Sunday, September 13, 2009

Father of the Green Revolution kicks the bucket

“If the world population continues to increase at the same rate, we will destroy the species.”
Norman Borlaug won the Nobel Peace Prize in 1970. In the 1950's, he crossed varieties of wheat including those resistant to the rust fungus and higher-yielding semidwarf strains multiplying wheat output sixfold in Mexico. Similar ideas were applied to rice with similar results, together averting a Malthusian disaster.
Critics say the green revolution displaced smaller farmers, encouraged overreliance on chemicals and paved the way for greater corporate control of agriculture, [calling it ecologically destructive and unsustainable.] Dr. Borlaug declared that such arguments often came from “elitists” who were rich enough not to worry about where their next meal was coming from. But over time, he acknowledged the validity of some environmental concerns, and embraced more judicious use of fertilizers and pesticides. He was frustrated throughout his life that governments did not do more to tackle what he called “the population monster” by lowering birth rates.
[from the NYTimes article] What a giant badass.

Monday, September 7, 2009

Keynes and Krugman

Paul Krugman writes in the NY Times about the battle currently raging in the economics profession between the fresh-water devotees of the Chicago school and the more Keynesian salt-water economists, of which he is a partisan.

"But don’t recessions look like periods in which there just isn’t enough demand to employ everyone willing to work?" Well, I sure want to work and no one will hire me. I want to work as a hammock sleeper. I'm good at it. I've trained for years. Minimum wage would be fine, even though I've got a family to feed, but no one will hire me. It's a case of inadequate demand! The government should rectify this situation at once!!

A joke? OK, but I don't want a minivan. I don't know anyone who does. They're big and ugly and burn lots of expensive fuel. Yet, the car companies are busy crying for government bailouts. But, maybe the mistake isn't inadequate demand for ugly gas guzzlers. Maybe it's inadequate ability to make cars people want. I don't see how their argument is any different than my failure to find employment sleeping in a hammock.

Guided by this neo-Keynesian thinking, the government is pumping out billions in stimulus money. My fear is the most of it will go to politically connected boondoggles, bridges to nowhere, or well intentioned but fluff-headed projects. The problem was that we as a country spent too much by taking out too much credit. We're trying to wise up and spend less and save more. That's to be encouraged.

I should read Keynes, just to know whether his work is misquoted and abused as badly as Adam Smith's. My guess is that both sides of this neo-Keynesian vs. rational-market argument contain valuable insights. But the belief that either theory is the anywhere near the whole explanation seems woefully contradicted by the facts. And arguing one dogma vs. another is a sure way to miss whatever new insights this current mess can show us.

To justify spending our way out of recession, Paul Krugman says (in the Aug. 27, 2009 NY Times) that a debt-to-GDP ratio of 70% is OK for the US. That means 1% of GDP goes to interest on the debt. He sites examples of Belgium and Italy which had debt-to-GDP ratios of 118 and 114 percent in the early 1990s. Japan's is upwards of 170%.

He says, "The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity." Feel safe with that assumption?

But, let's juxtapose that with the International Monetary Fund's report on Argentina's financial collapse (The IMF and Argentina, 1991-2001 By Shinji Takagi). (I don't really know if these ratios are computed the same way.)

[The] debt level of 50% of GDP was high for any country, but particularly for Argentina, given the likely overvaluation of the peso. With the sharp depreciation of the peso against the U.S. dollar, in the event, Argentina's external debt-to-GDP ratio rose to over 140% in 2002.

I don't mean to beat up on the Nobel prize winning Krugman. I like his essays and often agree with them. But the idea that more spending and more debt can possibly be the answer to a crisis brought on by too much spending and too much debt is a little hard to swallow. Maybe I'm just a grumpy old crank who thinks the world is going to hell in a hand-basket, but I'm worried that commenter, Chris Horton, might be right:

This country is toast... For my entire lifetime, the GOP have been despicable scum and the Dems worthless fools. The lights are going out all over America, we shall not see them again in our lifetime.

On a related note, Justin Fox's The Myth of the Rational Market sounds like a fun read. Krugman liked it. And EconTalk has an interview with the author.

Sunday, September 6, 2009

Capitalism on the rocks

People say that the recent financial crisis is a failure of the capitalism or even a failure of the free market. I don't agree. The real-estate bubble and the misunderstanding of the risk of derivatives, now those were market failures. The crash was a correction. People were selling snake oil. Those people went belly up. Seems to me, the market found the right answer, eventually.

Too bad, the government stepped in and bailed out the snake oil salesmen. Now they're back. Maybe they'll straighten up and fly right for a while. Maybe they'll just switch to selling another kind of snake oil. And we, the public, are a couple trillion deeper in hock.

Thursday, September 3, 2009

Efficient Market Hypothesis

The poor efficient markets hypothesis is taking a lot of flak these days. The EMH asserts that markets reflect all publicly available information. That's interpreted by some to mean that the market price is, in some sense, the right price for traded assets and, further still, that markets are rational. These days, that's looking pretty suspect, when the markets go and do something loopy like the dot-com boom, or as stark raving batshit as they've been the past couple of years.

In defense of the EMH, it's absolutely true, as long as your willing to define information to include false information, uncertain information, kooky beliefs, and outright bullshit (deliberate attempts to deceive) modulated through widely varying abilities to understand the information and act accordingly. Layer onto that the effects of the more sophisticated players trying to guess what effect the available information will have on the ill-informed and labile masses. Now you have the kind of recursive cluster-fuck that might very well produce the kind of irrational craziness that had 7-11 employees buying beachfront condos and venerable insurance companies torching themselves. The wonder is that markets are as stable as they are. "Markets can remain irrational longer than you can remain solvent."

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: &q...