In spite of the uncertainty, Iowa land ownership and rental arrangements will be
changing in the near future. Almost half, 48 percent, of Iowa’s land is owned by people
over the age of 65 and almost a quarter, 24 percent, is owned by people over the age of 75.
This means there will be a significant amount of farmland changing hands over the next
few years. It remains to be seen whether or not this land comes on the open market for
sale. Regardless of how or to whom the land is transferred, there will be an impact on land
values. Iowa land values and the returns to Iowa farmland will remain as a topic of keen
interest for many years to come. [More]

[my emphasis]

Land transfers are the cutting edge in the structure of landownership and control. Even though the annual turnover in rural land is very slow -- currently 4.6 percent of parcels and 3.5 percent of land -- concerns linger that farmers in the United States are losing control of the resource that is basic to their industry. Small, persistent changes can eventually make a difference, but the data examined here indicate that a transfer of landownership out of agriculture is occurring at an almost imperceptibly slow pace. [More, but ya hafta order it]

• Will longevity trends (especially in previously short-lived males) change this normal rate? [40 points]
  
• Why should future land turnover be any different than the past? (Discuss in paragraph form) [30 points]
  
• Do you know of an flat black 80 I can get for under $5K? [200 bonus points]
  

Labels: economics, land, media

At a dinner I attended in Brussels last week with a small group of CAP reformers, former EU Agriculture Commissioner Franz Fischler shared his experiences of the politics of reform. One of the most interesting things he had to say concerned a study by the OECD showing that barely 25 per cent of traditional production-linked subsidies actually went to farmers. He said this study had been invaluable as he traveled around Europe trying to convince European farmers to embrace his proposals for decoupling farm payments. But a recent clutch of academic studies is confirming the anecdotal evidence that decoupled farm payments are just as leaky as old style production subsidies they replaced.

A new study of land prices and rents in Germany and the United States by by Harald von Witzke, Steffen Noleppa, and P. Lynn Kennedy shows that the problem of land value capitalization is still very much with us in the new era of decoupling. They find that of every euro in subsidy paid to German farmers, two-thirds is passed on to the landowners and conclude that:

The operator is the intended beneficiary of agricultural subsidies in the European Union; however, as we have found, the main beneficiary is the landowner. Therefore, agricultural subsidies must be considered instruments that are poorly targeted to the intended beneficiaries. In fact, the shocking reality is that land rents in the absence of EU farm subsidies would be negative in most of Germany.

This conclusion is consistent with other recent studies into the impact of decoupled farm payments on land values, such as this study by Arathi Bhaskar and John C. Beghin at Iowa State University and this study by Stefan Kilian and Klaus Salhofer at Technische Universität München.

The implications are of even greater concern given the high and rising share of farm land that is rented and not farmed by the owner. The current subsidy-driven rush to biofuels can only make things worse. [More]

Labels: economics, land, policy

Can organic food feed the world? A recent study, published in the journal Renewable Agriculture and Food Systems provides new data that suggests it can. However, I have some grave reservations about this prospect that are based on my experience as a scientist and my time living and working with real farmers in developing nations.

The authors of this study assume the major stumbling blocks to organic farming feeding the world are low crop yields and insufficient quantities of approved organic fertilisers. However, I have lived and worked in Bangladesh – as a professor of Cornell University, covering agricultural research and development – for the last 25 years, and I believe that even if these problems could be surmounted, using organic farming to feed the developing world remains a pipe dream. [More]

Labels: culture, economics, organic

A new pilot program recently approved by the Federal Crop Insurance Corporation (FCIC) will provide farmers an opportunity to pay lower premiums if they plant a majority of their corn acres using hybrid seeds that feature YieldGard Plus® with Roundup Ready® Corn 2 or YieldGard VT Triple™ technology from Monsanto Company (NYSE: MON).

The insurance product will be offered as a pilot program in cooperation with Western Agricultural Insurance Company and will be called the Biotech Yield Endorsement (BYE). Western Agricultural Insurance will make the program available to all other approved insurance providers to offer to their farmer customers.

The pilot program will be initially available in four states: Illinois, Indiana, Iowa and Minnesota. Implementation of BYE has yet to be determined pending available resources and priorities for the deployment and administration of the program by the Risk Management Agency (RMA).

To be eligible for the program, a farmer must plant 75 to 80 percent of their corn acres with seeds featuring YieldGard Plus with Roundup Ready Corn 2 or YieldGard VT Triple technology. Refuge requirements must also be respected. Depending on the grower's production history, amount of coverage purchased and other criteria, the farmer may be able to reduce the yield component of their premium up to 24 percent. [More]

• This is tacit actuarial proof of decreased production risks. We've all been seeing it in our fields. (Note the happy surprises in the AgWeb Crop Comments.) The number one yield threat - drought - threatens all corn growers less with this technology protection. So, if crop insurance has been a questionable benefit (example: I have only ever carried CAT coverage because of a FSA grain bin loan), it is a true loser now. I know many of you can't imagine farming without CI, but some of you probably could now, especially if you sock the saved premiums away for a "rainless day".
  
• Insurance companies are probably not thrilled (more on this in a later post). The farm bill drafts are squeezing their profits - which have been handsome lately - and now premiums will drop because of seed choice. Monsanto has unilaterally transferred a risk premium from crop insurers to seed - and can legitimately capture that value. If it doesn't support an actual price increase, it will justify current boosts. This is superb business practice, and Monsanto is displaying again why they currently have no match in the seed/technology marketplace.
• I bet rotary hoe sales jump and prices for old hoes increase sharply. Stay with me on this one. It seems to me the biggest risk now is having to replant. Even with a break on seed costs, you still pay the tech fees (now enormous) on replant seed. Slapping corn in the ground willy-nilly now carries one of the higher penalties even as the production boost to early planting may be decreasing. Free replant seed should be a big factor in hybrid seed choice. Ditto with waiting an extra day or not planting just ahead of a downpour.
• This trend is not over. The (in my opinion) over-hyped pipelines just might offer more production-stabilizing technology that should make crop insurance premiums less by reducing payouts.
  

Labels: economics, insurance, production

This whole discussion came to mind the other night while out to dinner with a large group of friends. Since I am economically irrational in so very many ways, I had failed to conform to the Baumol-Tobin model and revealed myself as cashless when the bill arrived. So a good friend covered me. There is of course a mutual expectation of rough reciprocity among friends, but it occurred to me that a person who often dines and drinks in groups with friends could easily come out far ahead in this bargain, simply by being the guy who never has cash -- especially if his friends have short memories. It is true that, in a small group, sometimes you get stuck putting the whole bill on your card and collecting cash from your dinner or drinking partners. But then you've got cash without the hassle of going to an ATM. And if your friends are decent people, they round up, and you've been subsidized. Obviously, this is a winning strategy only if few other friends are playing it and if you are a horrible person who likes to profit at your friends' expense. But we were talking about an economist, right? [More]

Labels: economics, fun

Labels: economics, production

Given the top-heaviness of the economy, one could make the case—one could, but I'm not—that the continuing upward redistribution of income is good for the economy and good for all of us. As they earn more, and keep more of their income, the rich and the very rich spend more, thus keeping the growing number of residents of Richistan gainfully employed. The fact that the rich are getting richer is one of the reasons that federal tax revenues—which are much less progressive than they were in 2000 but still somewhat progressive—are growing so smartly, up 7.4 percent year over year. Today, analysts are likely sifting through the jobs report and ratcheting down their forecasts for the Christmas season. It may well turn out to be a glum one for many retailers. But as long as the lights are on in the mansion on the top of the hill, the growing number of stores and businesses that cater to their residents will be busy. [More]

Labels: economics, wealth

The OECD will say in a report to be discussed by ministers on Tuesday that politicians are rigging the market in favour of an untried technology that will have only limited impact on climate change.

“The current push to expand the use of biofuels is creating unsustainable tensions that will disrupt markets without generating significant environmental benefits,” say the authors of the study, a copy of which has been obtained by the Financial Times.

The survey says biofuels would cut energy-related emissions by 3 per cent at most. This benefit would come at a huge cost, which would swiftly make them unpopular among taxpayers.

The study estimates the US alone spends $7bn (€5bn) a year helping make ethanol, with each tonne of carbon dioxide avoided costing more than $500. In the EU, it can be almost 10 times that.

