Global warming will be good for U.S. agriculture

Researchers at MIT and UCSB (which by the way has a lovely campus) found small positive effects (an increase in profits of 4%) of global warming for U.S. agriculture.

First, they looked at historical trends in the relationship of temperature and precipitation on agriculture profits.
Weather’s impact on Ag profits
They then used a climate model to predict temperature and precipitation in the U.S. Plugging those weather predictions into their estimated profit equations gave the predicted increase in profits.

Their results couldn’t preclude the possibility that there will be no effect of global warming on agricultural profits. It seems the debate is between those that think there will be a positive impact and those that believe there will be no impact. There’s no reason to believe there might be a negative impact of global warming on American agriculture.

I hope their philosophy is better than their economics

At the Ask Philosophers website, there’s this question:

Put simply: does demand justify supply? If I sell an item – for instance, a computer-games machine – for a price that is much higher than either the RRP or the shop advertised price, and am able to do so given the scarcity of the item and the large demand for it, can I justify this by simply claiming that the fact that a person is willing to buy for that price justifies my selling it to them? Can this question be resolved so simply?

and this answer:

You are right to worry that this question cannot be simply resolved. In the case of the computer gaming machine, it seems reasonable to let demand determine the price. Even though people may very much want these new technological toys, nothing bad will happen to them if they cannot get them. But suppose we are talking about a scarce drug that has the potential to cure a life-threatening illness, such as bird flu? Or what about the resources (space in a car, or gas, say) to flee a city about to be overrun by an invading army? Those who hold these scarce and potentially life-saving resources are in a position to exploit the vulnerability of those whose life depends on having access to them. Whether it is morally acceptable for demand to determine price depends on whether the thing is needed or merely wanted; and if it is needed, how acute that need is. This means that, as you suspected, there can be no simple answer to your question.

The implied policy here is that people that hold “scarce and potentially life-saving resources” shouldn’t be allowed to charge as much as the market would bare in times of crisis. Sometimes this is is called price gouging, like when people start selling gallons of water for outrageous prices after a hurricane.

This policy makes sense if you just evaluate the effects on incentives today. It is outrageous to charge thirsty, desperate people lots of money for necessities like water. But if you consider the incentives in the future you’ll get a different answer.

If ‘price gougers’ are allowed to charge a lot for necessities during a crisis, they’ll have incentive to stock pile those necessities. If the price is high enough to warrant it, the higher price will encourage competition between stock pilers and the price, in turn, will go down. The net effect is that more of the necessities will be available during a crisis.

Without price gougers, hurricane victims are at the mercy of the government or volunteers to provide them necessities. The ample evidence, at least for the former, of complete incompetence makes me want to throw my lot in with the price gougers…

Flat tax

The long run consequences of freeing a half million of the smartest Americans, to changing their activities from reducing tax burdens to doing something productive like providing goods and services is enormous.

Alvin Rabushka

Don’t tell my dad the CPA.

I heart economists

We have a short economist arguing against a tax on height and a tall economist arguing for it. “Economic agents” maximize their own utility but economists don’t.

In any case, Mankiw’s paper is pretty interesting. The abstract:

Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This paper shows that the standard utilitarian framework for tax policy analysis answers this question in the affirmative. This result has two possible interpretations. One interpretation is that individual attributes correlated with wages, such as height, should be considered more widely for determining tax liabilities.
Alternatively, if policies such as a tax on height are rejected, then the standard utilitarian framework must in some way fail to capture our intuitive notions of distributive justice.

In a way, the controversy over the Stern report can be seen in the same light. If you believe, due to some ideas of cross-generation distributional justice, that we should do something about global warming but you believe our standard values of the discount rate are correct (i.e. 2%), then there must be something wrong with the standard utility models.

I don’t think its good enough to say “yep, the models are wrong… ignore the economists.” You have to come up with an alternative framework. Without a good alternative model, there isn’t a common ground for discussion. In this way, a model is just a mode of thought that we can use to think through an issue.

Money is just a commodity…

Slashdot reports on the gaining popularity of a virtual money in China:

It’s the QQ coin — online play money created by marketers to sell such things as virtual flowers for instant-message buddies, cellphone ringtones and magical swords for online games. In recent weeks, the QQ coin’s real-world value has risen as much as 70%. It’s the most extreme case of a so-called virtual currency blurring the boundaries between the online and real worlds — and challenging legal limits.

Someone comments:

Currency is just an agreement on a medium to symbolize value.

Common misconception, but one which governments are happy to foster. Actually, currency is a commodity in exactly the same way as coffee, bread, oil, gold, pork bellies.You see if currency were really a medium which symbolised value, it wouldn’t change much. Bread, coffee, gold etc would pretty much always cost the same, they would always have the same value throughout time. Instead what happens is that over time, everything becomes more expensive, inflation. What’s happening is that the currency is losing it’s value. It does that because there’s more of it; supply and demand. When the government(‘s bankers) print money, all the existing money in circulation decreases in value because there is more of it around.

So, no, there’s no fundamental difference between real and virtual money, just as there’s no fundamental difference between real money and a kg of coffee.

Except one thing: we imagine the government is able, through controlling the money supply, to smooth short-run business cycles. If the government doesn’t control the money supply, it can’t do this. So so-called virtual currencies undermine the power of monetary policy.

Labor contracts in the U.S., for example, usually cover a year, or more, and they’re denominated in dollars. Some people believe the government’s monetary power comes from the fact people write long-term contracts, like wage contracts, in the government controlled currency. So the government shouldn’t start sweating about “virtual” currencies until it starts seeing long-term contracts written in currencies it doesn’t control (…like stock options…).