Called it. (Again With Jatropha)

I posted this in 2007.

CNN reported on this August 13th.

I am still very much in support of jatropha research as a biofuel. I'm a bit confused by CNN's statements on the ejido system being a large barrier to cultivation, but I must confess I do not have as good a grasp on Mexican land reform as I would like. Going to have to consult some old textbooks and see.

Farm Subsidies Are Not Good.

Our legislature has just voted on continuing subsidies that benefit large companies (who must pay very well during Iowa primaries), while "trimming the fat" of food aid. Oh, they've also made it harder for small farms to compete.

I would feel sorry for small farmers if I did not believe that they do not statistically exist anymore in the US (any numbers on how big "small farms" are relative to ADM? Anyone?).

We've cut payments to Brazil which were the result of their (very reasonable) protest against our farm subsidies and tariffs. Okay... so what? Have we lowered the tariffs against Brazilian goods yet? Nope, and now we're back in violation of the agreement made with the WTO.

Just to recap: in the great Congressional debate on deficit and debt reduction, our Congressmen and Senators have cut aid to women and children (food stamps!!!) by $868 million, but kept the subsidies for large farm companies ($20 billion from some estimates), and added to the headaches of that small population of "small farmers" who are actually small farmers.

Do not buy the lies. Farm subsidies do not "help" the good old, F150 driving, aw-shucks, all-American farmers. They help the guys that Matt Damon ratted out in this movie. WIC on the other hand helps feed young children, which is proven to improve educational outcomes in pre-school and kindergarten, which is shown to have a very large and significant correlation with future wage outcomes (the ability of kiddos to grow up and NOT have to use programs like WIC).

Your Tax Dollars At Work, Again.

"In America, first you get the sugar, then you get the money, then you get the power, then you get the women."
- Homer Simpson.

Add to that: "Then you lose the money, then you get the government to bail you out indirectly at the expense of the tax-payer, then you cover it up as an environmental project, then you get the money again."

You should all know now how I connect this with my usual corn rants.

Dreams Do Come True...

Lou Dobbs' only contribution to empirical analysis of immigration is shutting up. Which he finally did. Way to take one for the team, Lou. That's one shrill, ill-informed, and self-righteous talking head off the TV down... only a couple hundred to go.

Guess What?

83% of Economists believe that tariffs and trade restrictions should be lowered from their present levels.

55% of economists believe that ethanol subsidies should be eliminated, the other 22% believe they should be reduced, and only 10% think they should be increased.

This means one of two things:
1) I am not crazy, and in fact fall within the majority of current economic consensus.
2) Economists are crazy.

For the Record...

I am not thinking "Yay! 14 year olds!" And I should note that my wife volunteered... I was the only one "recruited" (read "drafted").

I'm busy preparing the lesson plan for the students this summer, and trying to get things planned for next fall too. On top of that a couple colleagues of mine from the department and I are attempting to start up a small economic consulting firm. Part of it is to make some money, dab our feet in the "professional world" (ever so gently), and part of it is to satisfy our own curiosity. We have been playing with the idea for two months now, and we're starting to get some things off the ground.
It's good to have my own class though. I can focus on the things that I think they need to learn. It is a little strange throwing out a good chunk of what I have been teaching for the past 3 semesters, but if these students are only going to have one economics class I would rather they come out understanding externalities, public goods, oligopoly, and elasticity instead of economic history, comparative economic systems (we no longer live in a 'pure socialist' vs 'pure capitalist' world, sorry folks), and banking systems (they can get that from any business class). I'm also including my typical ethanol criticism. Ethanol is my first full example for them with supply, demand, and equilibrium. Works out well in describing elasticity, complementary goods, substitute goods, monopoly/oligopoly, taxes and subsidies, quotas, price controls, tariffs, and externalities. Sadly I have had to cut the clip of from "Cartman Gets an Amusement Park" to explain why barter systems failed and monetary based systems arose. Ah well...

The Latin American Economic Development class is going to be a challenge though. Finally found an acceptable though limited text for them, and I'm planning on subjecting them to one or two classes on "microfinance" (see Muhammed Yunnus) in Mexico. Trying to take some good advice from my colleague Isaac, who has been teaching Development of Africa for a semester or two. "The subject material is too big and varied to cover it all. Just start with what you know, and let the students fill in the rest of their interest."
Any good ideas on how to do that other than forcing them to write a paper and do a presentation? Should also be noted that this course has not been taught at this school since Spring of 2002, and the professor who did it then has been long gone. She was nice enough to respond to my e-mail and send me her old syllabus but man... she really worked them hard. Don't think I have the time and energy to demand everything she did from her students.

