Sunday, July 28, 2013

GMOs: Franken food or technological savior?

Amy Harmon has a great in-depth story in the New York Times about the science and controversy surrounding GMO crops.  The article is nominally built around the worldwide problem of citrus greening, which is huge, but nicely builds in a much broader story about GMOs.

Another great source for learning more about the GMO controversy is the book Tomorrow's Table, by Pamela Ronald and Raoul Adamchak.

My own take on GMOs so far: The hysteria against them is likely overblown, but the extraordinary promises by technological optimists are overblown too.  Traditional breeding is a solid and, over the long run, often superior and less costly substitute to GMOs.  What's more worrisome to me is that intellectual property laws and regulatory costs may be acting to concentrate the seed business and make it less competitive.  These later issues are complex, not exactly my forte, and I don't presently see clear answers to any of it.

Anyhow, it's nice to see good reporting on an evocative topic.

Tuesday, July 23, 2013

Commodity Speculation or Market Power

After seeing how much Goldman profited from selling MBS that they knew were junk, it's hard to feel sorry for Goldman receiving so much grief for its commodity storage and trading activities.  The worry seems to be that because Goldman has become increasingly involved in commodities markets that they must be manipulating prices for profit, and in the process pushing prices away from their fundamental values---ie., supply and demand.

Do we actually know whether there is a problem here? It's possible that Wall Street is trying to manipulate the market.  But this is a hard thing to do, even for a really big company, especially one that doesn't produce the stuff it's trying to monopolize.  Also bear in mind that anyone can buy and store commodities, so it's not like there are huge barriers to entry.  Those who have tried to corner commodity markets in the past haven't fared well.

My sense is that cornering a commodity market via hoarding is basically impossible once the market realizes what the major player(s) is doing.  And if they're having senate hearings about Goldman's storage and trading activities, I think it's fair to say the cat's out of the bag.

So, what is Goldman doing? If it's not a market power story I'd guess they're trying to buy low and sell high, just like everybody else. They probably believe they have a better handle on market fundamentals than other commodity speculators.  Perhaps they do.  But if this is all they are doing, then they are effectively reducing price volatility and helping to make the market work more efficiently.

On public radio this morning a reporter (sorry, I forget who), asked Omarova whether Goldman's profits just meant that consumers were paying higher prices.  Omarova said "that's absolutely right." But it's absolutely wrong if Goldman's just speculating.  Goldman's profits are coming out of the pockets of speculators who bet prices would fall when they rose, and vice versa.  In fact, that's probably the case if it's a market power issue too.

Anyway, if this is about Goldman trying to corner the storage market, that's a problem and Goldman deserves the grief they're receiving. But that strikes me as unlikely as it would be foolhardy.  My guess is that this is just speculation, which means Goldman's profits translate directly to better allocation of commodities over time, less commodity price volatility, and basically zero influence on average prices.

Saturday, July 6, 2013

Maco, Multipliers and the Environment

A little follow up from my post the other day:  It's probably going too far to say investment to curb climate change, if made during a depression, is a free lunch.  But certainly the basic benefit-cost analysis for what constitutes the most efficient policy with respect to climate change, or any other environmental or public good, changes when there is another massive market failure at play.  Spending to reduce emissions would seem to have two benefits: reduced externalities plus closing the macro output gap.

In some ways it feels a little like the so-called "double-dividend" hypothesis: the idea that taxing pollution can solve the environmental externality while raising revenue that can reduce distortionary income or sales taxes.  That rather compelling idea still gets kicked around a lot, and there is probably a small truth to it, although the calculation turns out to be more subtle (see Goulder's review, for example).

At first blush, the macro double dividend seems like it could be much larger.  As the late James Tobin apparently used to say, it takes a lot of Harberger triangles to fill and Okun gap.  The old double dividend literature dabbles with the former, and now we're talking about the latter.  I'm not familiar enough with the literature to know whether that have been attempts to bridge these vastly different areas of economics.  It strikes me as a difficult thing to do.  And even if it were done well, likely hard to publish due to the macro wars.

Still, if environmental policy were to be structured with macro multipliers in mind, it could change the entire calculus about the relative benefits of standards versus prices, especially if one would induce more spending in the near term.  It might also alter the implications of uncertainty.  Standard micro analysis, which is fashionable in environmental economics, favors delayed timing of investments, but with small economic values at stake.  The macro effect would strongly favor investment now, with presumably big economic stakes.

Of course, there are public goods besides reducing environmental externalities.  Spending on basic infrastructure like roads, bridges, tunnels and railways might have similar double dividends.  So how do we more generally evaluate the costs and benefits of public policies in a depressed economy, assuming (as I would) that macro output gaps are real may be with us for awhile?

I don't know the answer to this question.  But there would seem to be a lot more to it than measuring multipliers.  So, who are the brave, inquisitive souls willing to dive in?