It says biofuels could lead to some damage to the environment. “As long as environmental values are not adequately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops,” it says. [More]

Labels: economics, ethanol

Labels: dairy, economics, farm bill

"We believe farm policy should support agricultural production and not some subjective and social goals," Stallman, a Texas rice farmer and president of the American Farm Bureau Federation, said after the appearance. [More]

Labels: economics, farm program, trade

Labels: blog, economics

The US is reviewing its federal Renewable Fuel Standard, which calls for the production of 7.5bn gallons a year of alternative fuels by 2012. This is expected to be reached well ahead of target, and the Bush administration has called for a benchmark of 35bn gallons by 2017, about half of it from ethanol.

Bill Veazey, Cargill's chief financial officer, said there needed to be "some kind of waiver" in any state-backed mandate. "There needs to be escape mechanisms so that you don't distort the food markets," he told the Financial Times.

Cargill said three of its five divisions delivered record results, and played down the importance of its asset management business, which has been the largest contributor to earnings in recent years.

"What we have is a broader and more diversified earnings' stream than last year," said Mr Veazey, pointing to the restructuring of the financial services business into two standalone entities, which have secured third-party investors to reduce Cargill's exposure.

However, Cargill's heavy investment programme - which it will continue to fund internally - and the potential volatility of financial services income have prompted ratings agencies to shift their outlooks for the group to negative in recent months. [More]

Labels: economics, ethanol, taxes

While Mr Paulson sought to reassure Americans yesterday that the economy was strong, Mr Dodd warned that up to 3 million people were in danger of losing their homes in the fallout from the sub-prime mortgage crisis. "I would urge every possible step to be taken to keep people in their homes," said Senator Dodd, describing the likely rate of foreclosures as "deeply, deeply troubling".

For many new homeowners, low-interest "teaser" rates fixed in 2004 and 2006 will expire later this year. Senator Dodd said that in some cases, repayments would leap from $400 to $1,500 a month. He added that when a home is repossessed in an economically vulnerable area, the value of nearby properties slumps by up to $5,000. "Think of all the ripple effects," he said. "If we don't deal with this, it could spill over and become more serious." [More]

Already-battered U.S. auto sales could be the next victim of the problems with mortgages, declining home and stock prices as potential car buyers delay purchases due to uncertainty.

Industrywide U.S. auto sales in August could be off 10 percent from a year ago, according to an early read from sales tracker Edmunds.com. That follows July sales that were 19 percent below year-earlier levels.

Jesse Toprak, executive director of industry analysis for Edmunds.com, said that the downturn in home values and credit issues that were seen in the July numbers could be an even bigger factor this month.

"I think the issue is becoming more pronounced," he said. [More]

Labels: economics, finance, future

The World Bank study defines natural capital as the sum of cropland, pastureland, forested areas, protected areas, and nonrenewable resources (including oil, natural gas, coal, and minerals). Produced capital is what most of us think of when we think of capital: machinery, equipment, structures (including infrastructure), and urban land. But that still left a lot of wealth to explain. "As soon as you say the issue is the wealth of nations and how wealth is managed, then you realize that if you were only talking about a portfolio of natural assets, if you were only talking about produced capital and natural assets, you're missing a big chunk of the story," Hamilton explains.

The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population's knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, "natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent."

Social institutions are most crucial. The World Bank has devised a rule of law index that measures the extent to which people have confidence in and abide by the rules of their society. An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth. For example, Switzerland scores 99.5 out of 100 on the rule of law index and the U.S. hits 91.8. By contrast, Nigeria gets a score of just 5.8, while the war-torn Democratic Republic of the Congo obtains a miserable 1 out of 100. The members of the Organisation for Economic Co-operation and Development-30 wealthy developed countries- have an average score of 90, while sub-Saharan Africa's is 28. "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity," the study concludes. According to Hamilton's figures, the rule of law explains 57 percent of countries' intangible capital. Education accounts for 36 percent. [More of a great interview]

Labels: economics, wealth

Commodity investors may never have a better time to buy corn, cotton and sugar instead of oil and copper.

Sugar, the world's primary source of ethanol, is the cheapest it has ever been relative to crude oil. Corn this year dropped the most since 1998 after U.S. farmers planted the biggest crop since World War II. Cotton is the worst commodity investment over the past three years.

Goldman Sachs Group Inc., the world's biggest securities firm, is recommending corn after correctly predicting a rally earlier this year. Former hedge fund manager Jim Rogers and Marc Faber, who told investors to sell U.S. stocks a week before the 1987 crash, also say agricultural commodities are the ones to buy. Wheat, coffee and corn this month outperformed almost all commodities in the UBS Bloomberg CMCI index. Oil tumbled 8 percent and copper fell to the lowest price since March as loan losses hurt consumer demand. [More]

The culprits were not the typical ones — heat waves, fires or drought — but thieves, who have been stripping the copper wires out of irrigation systems throughout California. The rampant thefts have left farmers without functioning water pumps for days and weeks at a time, creating financial loss and occasional crop devastation in a region still smarting from a spectacular freeze last winter.

Theft of scrap metal, mostly copper, has vexed many areas of American life and industry for the last 18 months, fueled largely by record-level prices for copper resulting from a building boom in Asia. Common in developing counties, metal theft is now committed in nearly every state, largely by methamphetamine users who hock the metal to buy drugs, the authorities say.

Thieves have stripped the wires out of phone lines, pulled plaques off cemetery plots, raided air-conditioning systems in schools and yanked catalytic converters from cars, all to be resold to scrap metal recyclers.

But perhaps no group has been as been as consistently singled out as California farmers, who provide roughly half of the nation’s fruits and vegetables. Irrigation systems, a treasure trove of copper, tend to be in remote places, out of the eyes of farmers and, until recently, law enforcement. [More]

Labels: economics, money

In the U.S., as of December, 2006, M1 was about $1.37 trillion and M2 was about $7.02 trillion. If you split all of the money equally per person in the United States, each person would end up with roughly $4,550 ($1,370,000M/301M) using M1 or $23,320 ($7,020,000M/301M) using M2. The amount of actual physical cash, M0, was $80 billion in 2006, roughly one third of the $261 billion in cash and cash equivalents on deposit at Citigroup as of the end of that year and roughly $266 per person in the US. [More]

Labels: economics

Net income climbed to $537.2 million, or $2.37 a share, from $436 million, or $1.85, a year earlier, topping analysts' estimates. Sales grew 5.9 percent to $6.63 billion, the Moline, Illinois-based company said today in a statement.

Overseas machinery revenue increased by 30 percent, and the company said U.S. and Canadian retail sales of agricultural equipment gained momentum. That growth countered lagging demand in the construction and forestry division, which has been hurt by the slump in the U.S. housing industry.

``Higher North and South American agricultural equipment demand expectations, driven by a resurgence in farmer cash flow'' boosted sales, Andrew Casey, an analyst with Wachovia Capital Markets LLC in Boston, wrote in an Aug. 7 note. He rates the stock ``outperform'' and raised his third-quarter profit estimate to $2.05 a share. [More]

The agricultural sector, which depends heavily on migrant labor, may be the hardest hit. "It's going to be crazy," says Eli Kantor, a Beverly Hills-based immigration attorney: "There will be major disruptions to the economy of Southern California, [which is] heavily dependent on immigrant labor. There will be crops rotting in the fields." Kantor says he expects some of his clients to lay staff off, while he expects others will "take their chances." [More]

Labels: economics, food, immigration

"Agrium's record second-quarter earnings were due to excellent results from all three of our strategic business units," said Wilson. "Results from our retail operations reflect the synergies we captured from our 2006 Royster-Clark acquisition, as well as the strong agricultural fundamentals."

The company said wholesale operations had its best-ever quarter, with record or near record margins across all product lines. Advanced technologies results doubled on the strength of sales of "environmentally smart nitrogen," combined with recent growth initiatives. [More]

I mean, how dumb do they think we are?

(Don't actually want to know the answer to that one)

Input prices will skyrocket up until a) competitive pressure forces companies to shrink margins to compete for market share (watch the Monsanto/Syngenta/Pioneer strategies in 2008 and beyond) or b) corn becomes less profitable than soybeans/wheat/cotton/retirement.

Labels: economics, production

Wall Street's wild ride resumed Monday with the Dow industrials soaring 286 points, marking its biggest point gain in nearly 5 years, helped by financial sector strength and subsiding credit market fears.

The Dow Jones industrial average (up 286.87 to 13,468.78, Charts) soared 286 points, or 2.2 percent, staging its biggest point gain since October 2002, just a day before the Federal Reserve holds its policy meeting. [More]

And so, far from causing financial fires, hedge funds often act as firefighters. They plunge into infernos because they understand financial risks better than others and are less likely to get burned by them.

