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August 28, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 27 Aug 2012 12:24 AM PDT
The Jersey comedown:
The Comeback Skid, by Paul Krugman, Commentary, NY Times: There will be two big stars at the Republican National Convention, and neither of them will be Mitt Romney. One will, of course, be Paul Ryan, Mr. Romney's running mate. The other will be Chris Christie, the governor of New Jersey, who will give the keynote address. And while the two men could hardly look or sound more different, they are brothers under the skin.
How so? Both have carefully cultivated public images as tough, fiscally responsible guys willing to make hard choices. And both public images are completely false.
I've written a lot lately deconstructing the Ryan myth, so let me turn today to Mr. Christie.
When Mr. Christie took office in January 2010, New Jersey — like many other states — was in dire fiscal straits thanks to the effects of a depressed economy..., so like other governors, Mr. Christie was forced to engage in belt-tightening.
So ... while Mr. Christie has made a lot of noise about his tough budget choices, other governors have done much the same. Nor has he eschewed budget gimmicks... But ... Mr. Christie talks a good (and very loud) game about his willingness to make tough choices, making big claims about spending cuts — claims, by the way, that PolitiFact has unequivocally declared false.
And for the past year he has been touting what he claims is the result of those tough choices: the "Jersey comeback"... It was ... supposed to demonstrate that good times were back, revenue was on the upswing, and it was now time for what Mr. Christie really wants: a major cut in income taxes ...that ... would do very little for the middle class but give large breaks to the wealthy.
But in any case, the good times are by no means back, and neither is the revenue boom that was supposed to justify a tax cut. So has the very responsible Mr. Christie accepted the idea of at least delaying his tax-cut plan until the promised revenue gains materialize? Of course not.
Which brings me back to the comparison with Paul Ryan. Mr. Ryan, as people finally seem to be realizing, is at heart a fiscal fraud, boasting about his commitment to deficit reduction but actually placing a much higher priority on tax cuts for the wealthy. Mr. Christie may have a different personal style, but he's playing the same game.
In other words, meet the new boaster, same as the old boaster. And pray that we won't get fooled again.
Posted: 27 Aug 2012 12:06 AM PDT
Posted: 26 Aug 2012 02:30 PM PDT
David Warsh on David Brooks:
Brooks is a prestidigitator, that wonderful word borrowed from the French, descended from the Latin, meaning juggler, deceiver. He is all the more successful because of his earnest nice-guy manner. But he's a slippery fellow, frequently passing off Tea Party sleight-of-hand as moderate magic. That's what makes him fun to read. It also drives his NYT stable-mate Paul Krugman to distraction.
More here.
Posted: 26 Aug 2012 10:23 AM PDT
Adam Levitin of Credit Slips explains why "there will not be any serious prosecutions of senior bank executives or institutions for the financial crisis," but he's not happy with the explanation:
Why No Prosecutions, by Adam Levitin: The NYTimes had a very good editorial today bemoaning, with resignation, that there will not be any serious prosecutions of senior bank executives or institutions for the financial crisis.  The biggest fish to be caught was Lee Farkas. Who? That's the point. There have been prosecutions of some truly small fry fringe players and some settlements that are insignificant from institutional points of view (even $500 million, the SEC's record settlement with Goldman over Abacus was a yawn for Goldman), but that's it. ...
My prediction is that when the history of the Obama Administration is written, there will be some positive things to say about it, but also two particular blots on its escutcheon.  First, the failure to act decisively to help homeowners avoid foreclosure, and second, the failure to hold anyone accountable for the financial crisis. ... Both are explained by the "Obama administration's emphasis on protecting the banks from any perceived threat to their post-bailout recovery." 
The logic here is that financial stability and economic recovery are more important than rule of law. There's an argument to be made that law has to give way to basic economic needs.  I, however, would reject the choice as false. Instead, the best way to restore confidence in markets is to show that there is rule of law.  The best route to economic recovery was through rule of law, not away from it. ...
The Administration, however, determined that it wasn't going to rock the boat via prosecutions, even though there is no person in the banking system who is so indispensible to economic stability as to merit immunity from prosecution...
Posted: 26 Aug 2012 10:03 AM PDT
Michael Roberts argues that changes in commodity prices have very little impact on the price of food:
What's the price of corn in your meat? Less than you think., by Michael Roberts: ... So much of our food is ultimately derived from corn, or from other commodities like wheat and soybeans whose prices track corn prices fairly closely. But it ... makes little difference.

Take meat, for example. There are only 3-5 pounds of corn used to make an additional pound of beef, and between 2 and 3 pounds of corn for a pound of chicken or pork. ... This can vary a bit from operation to operation or how it's measured, but feed use efficiency has risen a lot over the last couple decades with the growth of confined animal feeding operations, or CAFOs.

Let's says 5 pounds of corn per pound of meat. There are 56 pounds of corn in a bushel and since June prices have increased from about $5 to about $8 per bushel. This means the amount corn in your quarter-pound burger have increased from about 11 cents to about 18 cents. If there is market power by processing companies or retailers, retail prices would go up by less than this amount (this is basic microeconomics, but I'll save the details for another time). So, you'll have to squint to see the effect of this year's drought on prices at grocery stores and restaurants.

There are lots of complaints about CAFOs being inhumane for animals. That may be, but they are also extremely efficient at using resources. Without CAFOs, you would see bigger prices in all kinds of food, and this year's heat and drought would have caused a larger price spike. We would also be using more land in crop production globally, and be using more fertilizers that pollute water and all manner of other environmental problems that follow from crop production. Many environmentalists don't like CAFO's but they may well be doing more good for the environment than eating grass-fed beef, unless the high price of grass fed beef causes you to eat less. (Granted, grass-fed beef is probably healthier.)

Anyhow, the main point is that commodities are a tiny share of retail prices in developed economies. Prices of most everything, including food, is made up primarily of labor and capital costs, plus rents to producers and retailers with market power. The big concern for high commodity prices in the developed world where the commodity share of food expenditures is much, much greater and people spend a much larger share of their income on food.
[I have a feeling there will be disagreement about the desirability of CAFO's...]

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