even though their choice actually increased their carbon foot print, but uninformed consumers know no better and felt is was a move to the greener side). As a result Kroger's decision dealt a blow to dairy producers and cast a grim shadow on the future of modern science based agriculture.

So I'm curious about how Wal-Mart will rate biotech food and clothing products vs. conventional and organic. Will Wal-Mart base their decisions on science, or public perception?  Will biotech foods get points for being greener than conventional and organic? If so this could be another good thing to come of the labeling. Many groups will be shocked to learn just how green biotech is when those products are rated 'more sustainable' than non GMO labeled foods. This could present a dilemma to organic producers who depend on a marketing strategy of having the 'perception' of being greener. It could end up leading to the incorporation of modern technologies into organic practices, creating a new greener product. But alas, I'm not so optimistic. 

Will Wal-Mart create this voluntary industry standard, and then send lobbyists to DC to get it codified into law- so that they have a new competitive advantage over the mom and pops ( just like I understand they have done by supporting minimum wage and recenlty supporting legislation related to healthcare).

Regardless, this is the time that the Agriculture industry needs to get involved and keep a careful watch. The standards Wal-Mart sets could impact us all from pasture to plate.



Freedom Fries or Social Justice: Agriculture and Obesity

Jul 19, 2009
By Matt Bogard

The agriculture industry has and will continue to come under attach for contributing to obesity. These attacks are based on narrow special interests and ideology, but they will be used to justify more regulation and an attack on the personal liberties of millions of Americans. It will be done in the name of protecting the poor from themselves and the greed of agribusiness, as well as combating climate change. The end result will be forcing us to 'eat for social justice.'

Back in 2007 in the New York Times Micahel Pollan makes the following comment:

"So how is it that today the people with the least amount of money to spend on food are the ones most likely to be overweight?

This perverse state of affairs is not, as you might think, the inevitable result of the free market.

Like most processed foods, the Twinkie is basically a clever arrangement of carbohydrates and fats teased out of corn, soybeans and wheat — three of the five commodity crops that the farm bill supports, to the tune of some $25 billion a year. (Rice and cotton are the others.) For the last several decades — indeed, for about as long as the American waistline has been ballooning — U.S. agricultural policy has been designed in such a way as to promote the overproduction of these five commodities, especially corn and soy."

Mr. Pollan has it all wrong on a number of accounts. I'm not here to argue about the distortions created by this or that component of any particular farm bill, but the farm bills are structured around these crops because that is what we grow, they are the staples that feed the world. We don't grow these crops because they are included in the farm bill, they are included in the farm bill because we grow these crops. Eliminate the farm bill, and yes the free market will still call for American farmers to grow the staples that feed the world.

Mr. Pollan and many of his adherents are not interested in what foods free markets ( or lets be more precise- the foods that free people) dictate. Most of these food activists would love to see a farm bill or other legislation that penalizes our efforts to feed the world with the environmentally superior technologies and science based techniques we are using today, and subsidize the production of fruits and vegetables and politically correct foods.

Also is the concern that the 'poor' are choosing to eat these unhealthy fast foods and processed foods. That may certainly be the case, but we should really be concerned with overall health, not just obesity. While the poor may be dealing with some issues of obesity, research ( from the national bureau of economic research) indicates that the relationship between socioeconomic status and health is weak. Still, if we are going to be concerned with obesity, we should be concerned with all factors contribute to obesity, not just the hand that feeds us. As indicated in a recent piece in the Rocky Mountain News, a study from the 2007 International Journal of Obesity concludes, “The obesity epidemic is often speculatively blamed on fast food, when the actual evidence shows very little, if any, association of fast food with weight gain.”

To concentrate on diet alone, and omit exercise will lead to perverse results, but it can justify a lot of government intrusion on our valued freedoms.

One approach is to inadvertandly tax small businesses and consumers with labeling requirements as done recently in Tennessee. ( See the Tennessean)

"Providing consumers with accurate, easy to understand nutritional information about the content of the food they are purchasing is a common-sense measure that could help Tennessee address its obesity epidemic" Bredesen wrote.

Governor Bredessen, common sense tells us that the gravy and fried chicken at the local diner or national franchise probably is loaded with calories and fat, labeled or not. Will this change the habits of a marginal number of people? Maybe, but at great costs with minimal benefit.