Armed with abundant capital, much of it from foreigners, they make it less likely that markets will plunge irrationally low. They have not repealed all bubbles for all time, but in some ways they can stabilize the system.

Before the crises of the 1990s, many economists believed that financial globalization was a good thing. After the crises, the consensus turned; economists reported little to no correlation between openness to global capital and economic growth -- not least because their data now included open countries that had experienced growth-destroying crises.

But, depending on how the next few weeks turn out, the consensus may swing back again. Maybe historians will determine that, in the first phase of financial globalization, governments and financiers didn't know how to manage the attendant risks. Maybe they will record that, finally, in this decade, they grew better at it. [More]

Labels: economics, money

The story demonstrates some of the weaknesses in Blinder's contention that an employment apocalypse approaches. On the one hand, pure price competition can't continue for long; rising demand for services in the primary destinations for offshoring companies has lead to rapid wage convergence. This has combined with dollar depreciation to erode the cost advantages available to firms moving jobs overseas. On the other hand, growth in the size and sophistication of back-office nations like India has begun to create economic opportunities for American companies and workers. America can't, after all, have a comparative disadvantage in everything.

But the American workers who benefit from growth in India and Eastern Europe may not be the exact workers who lose jobs to back office enterprises abroad, and as long as transition costs for some exist, there will be political traction available to those willing to sell the notion of an offshoring menace. So much the better, then, if new data on the scope and scale of the offshoring phenomenon provides a little perspective on what exactly might be lost, or gained. [More]

Labels: economics, international, trade

The administration unleashed its admonition as Paulson visited China once again, pursuing his favored course -- high-level talks with Chinese counterparts on a range of trade issues. Paulson has maintained that this Strategic Economic Dialogue remains the best channel for persuading China to allow its currency to float freely and to respect the norms of international trade.

Since the dialogue was launched in December to fanfare in Beijing, however, the main achievements have been minor deals, such as additional airline routes and promises of more talk. Growing numbers of lawmakers from both parties have joined a chorus of aggrieved manufacturers and labor unions, who maintain that China artificially depresses the value of the yuan to keep its goods unfairly cheap on world markets, costing American jobs. [More]

Labels: economics, international, trade

1. $38B
2. $69B
3. $147B
4. $23B

1. $1.4T
2. $8.7T
3. $232B
4. $678B

Labels: economics

The data do tell us that economic mobility -- not equality -- is associated with happiness. The GSS asked respondents, "The way things are in America, people like me and my family have a good chance of improving our standard of living -- do you agree or disagree?" The two-thirds of the population who agreed were 44% more likely than the others to say they were "very happy," 40% less likely to say that they felt "no good at all" at times, and 20% less likely to say that they felt like failures. In other words, those who don't believe in economic mobility -- for themselves or for others -- are not as happy as those who do.

Perhaps in a world where there is no opportunity for advancement, an important concern is how one's income measures up to others. In the real world where people believe there is opportunity, however, one's own income potential matters a great deal more than what others are earning. Some studies even find that the happiness of workers rises as the incomes of others climb relative to their own, because they see the incomes of others as evidence of what they themselves can achieve. [More]

Labels: culture, economics

• the farm is also your home
• Moody Farms is bidding on it
• you farm on 2 (or 3 or 4) sides of the property, making one larger efficient tract
• it represents 18% of your farm income
  
• without it you will have to leave farming
• you have farmed it for 40 years
• your mailbox sits on it
• you compete by blind sealed bid without negotiation
• your operating time frame is generations, not years
• landowners who don't know or care what is "fair"
  

Labels: economics, production

Dr Burnham's research budget ran to a bunch of $40 games. When there are many rounds in the ultimatum game, players learn to split the money more or less equally. But Dr Burnham was interested in a game of only one round. In this game, which the players knew in advance was final and could thus not affect future outcomes, proposers could choose only between offering the other player $25 (ie, more than half the total) or $5. Responders could accept or reject the offer as usual. Those results recorded, Dr Burnham took saliva samples from all the students and compared the testosterone levels assessed from those samples with decisions made in the one-round game.

As he describes in the Proceedings of the Royal Society, the responders who rejected a low final offer had an average testosterone level more than 50% higher than the average of those who accepted. Five of the seven men with the highest testosterone levels in the study rejected a $5 ultimate offer but only one of the 19 others made the same decision.

What Dr Burnham's result supports is a much deeper rejection of the tenets of classical economics than one based on a slight mis-evolution of negotiating skills. It backs the idea that what people really strive for is relative rather than absolute prosperity. They would rather accept less themselves than see a rival get ahead. That is likely to be particularly true in individuals with high testosterone levels, since that hormone is correlated with social dominance in many species.

Economists often refer to this sort of behaviour as irrational. In fact, it is not. It is simply, as it were, differently rational. The things that money can buy are merely means to an end—social status—that brings desirable reproductive opportunities. If another route brings that status more directly, money is irrelevant. [More]

Labels: economics, fun, psychology

An opponent of big livestock farms says a Ball State University study of the hog industry in two Indiana counties offers proof that the sprawling farms bring very little economic impact to surrounding areas.

Bill Weida, an economist for GRACE Family Farm Project, said Ball State's analysis of hog farms in Jay and Randolph counties shows that the pork industry in those counties "is creating so little economic activity that it's almost irrelevant." [More]

Fact: Agriculture is the driving force in most of Indiana’s rural economies. For every $1
of property taxes paid by agricultural land/farms, $0.40 is used in local services
(American Farmland Trust). Also, a survey by the Indiana Soybean Alliance found that
an 8,000 head swine facility generates $17,000 annually in property taxes and will
produce $40,000 in valuable organic crop nutrients. [More]

2006 State Gross Domestic Product (value of all economic activity) $249B
2006 Contribution by Ag (farms, forests, fish, hunting) $ 2B
Source: BEA

[Note: 2005 is the latest data on a county level]
Total local income Jay $525M Randolph $681M
Ag income $15M $11M

Labels: economics, rural life

This military expansion is made possible by startling economic growth. China's GDP now surpasses that of Britain or France. According to Goldman Sachs, China will overtake America around 2027 and become by far the world's biggest economy by 2050 (see chart 3). Even now, it is helping to prop up the weak American dollar by buying large chunks of American debt. China is pushing America aside as the world's biggest exporter, and last year it produced more cars than the United States. Europe, too, poses challenges to America: London is vying to replace New York as the most important financial centre, and the euro has displaced the dollar as the main currency of the international bond market. [More]

Labels: economics, international

Within the next decade those older farmers will be looking for someone to take over their operations and selling millions of acres of land.

Much of that land will be merged into bigger farms with fewer people working on them. Rural communities will lose even more young people, and a few will struggle for survival. Some stores that sell tractors and fertilizer will suffer.

"You lose a farmer here or a farmer there, you lose your customer base," said Burtchin, 60, who sits on the board that runs the local grain elevator. [More] [My emphasis]

Labels: culture, economics, media

The report takes particular aim at the (enormously regressive) payroll tax. Either payroll taxes should be integrated into the ordinary income tax system or the wage-cap on payroll taxes should be lifted. It brims with ideas for government tinkering: trade-adjustment assistance and unemployment assistance should be morphed into a single programme that offers wage insurance, portable health insurance and retraining. Communities should be able to federally insure their tax base against sudden economic dislocation (when, say, a factory moved to Mexico). [More]

Labels: economics, globalization

The result has been a torrent of money into a finite pool of assets. There is no precedent for such fortunes suddenly to find their way into global financial markets, and they help explain the waterfall of liquidity that has driven up the value of risky (and less risky) assets of all descriptions around the world. The world's entire supply of shares is $55 trillion, and bonds account for a similar amount. Sovereign-wealth funds could soon become the most important buyers of such assets, and many others besides. If so, the world will witness the intriguing spectacle of its largest private companies being owned by governments whose belief in capitalism is often partial. [More]

The growing importance of SWFs and diversification into other markets is beginning to attract both worry and criticism.

First, there is the impact on U.S. Treasury bonds. The IMF estimates that central bank buying has depressed yields on long-term U.S. Treasury bonds by between 30 and 100 basis points. Sudden portfolio adjustments by, say, China's SWF, could lead to a collapse of U.S. bond prices, making it more expensive for the United States to finance its debt.

Second, there is the issue of transparency. Few SWFs give details of their operations. If monitoring the currency and asset compositions of official reserves is difficult, tracking the investments of SWFs is nearly impossible. Only Norway provides anything close to transparency. The Abu Dhabi Investment Authority (ADIA) seems to be the model for most SWFs. ADIA has a reputation as a highly professional organization with a diversified portfolio and a cadre of talented managers. Yet despite managing $875 billion, there are next to no public details on AIDA's operations. It makes the most secretive hedge funds look like an open book. [More]

All of that borrowed money had to come from somewhere, and most of it came from Asia. When China stopped turning up at bond auctions in 2007 and started investing directly in companies instead, alarm bells should have rung. They didn't....

