Sunday, August 31, 2008

Sunday Cartoon



So much corn is grown in Iowa that it grows out of gutters, sewers, city sidewalk cracks, and ditches. Yet, the world needs to be fed so company's like Monsanto develop hybrids that accelerate growth. I was always taught that "if it grows too fast, it's a weed." My cartoon suggests that there maybe costs as well as benefits to using pesticides and herbicides to genetically manufacture food.

Ag Subsidies Still Persist

An excellent infant industry argument for ag subsidies is made here.


Meet Ibrahima Coulibaly from Mali and James Macha from the U.S. Both are cotton farmers, but with vastly different experiences. The American farming subsidies that support James have a negative impact on farmers like Ibrahima, who are trying to climb out of poverty. The result is communities in poor countries face conditions that make them more vulnerable to crime, conflict, or even terrorism. How can rich and poor countries work together so that there is a level playing field?

Suppose all agricultural subsidies were removed which I think is good since the free market will be allowed to operate. I don't believe that countries like Mali will be able to compete since the US and EU have economies of scale and high factor endowments. It's because of subsidies that corn, wheat, and rice are overproduced and exported to those countries. Africa is subject to doughts which can eliminate a harvest. Corruption is so high in Africa that the free market does not work and farmers have little incentive to produce since the crops will be stolen or nationalized. Political instability is also a reason. I think subsidies are good for Africa since they ensure that there will be food to eat.

Charles Potter Interview

video

Charles Potter, KWPC, interviews Dr. Edmond Seifried, Lafayette College in this video. Dr. Seifried predicts that interest rates will increase to 3 or 3.5 by the year's end, commodity prices will peak soon, and fundamentals favor a recession in 2009.

For those in the FED challenge, Dr. Seifried mentions that Richard Fischer, Dallas Fed, has voted against Ben Bernanke every time when the FOMC wanted to lower interest rates. A link to an interview with the Dallas President is here. According to what Seifried calls the "Fischer Effect" a depreciating dollar gives foreign suppliers little incentive to keeping supplying oil to US since the buying power of the dollar is weakened.

I disagree. The last I looked trade was voluntary and the US has a very stable government. When you think about, there's only a couple of things a foreign supplier can do with a US dollar. They can either spend the dollar on US goods or buy US capital. Either option will appreciate the dollar. Even if the US dollar is sold to another country, the other country has the same two options. The dollar will return either as an export or a credit in our capital account. Dr. Seifried is a nationally known speaker and is heads and heels above me. I wondered if the Fischer Effect was meant to be a play on words after Irving Fischer. After all, an increase in the expected rate of inflation will increase nominal interest rates.

Saturday, August 30, 2008

Bubbles


High Grade copper prices closed at $3.72 in July, 2008. Compared to the $.65 close in 2001, the last recession, the difference represents a 572% increase in the commodity price. Oil increased by 700%, corn 280%, and wheat 256%. Real income has increased by more than 6%. The prices of commodities have increased by a larger percentage relative to consumers income and this represents a commodity bubble, according to economist Edmond Siefried. Excluding the demand pull from China, Professor Siefried asserts that the run-up on commodity prices isn't justified by income figures. Thus, commodities are on a bubble that might burst. My opinion is that the demand for scarce resources will continue and it's likely to see a rise in commodity prices as copper, oil, and corn have intrinsic value. Tulips, on the other hand, only have extrinsic value which change with tastes and preferences.

Ghost Towns


Many home buyers located so far away from their place of employment that their commute was over a hundred miles a day. When the price of gas hit $4 per gallon, consumers responded by driving less. Economist, Edmond Seifried, Lafayette College, reports anecdotally that popular restaurants became vacant. Driving in the city became pleasant, and home buyers abandoned their homes. i was wondering if the new 2009 model cars should be a camel since so many located so far away from their work.

Mortgage Mess



The bad loans made by banks are starting to work their way through the markets. According to Edmond J. Seifried, Lafayette College, housing starts have plummeted from 2.5 million to 1 and construction inventories are growing. The July, 2008, data shows .965 million units--the lowest in 14 years. More consumers are choosing liquidity by paying down their credit card debt and allowing their non liquid assets like homes go to foreclosure or deteriorate. Energy spikes are making the long commute in New York, as much as 100 miles per day, uneconomical. Suburbs are turning into ghost towns as half million dollar homes are left behind so workers can locate closer to the city. All of this plus skyrocketing prices in food are setting the stage for a slow 2009.

Thursday, August 28, 2008

Pinkie Show on GMOs


By now most people know that GMO stands for Genetically Modified Organisms. But how do GMOs affect us, the food we eat, and the environment? Jeffrey Smith, founder of the Institute for Responsible Technology provides a solid general overview in this interview.

The Pinky Show: http://www.pinkyshow.org/

Institute for Responsible Technology: http://www.responsibletechnology.org/

This is an excellent explanation of negative externalities.