Other than that, Ardilla and I have been having fun playing house. :P
She has been a trooper. She has sat through:
1) Three seasons of the Venture Brothers.
2) Conan O'Brien.
3) One Star Trek movie, and three original Star Trek episodes.
4) Various and sundry Family Guy episodes.
5) The Producers.
6) Blazing Saddles.

We've also been catching up on some reading thanks to the local library. Just finished up Phillip Dick's "The Solar Lottery", and I'm starting on "The Man in the High Castle." Was going to get some Cormac McCarthy, but they were checked out.

Looks like we will be getting the wedding pictures sometime soon (hopefully this year, jejeje), we have a visitor coming in a week, and we have some plans for the summer. Should be fun trying to survive it all :)

Change is Certainly On the Way

The Employee Free Choice Act (Which is neither free nor a choice for employees) will be passed, raising union power and wages at the expense of those persons who are not special enough to be part of their exclusive little club. A guild which has a history of discrimination, intimidation, corruption, and general inefficiency. Not to mention denying workers the right to free and fair ballot votes on whether or not they actually want to unionize? Yes they can.

Meanwhile, thanks to the Grassley-Sander amendment, all banks receiving a bail-out cannot hire skilled H-1B visa *workers*. Those *workers* who are trained in the research laboratories and universities, who provide the abilities and talents necessary to push our nation forward, and who contribute productively to the economy in ways that cannot be measure by amateur government economists (but are certainly appreciated by their co-workers and friends in the departments here). Perhaps Mr. Biden just does not like their thick accents and feels they should be working in 7-11's in Wilmington with the finance PhDs that can pull us out of this MBA made mess. The degrees that they got by the way without resorting to plagiarism. Unlike Joe. Yes they can.

The useless wall that our president voted for in the Senate is climbing higher and higher, no doubt built with the use of the immigrant labor that the US government is trying to keep out. The border wall which has been shown time and time again to be ineffective and offensive, in place of actual immigration reform which would threaten the power of union bosses? Yes they can.

A Buy-American clause that was slipped in to the Fiscal Stimulus package and supported by Mr. Biden, reviving the zombie of irrational nationalist protectionism, prophesying our coming isolationist re-exile from economic integration and the rest of the quickly globalizing world a la Smoot-Hawley? Yes they can.

Tom Daschle, Tim Geithner, the Solis' family, all blatantly cheat... I'm sorry, "misrepresent" and "mistakenly calculate" thousands of dollars worth of taxes they should be paying. Probably the tip of the ice berg of the only real bi-partisan effort in government: to cheat the American public for as much as possible, while the IRS spends its time auditing people NOT connected to government. Yes they can.

Government regulatory committees and organizations set up to enforce fair play in the economy, taking kickbacks and ignoring whistle blowers while the good times roll, then turn around and complaining about how they don't have enough power when their incompetence is revealed. Yes they can.

Guantanamo remains open along with other secret prisons which torture for information. Yes they can. Soldiers will remain in Iraq, continuing the "long hard slog" Bush started, while politicians pat themselves on the back for bringing about a change (of names). Yes they can.

This is change I can believe in.

I tell you what. I will join the doe-eyed Obama Fan Club if these things happen:
1) A complete audit of every Senator and Congressman's taxes over the past 10 years by the IRS, and no less than two independent fraud and forensic accounting firms. Maybe they should ask Markopolos for a reference.
2) The immediate repeal of the Grassley-Sander amendment, making the banking system an open and fair playing field for any qualified worker.
3) The death of the Employee Free Choice act, so that unions remain a choice for workers that they can make without intimidation or fear of retribution from their coworkers. I am not anti-union, I am against forcing people to join guilds and clubs that they don't want to be a part of.
4) Stop building the wall, and use the money on real immigration reform. Go visit Mexico while you're at it. Its beautiful.
5) An expansion of Free Trade agreements, and a commitment from the US government to not subscribe to the knee-jerk protectionist reaction.
6) A full investigation into the SEC over the past 10 years, and why Madoff and Stanford only came to light during a recession while whistle blowers were screaming their heads off. I smell rats.
7) Close Guantanamo.
8) Find Bin Laden.
9) Buy the stinking puppy already. I'm tired of hearing about it on the news.