...Lots of the banks had sold insurance on those IOUs and on a bunch of other stuff that they bundled together into derivatives called collateralized debt obligations. When those investments started to blow up, we all realized that nobody knew who owed what to whom. And banks and hedge funds had become such a big part of the global economy that they dragged everything else down with them. [More]

Labels: economics, finance, international, policy

The creator of this map has had the interesting idea to break down that gigantic US GDP into the GDPs of individual states, and compare those to other countries’ GDP. What follows, is this slightly misleading map – misleading, because the economies both of the US states and of the countries they are compared with are not weighted for their respective populations.

Pakistan, for example, has a GDP that’s slightly higher than Israel’s – but Pakistan has a population of about 170 million, while Israel is only 7 million people strong. The US states those economies are compared with (Arkansas and Oregon, respectively) are much closer to each other in population: 2,7 million and 3,4 million. [More]

Labels: economics

Ultimately, I think we are headed for a collision of cultural values. We prefer insulation to real insurance. We expect services to be readily available, without the supply limitations or waiting lists that exist in countries where government is responsible for more health care funding. And yet we are growing increasingly concerned over the expansion of health care spending that takes place in a system that lacks constraints on either supply or demand.

Real health insurance may not be popular now. But when Americans see that the providers of insulation, including Medicare, have to turn to the rationing of health care services in order to meet budgetary constraints, real health insurance may start to look like a good alternative. [More]

Labels: economics, health, policy

Labels: biofuel, economics, ethanol, policy

Refiners would be forced to triple their use of fuel ethanol over the next decade, under legislation expected to start moving through the Senate this spring.

The legislation, outlined Tuesday by leaders of the Senate Energy and Natural Resources Committee, would require use of 18 billion gallons of biofuels by 2016 and 36 billion gallons by 2022.

All but 15 billion gallons of that biofuel each year would have to come from sources other than corn, such as crop residue, switchgrass and forestry waste. [More]

Labels: economics, ethanol, politics

When President Vladimir Putin delivered a stinging critique of US foreign policy at a security conference in Munich in February, stunned politicians in the audience described it as the most anti-Western speech made by a Russian leader since the Cold War.

But Mr Putin was only just getting started.

In the past five months his fury over American plans to erect a missile defence shield in eastern Europe has become increasingly evident. [More]

Other dangers remain: corruption, the inefficiency of the state apparatus, high levels of social inequity. But generally Russia is in better shape today than seven years ago, when Putin assumed power. Russia now needs more than anything to strengthen law and order and to restore the institutional capacity of the state. Democracy is also needed, but only later, when the rule of law has been established. There is, of course, a danger that the leadership will use political centralization to line everyone up along the ‘vertical of power’ and eliminate opposition in order to live in serene comfort at the citizens’ expense—and perhaps also to embark on the occasional escapade. This has happened in Russia before. But one must choose the lesser of two evils. Strengthening law and order is only possible under a centralized system. Without centralization, there is no chance at all of it happening; unbounded chaos and lawlessness would rule. This seems to be the choice facing Russia today. [More]

But there's one place -- Russia -- where reserve estimates just seem to go up and up. In its annual statistical survey of world energy, BP PLC (BP ) has recently revised its estimates of Russia's total proven oil reserves to 69.1 billion barrels, 6% of the world's total, up from 45 billion bbl. in 2001. But according to auditors with a worm's-eye view of what's actually going on in the depths of Siberia, such estimates may just scratch the surface of Russia's real potential. According to a recent study by Dallas-based energy reserve auditors DeGolyer & MacNaughton, whose clients include leading Russian energy companies such as Gazprom and Yukos, Russia's true recoverable reserves are between 150 billion bbl. and 200 billion bbl. That's up from industry estimates of 100 billion bbl. a few years ago.

Why such a big gap in the estimates? Because it's one thing to be sitting on oil reserves, another to be able to exploit them commercially. In Russia's main oil-producing region in western Siberia, proven reserves represent just 18% to 24% of all oil in the ground, in contrast to about 45% in Western oil-producing regions such as Alaska and the North Sea. But as Russian oil companies adopt technologies, such as horizontal wells and computerized reservoir management systems, the estimated recovery rates are being revised. Thanks to new techniques, which make it possible to obtain oil even from apparently depleted fields, Russian oil companies already have managed to boost their output by 50% since 1998. "The biggest thing is the [new] technology being deployed in western Siberia. The results are beginning to show," says Martin Wiewiorowski, senior vice-president of DeGolyer & MacNaughton in Moscow. [More]

Labels: economics, energy, international, trade

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

The federal government does not follow the rule, so promises for Social Security and Medicare don't show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

Unfunded promises made for Medicare, Social Security and federal retirement programs account for 85% of taxpayer liabilities. State and local government retirement plans account for much of the rest. [More]

Labels: culture, economics, economy

This sorry episode illustrates that a global food supply requires honesty and integrity. If China or any other country wants to sell its products on the international market, it needs to make sure that its products are top-of-the-line. Arresting a company manager is not an acceptable long-term solution. [More]

Most people are not aware of the massive effect that the world’s largest company has on the American food supply. As noted by Charles Fishman in his book “The Wal-Mart Effect,” Wal-Mart is China’s eighth-largest trading partner. In 2004, almost 10 percent of everything imported to the United States from China was imported by Wal-Mart. With the way Wal-Mart pushes its suppliers to do business at the lowest possible cost, systems are poorly regulated and done on the cheap.

The role of China in American products extends beyond pet food and nonperishable goods. The precedent that such imports set can be felt system-wide. According to the Washington Post, “China’s agriculture exports to the United States surged to $2.26 billion last year, according to U.S. figures — more than 20 times the $133 million of 1980,” “China Food Fears go from Pets to People,” Washington Post, April 25. [More]

Analysts believe that Wal-Mart has a ready-made market
at hand as 20% of its 100 million customers don't have
bank accounts. The chain already offers financial services
such as check cashing, bill payment and money orders,
and it has 28 Wal-Mart Money Centers, which are
operated by SunTrust Banks, as well as hundreds of other
in-store bank branches. [More]

Labels: economics, food, retail

The German farmer Johann H. Von Thünen noticed that farmland closer to the towns
where the produce was sold commanded a premium price, and he is credited with being
the father of economic geography because in 1826 he postulated a featureless (flat) plane
of land with a town in the center. Crops shipped from farm to town had different ratios
of transportation cost to value. Fertilizers and farm implements were shipped the other
way. These assumptions create a sequence of “Von Thünen” concentric rings of
farmland around the town center, with the land rents highest near the center, with
“heavy” crops that need fertilizers produced close to market. (A modern version of this
idea is the micro-economic exam question: “Why does the State of Washington ship its
best apples to other states, not its worst?”) [More]

Labels: economics, farmland

The Rabbinical Assembly, which represents Conservative rabbis, has endorsed the idea of a hechsher tzedek ("certificate of justice"), a Jewish seal of approval that would go beyond the usual dietary rules to include the compensation and working conditions of people who produce kosher food. It's the brainchild of Minnesota rabbi Morris Allen, who was upset by reports that immigrant workers at a kosher slaughterhouse in Iowa are poorly paid, receive meager health benefits, and get inadequate safety training. Not surprisingly, Orthodox rabbis, who have long dominated the business of certifying food as kosher, are not pleased with Morris' idea. [More]

Labels: economics, food, health

Labels: economics, finance

So instead of lamenting the increased earnings gap caused by education, policymakers and the pub­lic should focus attention on how to raise the fraction of American youth who complete high school and then go on for a college education. Solutions are not cheap or easy. But it will be a disaster if the focus remains so much on the earnings inequality itself that Congress tries to interfere directly with this inequality rather than trying to raise the education levels of those who are now being left behind. [More]

Labels: economics, education

There are probably three reasons that gasoline prices appear so high to us today. First, many don't fully appreciate the long run effect that inflation has on prices. Second, many don't appreciate how much our incomes have increased relative to prices. Finally, we still remember 1998 very well, the year in which we encountered the lowest gasoline prices since 1949. Gasoline in 1998 sold for $1.03 per gallon, the equivalent of $1.21 in today's currency. Adjusting for growth in per capita income yields a price of $1.35 per gallon in today's terms. Today's price is more than double that and people resent the increase over the last several years, in part, because they think that 1998 prices were normal. But they were not.