Robert Solow on Wages

A couple of years ago, I heard Robert Solow speak at Cornell College in Iowa. Here's a link to his speech. Thanks to marginalrevolution.com for the link.

Wednesday, August 27, 2008

Ethanol

Farmers Plant Corn To Take Advantage Of Prices Driven Up By Ethanol


LUXEMBURG, IA - MAY 9: Iowa farmer Ernie 'George' Goebel pulls a corn planter behind his John Deere tractor while planting corn in a field on the farm he was raised on May 9, 2007 near Luxemburg, Iowa. With the increase in demand for alternative energy some farmers have elected to switch to growing corn in order to produce the profitable ethanol fuel. In the nation approximately 90 million acres of corn are expected to be planted this season. (Photo by Mark Hirsch/Getty Images)

Tuesday, August 26, 2008

GPC Strike


The world's largest grain processor is on strike. The impact on the local culture and climate is evident. Labor and management fight in the stores and community events. Muscle has been brought in to lockout workers. A link to the story is here. Make sure you read the comments.


A union tries to influence the elasticity of the MRP curve. Many observers believe that the workers are being paid an amount greater than their MRP and this is attracting many scabs to apply for GPC positions. The union's goal is to obtain higher wages but this will come at a cost of unemployment for some members. There will be many costs and benefits as the local economy works to equilibrium.
www.picapp.com is a site for bloggers to get free, professional pictures. Make sure you register so you get the right html to copy to blogger. I thank Karen Miller of Las Vegas for this tip.

BELVIDERE, IL - AUGUST 12: Corn grows in a field August 12, 2008 near Belvidere, Illinois. Despite farmers experiencing the worst flooding in 15 years in the Midwest, the nation's corn harvest is expected to be the second largest in history and soybeans the fourth largest. (Photo by Scott Olson/Getty Images)

Yearly Corn Production Estimate Increased By USDA

Monday, August 25, 2008

Comic Book


For Meds, Brandon, Penelope, and me, the link to the PDF version of my comic book is here. You will have to bulldog through all of the ads, but the hosting was free. I've given this lecture to thousands of students in my classes and SADD activities. I've spoken many times about the dangers of drugs and alcohol to student and adult rehab groups and have used this metaphor as a springboard for discussion. I have several discussion questions that I include in the classroom edition for those interested.

I started this project 4 years ago. I just want to make this project an orphan so I uploaded it without my battle rap scene and a page out of order. I will have a print edition that I hope to have by next weekend.

You can rip on my book. At the women's reformatory in Oklahoma they thought I was way off. They were kind in their comments. Many times students will tell me at graduation that this was the best thing they remember about high school. I had to learn how to draw, use technology, and learn about myself to complete this project. When it's all said and done, more was said than done. I do a better version with a snake. Maybe I'll do that next. Thanks to all, Flad

Sunday, August 24, 2008

Record Corn Yields in Iowa



Corn yields are higher in Iowa even after flooding along the Des Moines, Raccoon, Iowa, and Cedar Rivers wiped out fertile land. Genetically Modified Food makes tilling to kill weeds obsolete and corn resistant to infection from Japanese Beetles who like corn silk. Corn is now planted closer together and the pesky male corn has been eliminated. Corn grows at an accelerated rate now. Corn is Knee high by the middle of June. Detasseling machines replace child workers and men have to stand atop the machines to detassel what the machines can't reach. Technology has increased the supply of corn for both biofuel and food consumption as producers respond to price incentives. Innovation brings some unintended consequences. Iowa has suffered from multiple tornadoes which bring high winds. The pesticides used to control approximately seven types of weeds found in corn fields have cross-pollinated organic crops. The flooding and winds that reach 80 mph carry Roundup to water supplies. One must weigh the costs and benefits of GMO's but I would bet that the expected value of GMO's are greater than the expected costs.

Saturday, August 23, 2008

Issues in GM



www.eusem.com: The story in the film "GM food and you" is a journey through the maze of complexities surrounding genetic modification. New technologies have a great influence on our daily lives and plant biotechnology is no exception. After all, plants provide us with the food we need to survive. However, plant biotechnology is a controversial area where both the basic research and its application to our daily lives is viewed with suspicion by members of the public. Legitimate concerns have been raised. The content of the film addresses the role genetic modification and plant biotechnology plays and is likely to play in our society. Is GM food safe to eat? What about the impact on our environment? Do we need it? Is all the truth told about GM crops? What about our right to choose? Can GM crops help the third world? See: www.eusem.com

Technology and Food Production


Economics assumes that productive resources are limited and society must make a choice. When a society makes a choice, there's a cost of foregone opportunities. As society has chosen to produce more biofuels such as 85 octane Ethanol. As a result, the demand has increased the price of corn which acts as a signal to producers to plant more corn. Since resources are scarce, producers chose to plant less wheat and feeder corn to plant more corn for Ethanol. As a consequence, both the price of corn and wheat have increased. Many blame the American demand for Ethanol on the food riots in Haiti, Asia, and Mexico. St. Louis based Monsanto claims that the scenerio above represents a false dilemna. The company claims that the yeilds per acre have increased by the use of genetic manufactured food. In short, they maintain that society can have more of both food and biofuels if they are allowed to bioengineer food. This is shown graphically in the movement from point 1 to point 2. I can only believe that this is right. As always, there will be costs and benefits, but I believe the benefits outweight the costs.