Now my pie-in-the-sky dreams:
1) Stop listening to Pelosi.
2) Relegate Biden to "Quayle/Gore" status.
3) Don't pick anyone else with skeletons in the closet for cabinet posts. Is it really that hard to get FBI background checks when you're the president???
4) The Free Trade Zone of the Americas. Eh? Eh? Anyone? Unencumbered movement of capital and labor from Canada to Panama? Eh? Eh? Aaaaaaahhhhhh, you'll get it in fifty years when the rest of the continent comes around. We'd make the European Union look like Mercosur. No? Nobody getting these trade jokes?

Edit:
In the earlier draft I wrongly referred to H-1B workers as immigrants. Not so. These are temporary non-immigrant workers. It is often used as a vehicle to stay in the States by many university graduates while they wait on their change of status.
Many interesting comments found in response to this article point that out. I, however, feel this only strengthens my argument against capping H-1B visas. Right now we want everyone to hire the most qualified for the job. If their English communication is sub-par, then fire them (as is routinely done). But many of these students passed at the head of their classes for a reason, and companies shell out lawyers fees to hire them for a reason. If you are a US citizen who thinks you deserve a position simply by the lucky fact you were born within a border, that you speak a language, or that you just "gel" better with the other US customers, then you need to rethink the American ideal. The idea was that we let competition determine who gets the rewards and the status. Not nationality, not birthright, not preference for one group over another. He who gets the results, keeps the job. If not then we might as well give up and be French.

Odds and Ends at 1:45 AM

Let me share with you a poem written on the back of an Introductory Economics quiz for my colleague and friend Sasha, from the Undergraduates:

"Sasha- I missed you very much today :(
you better be here on final day!
Your smile shines so bright,
You are the light that we all like!
Love the Chi Omega girls."

My Ukrainian friend has apparently garnered the attention of several Chi O girls who write notes for him during quizzes. The TA's like to read them to him during breaks. Especially in little girl voices. Congrats my Ukrainian friend, you have the attention of one of the most powerful sororities on campus. Since he was sick today I posted the poem found on the back of the quiz to his office door... then told all the faculty I could about it. There was a line outside his office by 3 PM to read the note. Awesome.

Speaking of awesome the US Senate actually stalled the bailout bill for car companies.
Look, let me break it down for you. Forget the history the US has with auto makers GM and Ford. Forget this myth about our past generations supposedly being smarter and more heroic than we are, and therefore we should preserve their lifestyle completely. Think about what would have happened if the US government had killed Apple and Microsoft in the 1980's to protect IBM.

Let Creative Destruction happen. Keep the 25 billion for alternative fuel sources (despite how much I loathe ethanol). Give it Tesla. Give it to T-Boone Pickens. Give it to anyone EXCEPT GM, Chrysler, and Ford. They are unprofitable, unsupportable, shrinking companies. There is a reason the market is punishing them, and it is NOT just exorbitant labor costs. It is just that no one is buying their latest models. Why is no one talking about bailing out Toyota? Ask yourself this. Then ask yourself what differentiates the workers in a Toyota plant (int he US) that isn't getting bailed out from the workers in a GM plant who might be.

So take the bail-out money (from the 700 billion), give all the money to the recently laid off workers in the forms of scholarships for community colleges and/or worker re-training programs and move on. Let the CEO's and the inefficient corporations die on their own. Still don't believe me? Change the name of Ford to Wal-mart. Are you still willing to give them a bail out? Especially when Wal-mart employs more people than Ford does? I thought not.

Manufacturing is dead. Long live the US economy.

And Pelosi... I despise your position. I want to move to San Francisco and vote against you. Retake ECON 101 you poor congressperson and learn what supply and demand is all about before you talk about how car manufacturing is good for America. And before you wave around BLS reports trying to frighten everyone else into your point of view. If you want to be truly progressive and lead the US into the future, you will lead them into the future on more than token social issues. Take the lead on REAL economic issues, and be the Speaker that we all know and expect you to be, instead of a puppet politician for certain groups.