Now let's put the recent price increase in terms of real outlays. The average household is spending $136 more on gasoline every month than it was in 1998 and $114 per month more than it were spending in 2002. But, believe it or not, real (inflation-adjusted) disposable income per household has increased even faster than have pump prices; by $800 a month since 1998 and $279 a month since 2002. [More]

Labels: economics, food

"Bottled water is a classic example of the market ignoring the environmental cost of the product," Angel says. "Free trade is meant to be good because you're getting cheaper products from another country, but of course this never takes into account the environmental cost."

This point was illustrated earlier this year by Pablo Paster, a sustainability engineering consultant from San Francisco, who calculated that producing and transporting a one-litre bottle of Fijian water to the US consumed 6.74 kilograms of water and produced 250 grams of greenhouse gases. Paster says that getting that same bottle from Fiji to Sydney consumes six kilograms of water and produces 153 grams of greenhouse gases. [More]

Labels: economics, environment

Conflict in the countryside has ebbed but hardly stopped (see chart). For the MST, the demand for land reform is nearly bottomless and the conflict with industrial farming irresolvable. Mr de Oliveira reckons that 5m families—around an eighth of the population—are candidates for land redistribution. “Monocultures” like eucalyptus for paper, sugar cane for ethanol and soya degrade the environment, reduce the food supply in Brazil and drive labourers and small farmers off the land, he claims. [More]

In Zimbabwe, forced and often violent takeovers of white farms led to a disastrous collapse of farm production. In South Africa a legal process of takeover under a democracy might lead to less disastrous results, but would still replace high-productivity white farming with the lower productivity of black farming. At best, the Government of South Africa would have a hard struggle to limit the damage done by its own land policy.

The timetable seems to be much too short for such a large-scale farming revolution and the objectives seem much too ambitious. This is not a question of racial capacities, but of farming productivity. If expropriation is completed by 2008 one expert considers that by 2009: “South Africa will no longer to be able to feed itself nor assist Southern Africa.” That would be a humanitarian tragedy. South Africa needs the white farmers who are an essential and efficient part of the national economy — indeed, they contribute to feeding the whole of Southern Africa. The main victims of this policy would be those poor blacks whom it is supposed to benefit. [More]

Labels: economics, farmland, trade

Citigroup proposes to provide subsidy recipients an alternative to the fixed DPs, CCPs and marketing loans (see Existing Programs, p. 12). The choice will be voluntary. Recipients would receive a fixed settlement amount to forego future payments. Recipients and U.S. taxpayers will benefit

• Recipients linked by subsidies to the land will be free to make other life choices
• – Retire, move, pay down debt, cover expenses (e.g., school, medical)
• – Reinvest in farm (expand, modernize)
• Recipients will weigh the certainty of the Buyout vs. payments that could cease anytime
• Assuming 50% of DP and CCP recipients accept the buyout offer, it generates:
• – Savings to redirect for other needs
• Budget savings of $18.9 billion over the first 10 years*
• $47.6 billion future savings (assuming no other change in programs)
• – A cash infusion that will stimulate the economy, promote rural growth, create jobs and accelerate tax receipts
• – Enhanced Doha leverage -- payments should qualify as non-trade distorting support, exempt from WTO disciplines
• A lower entry cost for new farmers and ranchers as subsidies are no longer capitalized into land prices
• – Immediate compensation to landowners for losses in land values vs. simple reduction of benefits
• – 2006 U.S. farm prices were up 15% partly due to corn price surge and drop in farm acreage (Bloomberg 2/20/07)
• Buyout price can incorporate 2007 Farm Bill AGI limits as well as other provisions
• Potential for tax benefit at lower AGI levels

• Citigroup’s proposed buyout offers a voluntary path for recipients entitled to DPs or CCPs to receive upfront cash to spend as they choose. It could generate budget savings of $18.9 billion over the next 10 years.
• * If fewer recipients accept the Buyout -- say 25% of DP and CCP recipients -- the savings would instead be $9.3 billion over the first 10 years

[Link removed by request - I'll keep looking for more detail to share as this proposal is more widely discussed]

• Recipients will weigh the certainty of the Buyout vs. payments that could cease anytime

1. Is the land disqualified for subsidies in perpetuity or just for the current farm bill? (See comments)
   
2. In the days of ethanol-fueled gross incomes of say $800/A, is a $25/A DCP loss really going to hold down land prices?
3. Do you really, really believe the ag lobby is going to let this ride even if it should pass? We are in DC 24/7, ya know.
   
4. Outside of Reps. Flake and DeMint - neither of whom is a household name - does anyone in Washington care about fiscal propriety?
   
5. Giving money to farmers/owners is a notoriously poor way of helping rural economies the last time I looked. Why is this program any different?
   

Labels: economics, farm bill, farm program

1. How much of their incomes do Americans spend on food?
2. How much is that in actual dollars?
   

Families spent just 9.9 percent of their 2005 disposable personal income on food—As disposable personal income continues to climb, the share spent on food declines. [And this is the USDA, folks - our PR agency.]

Labels: economics, economy, food

Total GDP $12,456B
Value added by farms $95.9B
[Whole table - actually interesting]

• all food manufacturing
  
• all food retailing and wholesaling
  
• some part of clothing manufacturing/retailing
• yadda, yadda

Labels: economics

Rising tortilla prices in Mexico are due to a supply issue in that country – not increased U.S. ethanol production or U.S. corn prices. The U.S. Grains Council (USGC) and the National Corn Growers Association (NCGA) report that lower corn production in Mexico and the lack of import licenses have caused white corn shortages there. [More]

American corn ethanol policy seems like a bad idea for sure. Let's open up our markets to superior Brazilian sugar-based ethanol. That would lower American and also Mexican corn prices.

And Mexico? My head knows what is right but my heart is torn. Can Mexico can afford the protectionism which keeps local producers going and gives it the world's best and most diverse corn, the world's best tortillas, and supports a major part of its national identity, most of all for its most oppressed and politically sensitive groups? I am emotionally torn and will not proceed with the question any further.

Labels: economics, marketing

The consolidation of farming land into fewer hands has pushed up farm debt to a record high of $44 billion, rural lender Rabobank Australia said today.

The bank said the rate of debt was increasing by seven to nine per cent per year as land prices continued to rise.

James Robinson, Rabobank rural state manager in South Australia, said farms were getting bigger as owners borrowed to buy or lease the land of neighbours who retired or left the industry. [More]

Government forecaster, the Australian Bureau of Agricultural and Resource Economics (ABARE) said in its latest farm survey results that farm cash incomes on average are projected to be $26,600 for 2006-07, down from an estimated $81,290 in 2005-06.

ABARE said this was the largest fall in farm cash income recorded since it started the survey 29 years ago. [More]

Labels: economics, finance

When we talked about this on USFR last week, I was struck by the seemingly bizarre idea that we needed to import Chinese wheat gluten when our wheat farmers export about half their crop. How out of balance do economic systems have to be to make that work?

Update: why we import wheat gluten

All of this leads me to the conclusion that you can stick a fork in trade expansion talks. Free trade cheerleaders blithely assumed the losers would quietly go extinct, but somewhere in their calculations they underestimated how many there would be.

Labels: economics, food, trade

First, it is not what they did that was important but it is what they said that made all the difference. Fed chief Ben Bernanke basically said that he is more willing to consider the fall off in the housing market and the blow up in the sub prime lending market as a more important consideration short term then inflation. Translation: he is likely preparing the market for the potential for rate cuts in the weeks ahead.

The reason this has significance is because it is telling you the Federal Reserve is ready to put the foot on the liquidity pedal and let Japan decelerate its liquidity pump. This lit a fire underneath the equity markets globally yesterday and has a profound impact on the likely acceleration of global growth as we head into the back half of 2007 and especially into 2008. It does not mean that the transition will happen with out some further disruptions but it does mean the Fed is aware of the danger of the yen-carry trade distortion and is looking to minimize, the best that it can, the effects of its eventual unwinding. Have no illusions of grandeur here: Japan will continue to raise rates in the year ahead and the yen-carry trade will unwind from its current amebic state. So expect the yen to strengthen significantly against the dollar and expect the US dollar to stay under pressure against most other currencies as well.

Labels: economics, economy, marketing

And another: Every year private pensions pay billions of dollars to retirees that aren't counted on the positive side in the official savings rate.

There is a rationale for this. The government books pensions as personal income when employers contribute it to a pension pool, not when it gets paid out years later, and retirees can actually spend it, said Oak Associates investment strategist Ed Yardeni, another analyst who holds higher-than-average faith in the U.S. consumer. (The idea is to measure income produced by current labor.)