The case is similar with fat taxes. Research from the Mercatus Center at George Mason University indicates that the taxes required to have any real affect on obesity would be in the 1200 percent range, and even if taxes eliminated ( in this case soda) consumption, the impact on obesity would be very small. The study concludes that "the sensitivity of individuals to changes in relative food prices is not sufficient to make “fat taxes” a viable tool to lower obesity."

Taking on the challenge of 'fighting obesity' in the name of helping the poor ( or reducing climate change) is likely misguided, or for some activists maybe even disingenuous. In the words of economist Thomas Sowell, many of the arguments for these policies 'invoke the name and mystique of science in order to override other people's choices."

We should be thankful that we live in a country were people of modest means have access affordable energy dense foods. We can't forget that fast food provides jobs and opportunities for advancement for millions! In producing staples like corn, soybeans, wheat, beef, pork, and chicken our farmers are utilizing modern science and technology ( like biotech) to improve nutritional quality and minimize our impact on the environment.

Many of the ideas being proposed by food activists and righteous eaters if ever implemented will truly bite the hand that feeds us.  They seek to undermine our way of life, in pursuit of the undefinable, inachievable, non-quantifiable abstract notion of social justice.  There are no goals that we can meet to achieve social justice, only arbitrary hurdles that curb our freedoms.

The best approach is to maintain policies that support rather than hinder the spontaneous order of the market that allocates resources and provides incentives to produce the necessary technologies for better food, a better environment, and the economic growth that reduces poverty. As F.A. Hayek noted, the absence of human intention in a spontaneous order can be neither just nor unjust. However  technological change, economic growth, and reduction in poverty are easily definable, certainly achievable, and quantifiable characteristics of  markets.  Freedom allows us to set clearly defined goals and achieve them the way we best see fit. Excessive government forces us to conform to the 'enlightened ' abstract visions of others. Our needs become subservient to the arbitrary hurdles set by others.  In the context of food  and agriculture, this adds a whole new meaning to the term  'Freedom Fries.'

A Second Stimulus?

Jul 12, 2009

By Matt Bogard

Last February I noted in an AgWeb post that “The evidence indicates that ‘marginal’ tax cuts may lead to increased economic activity and therefore increased tax revenues. It is certainly something to consider for the next stimulus package.”

Now we are starting to hear talk about a 2nd stimulus. But I have not heard anything about reversing the recent tax increases on thousands of farms and small businesses, or reducing capital gains or corporate tax rates. I have yet to hear a discussion from our leaders about how a fiscal spending stimulus will work now when similar policies failed during the great depression under Roosevelt and Hoover (UCLA Press). The first $787 stimulus was passed despite numerous warnings from some of the worlds best and most prominent economists, including Cole & Ohanion,  ( MN Federal Reserve) Prescott,( MN Federal Reserve)  Barro, ( Wall Street Journal) Becker,( Wall Street Journal)  Rizzo, ( Think Markets)  Mankiw, ( New York Times) Sargent, ( Mankiw’s Blog)  and almost 200 ( via CATO Institute) more. When the Michael Jordans and Tiger Woods of the field are stating that the stimulus package flies in the face of over 60 years of macroeconomic research, the supporters of the policy, or the media, or someone needs to be discussing this as a debatable idea.

Current evidence indicates that the first stimulus has not worked as it appears to have had no influence on unemployment - see graph below or link here.



Source here via Greg Mankiw


So now, supporters of a second stimulus have to explain, after the New Deal stimulus spending failed in the 30's, and the first $787 stimulus failed , why do we expect a 3rd stimulus will work? I acknowledge that there is a lag time for stimulus spending, but that only strengthens the argument AGAINST a second spending stimulus. If we have not had enough time for this to work, then we don't know if we truly need a second stimulus or not. If we need more spending now on infrastructure to create more jobs as Pennsylvania Governor Rendell says ( from TheHill.com) , then why didn't we spend more of the $787 billion on things that would create jobs the first time. Some of that money was effective in saving state level layoffs of teachers, policemen, and firefighters, but why not reallocate what’s left of the $787 billion to infrastructure or return it to the people by reversing the recent increase in marginal tax rates? 
 

If we are going to have a second stimulus, we don't need more of the failed policies  that have put us on our current course of double digit unemployment and inflation.  ( i.e. increased taxes, spending, regulation, bailouts, and deficits).



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