Change is inevitable. Very few of us will have the jobs of our fathers and forefathers. The car maker, the farmer, the banker, they are all our past. If we cannot let go of our past we are doomed to be trapped by it. The future is now. If you cannot adapt, then get out of the way and don't run for elected office. People foresee the end of capitalism... I see on the horizon the closest realization we can get to of "Economic Man." The mobile the adaptive, and the self aware utility maximizing consumer who supplies his labor where necessary and trades for goods on a global market where perfect competition is prevalent. Markets are reacting faster than ever. Capital and Labor are shifting between sectors faster than ever. The Invisible Hand is far from dead. In fact the recession is the Invisible Hand doing what it is supposed to be doing: cleaning house every now and then. Recessions are a part of it, and to be expected, especially after long periods of rampant speculation. We still live in the age of Schumpeter, Keynes, Smith, and yes Friedman (heresy of heresies!).

Look, we can do better. We have the opportunity in this crisis to better ourselves. The chains of past expectations are falling off, and the possibility of building a new future is rising. It all depends on how you look at it.
Are we going to hold on to a historic and crumbling sector of our economy, or free up labor and resources to let other sectors grow? Are we going to pump billions of dollars into trying resuscitate what is already dead?

Seriously though... a car czar? Are you KIDDING ME?
Anyone from DC who wants to tell me how to live my life and run my business can just turn around and walk away now.

Edited at 9:07 AM to change cut early morning "crazy man" rants. All apologies to Mrs. Pelosi, Tom Brokaw, and the UAW.

Quijote vs. Detroit

I have had a couple of friends call me about the GM bail out issue and ask my opinion, and their response was shock (absolute shock) that I was for government intervention. But not in the way you might think.

Let me be very clear: the government has no place in trying to float a dying economic sector. The auto industry in the United States, much like the manufacturing industry in general, has been dying for decades now. Robotics have replaced many assembly line jobs, and the foreign competition is killing our workers (while benefiting our consumers). So where does government play a role in this? Not in loaning obscene amounts of money to dying industries.

Let's assume that GM has not mismanaged its business by not foreseeing the change in demand from large gas guzzlers to smaller more fuel efficient cars. Let's assume that they made optimal decisions that have brought them to their current crisis. Even then they would be shrinking. Why should we the taxpayers keep this industry on life support when its very existence freezes up effective labor in an inefficient industry and cheats consumers out of good products (why else do we pay so little for more sturdy foreign cars?)?
Even then, if GM, Chrysler, and Ford had made good decisions our government should not loan them money (not bail out, but not even loan). In fact we should skip the firms altogether. We should skip the corrupt unions as well. Go straight to the worker. Offer every laid off employee two years of subsidized education (through loans or scholarships or what have you) to retrain in another field: health sciences, technology, whatever. Make our auto workers competitive in other sectors of the economy so they don't have to worry about keeping their jobs at a plant that very well might lay them off.
Or better yet, let's subsidize their movements across the country. If an engineer or auto worker can't find a job in Detroit, lets give them a tax break for moving to a city where they can. Let's put that money INTO the economy, INTO the worker, instead of into the firm or into the union. Unions do not make wages go up. The competitive nature of workers make wages go up. Unions do not protect the interest of workers. Demand for workers by firms leads to companies offering benefits to workers. Unions have done NOTHING, while the change in the economic make-up of our country has done EVERYTHING for workers. Basically: if you want a competitive wage then work hard, get an education, and bargain hard for it. Don't rely on your union representative to have YOUR best interests in mind when he's happy just getting your dues.

Here is the metaphor that I will get in trouble for.
Imagine a comatose patient, who has no hope of waking up. The brain is for all intents and purposes dead, and the body is kept alive by machines. The organs are perfectly healthy. We love the patient. We have great memories with the patient. But if we keep them alive, the organs will continue to keep a vegetable alive while at LEAST five other people who could use the transplant die (heart, lungs, kidneys, pancreas, what have you). This is the hard part. This is where we have to decide to pull the plug, and let what living parts of the body go to save lives. The body is NOT the soul. The body is NOT the essence. The lessons we've learned, the culture we've accumulated from the US auto worker will live on in our hearts and minds. But it is as dead as the US farmer. This is opportunity cost, which I struggle to teach my class every semester. The cost of something is not what you pay to get it. The cost of something is WHAT YOU SACRIFICE to get it. What you could be doing instead with your resources. We are sacrificing the talent and hard work of Detroit engineers and autoworkers to keep a dead industry on life support. Let it go. Let them go to other sectors of the economy where they are needed. It is going to hurt: the unemployment rate will go up, sales will go down, and people will suffer. But in the long run this is what we have to do.