But since the mid-1980s, as the population has aged, and traditional pensions for younger workers have dwindled, pension payouts have vastly exceeded pension inputs, and the gap has been getting wider. "A big discrepancy," Yardeni said.

Pension benefits surpass contributions these days by some $200 billion a year, said Franke. That's $200 billion in household income that doesn't get counted in the official savings accounts. If it were, it would add another 2 percentage points to the savings rate, I figure. [More]

Labels: economics

According to de Soto, the poor of Third-World countries are not victims of rapacious capitalism, but rather are wronged by the lack of property rights and with outright bureaucratic barriers that prevent the poor from gaining access to capital. Thus, they languish in the vast "informal sectors," or underground markets, that so characterize much of the Third World.
The elite of Third-World nations, he writes, have been able to use the Western systems of laws and property rights to participate in ownership of capital, which is why they are prosperous. Using Braudel’s (1992) analogy of the "bell jar," de Soto writes that the elite are inside this "jar" and take advantage of the blessings of capitalism, while the poor, who are "outside the jar," are left out. [More]

This latest law, likewise, will not bring the full property-rights revolution China's development demands. Indeed, it will not meet the most crying need: to give peasants marketable ownership rights to the land they farm. If they could sell their land, tens of millions of underemployed farmers might find productive work. Those who stay on the farm could acquire bigger land holdings and use them more efficiently. Nor will the new law let peasants use their land as security on which they could borrow and invest to boost productivity. Nor, even now, will they be free from the threat of expropriation, another disincentive to investment. Much good land has already been grabbed, and the new law will merely protect the grabbers' gains.

This law cannot in itself resolve the murkiest question: who owns what? This is especially true in the countryside, where the mass collectivisation during Mao's Great Leap Forward of half a century ago left farmland “collectively” owned. Peasants have since been granted short (30-year) leases. But even outside agriculture it is often unclear whether a “private” enterprise is really owned by individuals or by a local government or party unit. Conversely, some “collective” or “state” enterprises operate in ways indistinguishable from the private interests of their bosses. Moreover, should an underdog try to use the new law to enforce his rights, the corrupt and pliant judiciary would usually ensure he was wasting his time. Since the Cultural Revolution, when the NPC passed just one law between 1967 and 1976, the legislature has been legislating quite prolifically. But the passage of laws is not the rule of law.

Which leads to a final obstacle: without an accountable executive branch, the necessary reform of the legal system is not going to happen. As the passage of the property law itself demonstrates, the party is showing itself somewhat more responsive to public opinion than it was in the past. But it still runs a government that does its best to silence most dissenting voices, strictly controls the press, and lavishes resources on the best cyber-censorship money can buy. Property rights are a start; but only contested politics and relatively open media can ensure that they are enforceable. [More of a must -read article]

Labels: economics, globalization

But computer chips and crops work differently. Say you're an Iowa corn farmer and the price of corn futures drops after you've planted the spring crop. Unlike Intel, you can't slash production any time soon; you have to wait until the next season's planting.

Worse still, when the time comes to put the next season's crops into the field, you're faced with a harsh fact. If you decide to plant less corn, there's no guarantee that the corn price will rise. Why? Because unlike Intel -- which essentially shares the chip market with AMD -- you have thousands of competitors. Unless you can figure a way to organize a significant portion of them to join you in cutting production, you're not going to succeed in pushing prices up.

Since no mechanism exists to coordinate farmers in their planting decisions, they tend to respond to price drops in a way that would be alien to an Intel exec: they plant more corn. The calculation: If they're going to hold their income steady while prices fall, they'll have to bring more product onto the market. But since thousands of other farmers are making the same decision, the market just gets flooded with corn and prices fall further. [More unadulterated drivel]

Labels: economics

1. Click on CA05 - Personal income and detailed earnings by industry
2. Choose NAICS data for the most recent. The BEA switched industry categories a few years ago - this is the new list.
3. Pick a state, click next.
4. Pick a county (or the whole state) and year (s), hit "Display"

Labels: economics

But many quality restaurants, like Tree Room, use Sysco responsibly—shying away from pre-made items they can disguise as their own. Bardia Ferdowski of Bardia's New Orleans Café in Washington, D.C., purchases only raw and unprocessed Sysco products such as flour, potatoes, and beef, and receives frequent deliveries so that ingredients are as fresh as possible. For its part, Sysco has also been upping the quality of some of its offerings. It now distributes more locally grown meats and produce, and teams up with companies like artisanal cheesemonger Murray's to deliver specialty foods. Chef Tom Hosack of Hudson's at the Heathman Lodge in Vancouver, Wash., for instance, buys most of his greens through Sysco, and they're almost all regionally grown. [More]

Labels: economics, food

I'm not sure that I care at all about the size of the gap between the rich and poor, provided that the poor have all the ingredients of a decent life. I don't think that they do, yet, in America or much of anyplace else, but I think the solutions to most of their problems lie elsewhere than in redistribution. Of course, I care about other inequalities that can be conferred by high socioeconomic status, such as extreme differences in power or autonomy, but I am very sure that those disparities cannot be rectified simply by taking money from the richer and giving it to the poorer. So it's hard to get worked up simply because CEO's have gotten a pay rise.

What I do care about, once basic needs are taken care of, is how easy it is to change one's position on the ladder. Or rather, since earning money is never exactly easy, whether place in the income distribution is conferred by who one's parents were, or by one's own efforts. The evidence in America is that where you start out has a lot to do with where you end up. This bothers me a great deal. But there's less evidence that the problem of income immobility is growing.

Even if it isn't, of course, I would prefer to live in a world where the children of Bill Gates, and an average welfare mother, have the same opportunity to succeed. While I doubt that this dream will ever be fully realised, I still think America could go much farther in that direction than it has, for starters by doing something about the appalling inequities in its educational system. Unfortunately, altering the socio-political structures that reinforce accident of birth is so difficult that almost everyone prefers to focus on the (comparatively) trivially easy task of moving cash from one person to another. [More]

I find this point very persuasive. Better access to education could mitigate many of the income and asset distribution problems, I believe. In fact, in an upcoming (probably April) issue of Top Producer, I will try to incorporate this factor into my idea of what a good safety net for farmers could look like.

Labels: economics, education

Wind power capacity in the United States grew 27 percent last year and is projected to increase another 26 percent in 2007, according to a report released today by the trade group the American Wind Energy Association. The U.S. now has enough installed wind power capacity - 11,603 megawatts - to power between 3 million and 3.5 million homes, which reduces annual greenhouse gas emissions by 23 million tons of carbon dioxide. The number of homes relying on electricity produced by wind energy will rise to nearly 4.5 million by year's end if the AWEA's forecast is accurate. [More]

• Wind farm stories always include a "X million homes served" figure to impress how much energy they generate. These numbers are the equivalent of a "every US farmer feeding X people" - namely a useless average without any context. For a better idea of how much windpower contributes see this graph. Also keep in mind that there are about 130 million homes in the US and that residential energy demand is about half of total electricity consumption.
• Wind farms require backup "spinning reserve" to take up load when the wind fails. This continues to make wind power relatively expensive compared to other sources, especially coal. Unless a carbon tax priced in the environmental externalities of fossil fuels. (Gosh - where did I just see that?)
  
• Wind turbines are expensive and with demand growing, the prices have no reason to ease.
• You gotta have some way to hook all these generators to the electricity grid. And our grid is having trouble keeping up.

Labels: economics, energy

The budget represents a challenge to parts of the system of entitlements enacted as part of the Great Society agenda of the 1960s, with plans to cut Medicare spending, the main publicly funded health insurance programme for those over 65, by raising premiums for wealthier recipients.

That could save $66bn over five years, according to budget estimates, and up to $9,000bn during the next 75 years, according to some analysts.

Michael Franc, vice-president for government relations at the Heritage Foundation, said Mr Bush had considered means-testing as part of Social Security reform. “Now there is a shift to applying it across the board for all entitlements. The big change concerns the wealthy. Democrats want to tax them more. Republicans say they want to make them pay more for their middle-class benefits and shoulder more of the burden.” [More]

"Going from a $2.5 million AGI to $200,000 AGI is huge," she said.