Transgenic Soybean Crops



In 2006, farmers in Brazil were the third largest adopter of biotech crops globally – planting more than 28 million acres (11.5 million hectares) of transgenic soybean crops. Permalink:

URL: http://www.monsanto.com/biotech-gmo/
Tags: genetically modified crops gm crop gm crops gmo gmos monsanto soybean

Interview with Clare Hughes

Clare Hughes,Senior Food Policy Officer for CHOICE,discusses consumer opposition to genetically modified foods,GM canola crops, and helping consumers understand and informed about GM foods.

Technology in Agriculture

Monsanto has developed a drought-resistent corn that can be grown in the desert conditions of Africa. Genetically Modified Food increases the supply of food and satisfies more wants. Monsanto has also engineered products that combat soil erosion and carbon emissions as the following video shows.

Tuesday, August 19, 2008

Suggest a Caption


I wanted to write something about unemployment, but came up empty handed. Here's some ideas.

I used to work for a paper company, but they folded.

I used to work for a cigarette company, but they went up in smoke.

You can't call me a quitter!! I get fired first.

I wanted to be an economist, but it demanded too much time.

Monday, August 18, 2008

Housing Crash


I worked for a painting company who painted high end homes in the half million range. The homes were poorly constructed and often occupied by a man and wife. I would ask the contractor what occupation the buyers were in. Many times, the buyers were doctors who were buying the homes on speculation. Why should the FED subsidize the speculative attempts of profit maximizing investors? When I painted the red rooms, I figured that they people made about the same as I did. I listen to an economist talk about this subject on August 29. Meanwhile, read marginal revolution as your home work.

Wednesday, August 13, 2008

Rush to Buy US Goods


The USD continues to fall against the Euro. This means goods like Apple's iPods are cheaper for foreign buyers since the buyers have to supply less of their currency for more of ours. In theory, the USD should appreciate, but I think importing tankers of oil will cause the USD to slip even farther.

Thursday, August 07, 2008

Fed Bailout


The Fed has taken steps to less the fallout from the home mortgage crisis. Is this a soft landing? One report indicated that 60% of defaulted sub-prime loans were issued with the pretense of fraud. This is another example of a moral hazard.

Plunging US Dollar


This link has a great summary of the pros and cons of a depreciating dollar. I can't get the multimedia links to work, but the text is great.

Monday, August 04, 2008

Falling US Dollar


The dollar falls when US citizens demand foreign currency to buy Olympic wrestling tickets, for example. When interest rates are higher abroad, US citizens demand British Pounds and supply US Dollars. This causes the value of the dollar to drop. This is understandable since US interest rates are low. The Fed's role is to stablize the US economy with its monetary tools like open market operations and discount rate. Seems like nothing is going to stop the feel falling dollar for long as the cartoon suggests.

Gabon


Alex just returned from a ministry in Gabon, Africa. Gabon is on the west coast. Alex brought home some currency for my class. Of note, is the back of the 5000 bill which pictures an oil refinery. Gabon isn't landlocked and has a stable government. Could the growth of this country be led by the export of oil? Once, Gabon was a member of OPEC.

The exchange rate is 500 Francs to 1USD. This makes the 5000 bill worth $10 USD.

Sunday, August 03, 2008

Record Budget Deficits


Spending in Iraq and natural disasters have pushed the budget deficit to new highs. Along with blowing up bombs and ancient relics in Iraq, the Republican party is blowing their horns too. I am all for national security and exogenous natural disasters can't be helped. I don't believe getting a Democrat in the White House will do much better. Just be prepared for higher taxes and higher prices with some difficult choices.

Saturday, August 02, 2008

Consumer Spending



The BEA shows personal savings has been less than 1% since the first quarter of 2005. In the last quarter of 2008, personal savings is bout 2.75%. Americans get their "high" from spending.

Friday, August 01, 2008

New Great Wall of China



Econ 101 equates the trade deficit with Net Capital Inflows. So when Americans buy from China, they have to finance the amount that imports exceed exports with borrowing from abroad. The bigger the trade deficit, the more American assets we're selling off. Our debt will imprison US citizens behind a great wall of debt.

Chicken Little


There's an old tale of a chicken running around creating hysteria by saying the sky's falling. Every where I look I hear people screaming about high gas prices like Chicken Little. It will be a hard lesson for Americans to learn, but Americans are going to have to give up something that is part of their lifestyle. Econ is all about making choices.