Let me also be clear on this: What is good for GM, is NOT good for the US. Any company that tells you that "what is good for [insert name here] is good for the US" is lying to you, whether they are a bank, department store, oil company, factory, or car maker.

While I believe this bail out will go through, I do not believe it will help the US auto worker. It will keep GM executives on life support while they retool (see massive layoffs and restructuring) to keep their asses out of the fire, and it will keep union leaders in their positions. Meanwhile the workers will be left out in the cold. If we must have government intervention, then we must have it at the level of re-education and retraining to allow workers to become more competitive. Not to benefit unions and firms.

Check the BLS (bureau of labor statistics) reports in the next three years. The US manufacturing industry will continue to lose jobs in spite of recession or boom years.

Wouldn't it be nice.

Unrealistic, but it would be nice.

Swing and a miss.

From a classic movie about baseball and growing up:

"You're killing me, Smalls!"

Do I even really need to go into this again?

How about I go in a new direction with my Ethanol rants, since rationality, logic, and economic principles don't seem to be making a dent. I think conspiracy theory and innuendo might do the trick. It worked for Roswell's tourism industry. Who can tell me what Archer Daniels Midland is? Anyone? Wiki-it.

Floods, Corn, and Food Prices

By now, everyone has heard of the floods in Iowa. What the press is now tilting to is the impact on the corn crop and the larger impact this will have on the economy.

So it seems that finally US consumers will feel the effect of Ethanol on food prices just as much as our international consumers are. There will be price increases not only on corn itself, but everything dependent on corn. The obvious list being meats (poultry and cattle are fed with corn), dairy (cattle again), and eggs (chickens chickens chickens). What else is dependent on corn? Our sad excuse for chocolate. High fructose corn syrup is found in all sorts of candies, drinks, sweeteners, what-have-you. Mainly because its a cheap substitute for the already overly priced domestic sugar that we produce. Dr. Pepper fans: get ready to pay higher prices to the good doctor.
Add to this the farmers strike in Argentina* (which surprise surprise, I support. Taxing exports neither helps the domestic, nor the international economy. It only helps government payroll), and the blooming demand for all staple goods from India and China, and it all spells out a pretty bleak picture. There's a phrase that a certain lewd robot makes in "Futurama" that aptly describes the situation. A cookie to anyone who can guess it.

How do we stop the impending food crisis of 2009, when our destroyed crop will start having a real effect on the economy, as opposed to the speculation that's going to be rampant in the next month on food prices?
We can start by repealing the ludicrous sugar tariffs. Cheap sugar imported would be a boon to our neighbors' agricultural economies, as well as allow us to produce GOOD chocolate with REAL sugar (as opposed to second rate corn syrup). It would also take pressure off of the corn ethanol business (if we have to live with this idiocy let's at least spread the love to other crops), since ethanol producers could simply use the cheaper sugar instead of the corn. There are related costs to this, but I've been over that before.

We can also go back to the recent farm bill, and actually use common sense. By that I mean gutting the corn ethanol subsidies to give farmers incentive to sell corn back into the food market. That "cheapening" would be reflected in the market. Farmers would suffer from lower corn prices on the market, yes. But they're less than 2% of our population. Consumers make up 100%. Do the "heartless economic math". Would you prefer millions to suffer hunger in our own country, or thousands of farmers (who coincidentally can still apply for benefits from the government). I understand we've already tolerated millions of other countries populations to suffer due to our prices, but the government only listens to American voters. But after all we do give them "foreign aid" right?**

We could subsidize research into other ethanol production that doesn't require staple crops. Switchgrass, jatropha, heck I've even heard of some one in Mexico farming algae for ethanol.

So. What to do about it individually? I dunno. Eat more pasta and bread (or other wheat based staples). Drink less soda (or no soda preferably). Eat more oatmeal and less cereal. Find a milk substitute. Drink more OJ. As a capitalist, I would just say check the prices and let the market decide. Corn products will go up in price relative to other staples. Just do what you do. Pinch those pennies to get the most you can out of your grocer. It's not the end of the world or civilization as we know it, or even the end of US economic prosperity. Just don't expect things to get better at the supermarket for a while. Although, I'm predicting Wal-Mart and CostCo to do REALLY well in the next year. Don't expect local stores to do well, especially if they rely on corn products of some kind.

*This seems to mostly affect the soy crop, wheat, and beef.
**Let me know if you want to hear about my... less than positive opinion on US foreign aid. Not as great as you'd think. Although I think most of you should already know about that. :P