The AGI is a limit for farmers who wish to receive farm program payments. The lower AGI limit means a producer with more than a $200,000 AGI would not be eligible for commodity payments. The Internal Revenue Service data for 2004 indicated that 97.7 percent of tax filers have an AGI under $200,000. [More]

Labels: economics, farm bill

With the midterm election around the corner, here's a wacky idea you won't often hear from our elected leaders: We should raise the tax on gasoline. Not quickly, but substantially. I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade. Campaign consultants aren't fond of this kind of proposal, but policy wonks keep pushing for it. [More of a must-read article]

Labels: economics, ethanol, taxes

But here's where it gets weird. In theory, the fortunes of all the components of the Transport Index, which include shippers, truckers, railroads, and airlines, should move somewhat in tandem. Most goods that are sent by ship, rail, and air have to go on a truck at some point. It would be strange for one link in the freight chain to be doing well while others are dragging.

And yet that's precisely what seems to be happening. Truckers, who carry 70 percent of all domestic freight, are doing poorly. The American Trucking Associations' Truck Tonnage Index fell through 2006. And in the fourth quarter of 2006, the index was down noticeably from the fourth quarter of 2005, even after accounting for the temporary post-Katrina spike.

The reasons are weird as well:

A second rapidly growing energy source also helps rail companies while doing nothing for truckers: ethanol. As the Wall Street Journal reported this week, ethanol can't be pumped through existing oil pipelines. And it makes far more sense to ship the fuel in 30,000-gallon tank cars than in tanker trucks. Ethanol shipments tripled between 2001 and 2006 and are expected to rise 33 percent in 2007, the Journal reported.

Another large, but seemingly irrelevant, economic trend appears to be hurting truckers: gift cards. American Trucking Associations Chief Economist Bob Costello noted that "the fall freight season is changing." With the proliferation of gift cards, the holiday shopping season is spilling over into January. So, retailers aren't moving as much merchandise to stores in October and November as they have in the past. [More]

I've also been wondering about those farmers who have launched successful trucking companies as a sideline only to be knee-capped by the proposed AGI limits.

To receive commodity payments, producers must also meet a limit on Adjusted Gross Income (AGI), which includes wages and other income minus farm expenses and depreciation. This plan reduces the AGI limit of $2.5 million to a new limit of $200,000. If a producer has an annual adjusted gross income of $200,000 or more, that individual would no longer be eligible for commodity payments. Internal Revenue Service (IRS) data for 2004 indicate that 97.7 percent of all American tax filers have an AGI under $200,000. [More]

That'll teach 'em to work hard in the off-season.

Labels: economics, ethanol, farm bill

A Fortune 50 chief executive — I won’t tell you his name because he didn’t realize I was listening to his conversation — was sitting at a fast-food restaurant with a woman who was coaching him on how to talk to the media. “You’ve got to stay on message,’” she snapped when he would forget his lines. He sheepishly apologized and then managed to mangle his line again.

“Don’t answer the question being asked,” the woman said. “Get to your message,” she said, explaining that he should use “bridge phrases” such as “meanwhile” or “what we know is” to avoid the question being asked and change the context of the answer.

“Like the politicians do,” the chief executive exclaimed.

She also emphasized what she called “flagging,” telling the C.E.O. to insert phrases such as, “the most important thing is…” and “the main idea is…”

“Journalists are looking for complete sentences,” she instructed. “Especially on TV. You want to give them full messages.”

Before they got up, she told the executive, “Tell them what you do.”

He looked at her, slightly befuddled, and replied, “What do we do?”

Labels: economics, globalization

"All the buzz in Washington surrounding ethanol indicates that it's going to survive," says David Lehman, managing director of the Chicago Board of Trade's commodities group.

Ethanol makers need the help. Corn prices, 75% of the cost of ethanol production, have doubled in the past six months, to more than $4 a bushel. At the same time, the price of ethanol has followed the price of gasoline downward.

Absent a rescue from Capitol Hill, the glut is going to get worse. AgResource's Basse estimates the blending demand for ethanol at 10 billion gallons, 7% of the 150 billion gallons of blended fuel burned each year. Current nationwide ethanol capacity is 5.4 billion gallons. But 6.1 billion gallons' worth of capacity is now under construction, according to the Renewable Fuels Association. That would push supply right past demand and destroy ethanol prices. Unless mandates are tightened. At the moment the motor fuel industry is meeting environmental minimums and exceeding the energy independence ones. [More]

Shares of seed producers like DuPont and Monsanto and fertilizer makers like Potash and Terra Industries are soaring. The gains have further to run, even though the stock prices exceed their five-year averages relative to earnings, said Frank Husic, chief investment officer at Husic Capital Management in San Francisco. [More]

Labels: economics, ethanol, farmland, policy

1. Providing all the medical care we now have to everybody.
2. Including the growing number of "uninsurables" (thanks to rapidly improving screening such as genetic testing) outside groups or self-employed.

Labels: economics, health, insurance

Labels: economics, future

I think of an auctioneer friend of mine, Dean Eastman from northeast Iowa. Dean had a very nice farm auction last Saturday. I dropped him an email wondering how things sold. His response back really caught my attention.

"My phone has rung nonstop for two weeks asking about machinery. They called the morning of the sale, during the sale, and the day after the sale. I'm still getting calls wondering what stuff sold for from people that couldn't make it to the sale. I feel we had a very good sale on Saturday! I do a low-high price estimate on everything when I have a sale with this many dollars. Low being a train wreck bad day, and high being almost a pie in the sky high price. We overshot the high number by 18%." [More]

Labels: economics

1. Hugo Chavez, the wildly popular leader of Venezuela, executed an even harder left turn and started nationalizing key sectors of his economy. His example is rippling across South America as a repudiation of capitalists' naive presumption that showing poor people data tables and charts about how they are better off than they would be even with a tiny few becoming obscenely rich. Look, I agree the arithmetic is correct, but the marketing is not working. A vastly scaled down version of this revolt on inequality could be building here.
2. Even weirder, while in Washington DC yesterday I was walking by Union Station about 5:30 PM. when I heard a choir of really good voices singing in a plaza. This choir director could not resist and I stood transfixed for several minutes as a group of about 25 young people made some gorgeous music in open air - always a tough venue. The punch line: They were part of the Worldwide LaRouche Youth Movement. [I thought that dude was in jail, actually] An earnest young disciple approached me with the inevitable literature, and "engaged me in dialogue" I listened patiently - I had accepted the free concert - and tried to leave by telling him I was simply a choir director who loved good choral music, and I complimented (sincerely) the singers. He began to walk with me explaining how a choir was a good way to show the power of their socialist ideas. I stopped and looked him in the eye and said, "Look - a good socialist choir is a wonderful thing. The real trick is to form good libertarian choir." He turned and left me.

Labels: economics, socialism

While corn growers have always been aware that South Africa grows corn, and competes in the export market, there is a lot of corn (maize) grown on subsistence farms all across the continent. We also forget how honkin' huge Africa is (this is a Gall-Peters Projection Map which is area accurate, unlike the Mercator projections we are used to, where Greenland/Canada/Alaska are swollen disproportionately):

My guess is that the struggle to develop stable governments in sub-Saharan Africa could yet yield the largest payoff in terms of lifting the poorest of the poor, simply by letting their farmers get on with their work.

Labels: economics, globalization, production

• #2: This year I will be unequivocal in my support of free trade. I am going to stop bashing the Chinese for offering bargains to American consumers. I am going to ask the Bush administration to revoke the textile quotas so Americans will find it easier to clothe their families. I am going to vote to repeal the antidumping laws, which only protect powerful domestic industries from foreign competition. I am going to admit that unilateral disarmament in the trade wars would make the U.S. a richer nation.

• #3: This year I will ask farmers to accept the free market. While I believe the government should provide a safety net for the truly needy, taxpayers shouldn't have to finance handouts to farmers, many of whom are wealthy. Farmers should meet the market test as much as anyone else. I will vote to repeal all federal subsidies to growers of corn, wheat, cotton, soybeans and rice. I will vote to allow unrestricted import of sugar. (See resolution no. 2.) I will tell Americans that eliminating our farm subsidies should not be a "concession" made in trade negotiations but a policy change that we affirmatively embrace.

Labels: economics, politics

Three days later, Arnold and his partner and investor – an oil and gas attorney from San Antonio named Philip Mani – were attacking the site with a backhoe. After digging down about 5 feet, Arnold scrabbled into the hole with a shovel and started clearing. Finally, the blade clanged against something metallic. The more dirt he moved, the more meteorite he exposed. They lowered the backhoe scoop and strapped the rock to it. Grinding and whining, the machine pulled free the biggest meteorite Arnold had ever seen.

METEORITE HUNTING wouldn't be so lucrative if it weren't for a music executive named Darryl Pitt. He collected meteorites for years, buying them at rock-bottom rates when the only other buyers were scientists. But in 1995, sitting on a collection numbering in the hundreds, he guessed that people would pay big money for space flotsam. "I needed a mechanism to elevate the profile of my extraterrestrial friends," Pitt says. But he knew he wouldn't get any traction unless he could make people see his "friends'" inherent beauty. A former professional photographer, Pitt started shooting pictures of each of his rocks, lighting them as if they were magazine cover subjects and writing rapturous descriptions in the vein of wine connoisseurship. Then he put them on the block at Phillips International Auctioneers and Valuers, alongside dinosaur eggs and a 3,749-carat opal. The plan worked; the first auction netted close to $200,000.

Pitt is still at it. His online catalog describes meteorites as "objets d'art" with sensuous, zoomorphic shapes – an expert sales job. "Sleek tabletop specimen … evocative of the sculpture of Barbara Hepworth," goes one entry. "With a bright platinum patina and compelling from all perspectives."

Only in a culture where some have enormous amounts of money with little or no demands on it can essentially worthless objects, or even subjectively valued things such as art, command significant exchange rates.

And what's with the doctored picture? Meteorites don't glow.

[via Neatorama]

Update: How many meteorites hit the Earth every day? About 20-50.

Keep looking up!

Labels: economics, fun, rural life, wealth

If people are determined to pursue their calling rather than simply taking a job, some professions (surgery, cookery, genetics) may become overcrowded, others undersubscribed. But when a job cannot find enough takers, the market finds ways to ennoble it: first pay, and then status, begin to rise. It becomes economical to automate some aspects of the work, employing machines to do the deadening humdrum toil that men and women are no longer willing to put up with. What remains of the job will be the bits only people can do: tasks that require insight, ingenuity and the human touch. Ms McCloskey recalls the Cincinnati sewerman, interviewed a few years ago on National Public Radio, who earned $60,000 a year and liked to tell girls he was an “environmental” worker. [More]

"In what constitutes the real happiness of human life, [the poor] are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings fight for."

Recent research conducted by Daniel Gilbert (a professor of psychology at Harvard) and others has unearthed several new elements about the business of happiness as concerns humans. The first element being that the major events of our lives have a minimal effect on our overall long-term happiness. Did you get married this year, or not? Have you been involved in a war lately or a victim of a crime? Regardless as to your answer, it is a fair bet that your happiness will be more or less the same in the long term. The latter could be understood if you accept that the brain has a mechanism of sorts to reset people back to their baseline happiness over time. The second element of happiness is the terrible truth that we are awful at predicting what will give us happiness. Do you expect that a new car or home will give you happiness? Certainly it will, just not as much as you expect. The same is true in the opposite. Do you think that getting rejected by your crush or losing a game will make you unhappy? It will, just not as much as you expect. [More]

Federal payments put money in farmers' pockets, which they used to bid up land prices to as much as three times its production value, Lines said. Prime Ohio farmland is valued at $2,500-3,000 per acre, compared to its productive worth of about $1,000 per acre, Lines said. [More drivel from 2001 here]

Labels: economics, happiness

Labels: Christmas, economics, fun

The number of luxury buyers in the developed world is also being swelled by two other trends. First, consumers are increasingly adopting a “trading up, trading down” shopping strategy. Many traditional mid-market shoppers are abandoning middle-of-the-range products for a mix of lots of extremely cheap goods and a few genuine luxuries that they would once have thought out of their price league.

Alongside this “selective extravagance” is the growth of “fractional ownership”: time-shares in luxury goods and services formerly available only to those paying full price. Fractional ownership first got noticed when firms such as NetJets started selling access to private jets. It has since spread to luxury resorts, fast cars and much more. In America, From Bags to Riches—“better bags, better value”—lets less-well-off people rent designer handbags. In Britain, Damon Hill, a former racing driver, has launched P1 International. A £2,500 ($4,300) joining fee, plus annual membership of £13,750, buys around 50-70 driving days a year in cars ranging from a Range Rover Sport to a Bentley or a Ferrari.

( Full article here)

This rang a bell - it is similar to leasing combines, etc. that is becoming a trend across the Corn and Wheat Belt. Which led me to the question of how much is the growing acceptance and popularity of such schemes fueled by the desire to drive a bigger, nicer machine for local status reasons. If even we knew ourselves well enough to answer that honestly, I doubt any of us producers would admit it.

Still, I have been known to drive a new tractor/combine/sprayer the long way 'round to a field just to casually pass a neighbor's house. When it only happens a handful of times in your career...

Labels: economics, rural life

Labels: economics

It was a "damn the Canadian Wheat Board" (CWB) vote yesterday as members elected directors. The results resolved little on the dispute with the federal government over the board's monopoly. Full speed ahead.

The pro-monopoly forces remain clinging to power, so we can only expect the foot-dragging and defiance to continue. [More]

What is interesting about this political battle is the effort by the government to dismantle a popular farmer monopoly. Although some larger farms want to have selling options, the vast majority of small farms apparently like the "single desk" powers of the CWB.

Labels: economics, energy, ethanol, production, trade

Labels: economics, retail

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Labels: economics

But that hasn't happened in the cycle since then.

As of today, worker compensation is only 45.4 % of GDP, and that calculation isn't off the back of my lunch napkin but by Nigel Gault, Global Insight's widely-followed managing director of North American macroeconomics.

Doesn't sound like much of a drop? Each percentage point equals $133 billion out of the collective pockets of workers. Also consider that wages and salaries as a share of GDP are now equal to their lowest level since 1929, the incept date for the data we're using.

Meanwhile, corporate profits as a share of GDP rose to 12.4 percent today.

How high is that? It's the highest since 1950. In 2000, at the height of the bubble economy, profits were only 11 percent.

This reversal of fortunes between business income and the income of the workers businesses employ is one of the most disturbing distoritions of the Bush II economy.

I have not been a supporter of the Economic Policy Institute -- and they don't use this yardstick for wages -- but how can you avoid concluding that, in aggrregate, these numbers justify the EPI's attacks on the national jobs recovery as a "wageless" one?

However, there is another factor that might have raised the return on capital relative to labour in a lasting way, namely the integration of China and India into the world economy, along with their vast supply of cheap labour. To the extent that this increases the global ratio of labour to capital, it will lift the relative return to capital. Outsourcing may not have destroyed many jobs in developed economies, but the threat that firms could produce offshore helps to keep a lid on wages. As a result, the share of profits in national income could stay relatively high for a period. Labour's share would remain low, though workers may still be better off if the cake itself is growing faster. But this is not a reason to expect profits to continue to grow faster than GDP; indeed, in a competitive market profit margins will eventually narrow. Even if outsourcing reduces costs, competition will eventually force firms to reduce prices, distributing the benefits back to consumers and workers. [More]

Labels: economics

In the past few months, every time a policy maker found a waiting platform, he or she used the opportunity to remind us that the Fed is more concerned about rising inflation than slowing growth.

Their words had predictable results. The prices of interest- rate futures contracts that reflect expectations of Fed policy sank, wiping out the gains registered on weak economic data.

The gyrations have been large. The June Eurodollar futures contract rallied 43 basis points from 94.72 on Sept. 18 to 95.15 on Oct. 4. The gains were completely reversed over the next three weeks as various Fed officials -- Fed Governor Don Kohn and District Bank Presidents Michael Moskow (Chicago), Charles Plosser (Philadelphia), Richard Fisher (Dallas) and Jeffrey Lacker (Richmond) -- reiterated their concerns about inflation accelerating or failing to retreat from its current unacceptably high levels.

Then something strange happened. The market stopped listening.

Labels: dollar, economics

The story of the nitrogen you require for corn begins with natural gas, and its price is related to oil, as well as politics and a fragile production infrastructure. Ammonia, which is the primary source of nitrogen, is produced from natural gas, and because of a wide variation in the cost of natural gas around the world, ammonia prices will also vary widely. In the US, agricultural ammonia consumes only a sliver of the natural gas produced, and has to compete with many other industries. Since natural gas futures are traded, it is possible to watch futures prices and predict the cost of ammonia compared to prior seasons.

Labels: economics, production

Despite its traditional principles, the GOP's monopoly in Washington has merely freed Republicans to indulge the empire-building, power-lusting, overspending, control-freaking elements that all politicians harbor deep in their souls. Government outlays have swelled, government intrusions have expanded, and the only reason the 82nd Airborne no longer escorts kids to kindergarten is that the job has gotten too dangerous. [More]

Labels: economics, politics, taxes

Labels: economics, happiness, psychology, video

Labels: economics, Japan, policy, trade