Why Eliminate Water Subsidies when we could Reform Our Entire Society?

I love the Gastropod podcast. The hosts do a great job of trying to explain the historical debates concerning food in a charitable and careful manner. Their guests also tend to be very careful.

But the guest from the September 15th, 2020 episode about beef in the US was not nearly so careful. It’s a curse, really, to listen to a great podcast, only to have a portion of an episode ruined because a guest was allowed to spout on a topic outside of their expertise.

John Specht, a history professor at Notre Dame, committed such an offense that irked the heck out of me:

“Any reform is likely to make beef more expensive. So what that means is, I think, to avoid a charge of elitism, we have to recognize that changing how we produce our food has to happen in concert with building a more just society. We need to think of ways to make people better able to afford better-produced food. And we can’t just focus on one facet of that story. We have to think holistically about that. And what that means is that this is an even bigger challenge of what already was a big challenge. But it’s also perhaps even more powerful and even more important.”

Let me first say that I have no doubts concerning Dr. Specht’s knowledge concerning the history of beef in the US. If it’s like the rest of his Gastropod interview, I look forward to reading his book and I suspect that it is stellar. But the above quote has nothing to do with history and everything to do economics, public choice, and political economy. The above quote is why I can’t take seriously many people’s claims about what the ‘good’ is and how to achieve it.

  1. Any regulation or legislation that introduces additional requirements for beef producers will, almost certainly, increase production costs. I’m not sure what a ‘just society’ means to Dr. Specht, but I’m sure that it’s not an objective thing (knowable or not) that aids in analysis.
  2. We need to think of ways to make people better able to afford better-produced food.” Luckily *we* don’t need to think of that. We don’t have the local knowledge of the beef market, nor the potential markets that beef-processing laborers face as alternatives (it’s different for everyone). The age-old, classical econ answer for improving people’s real incomes is to increase their productivity. Even if the labor supply for beef processing is perfectly elastic, and all increases in productivity accrue to the firm, the result of constant wages is a *partial* equilibrium conclusion. In general equilibrium, beef processing skills are probably partial substitutes for some other labor activity. This means that skilled employees can move to other sectors, employers, and industries. *We* don’t have much say aside from policy that makes productive innovation and skill accumulation easier.

Dr. Specht makes the problem out to be worse than it is and the solution to be more difficult than it is. We don’t need to reform an entire social and economic system. We don’t need a new political system that somehow, against all incentives, reflects compassion for beef processing laborers. That’s more than government can achieve.

Government *can* get out of the way. It can ease pathways to working legally in the US, which would reduce the labor abuses in which beef firms can indulge. Legal employment alternatives increases the opportunity cost of laborers. Government can stop subsidizing cattle hydration through water subsidies to ranchers. Reducing the number of cattle, and demand for meat processing laborers would cause fewer of these workers to be employed in what many consider an unpleasant job. With perfectly elastic labor supply, there is no decrease in wages. In general equilibrium, the decline in wages is small if there are many other firms that would demand the unemployed manual labor.  Further, the decline in the quantity of beef produced would make the marginal carcasses more valuable. Employers will likely desire more skilled and better-compensated labor to carve the more valuable inputs. Importantly, the better compensation comes, not from a re-orientation of societal values, rather, from the higher opportunity cost enjoyed by labor that is more skilled.

But removing subsidies and permitting more foreign-born workers aren’t the reforms that are proposed by the likes of do-gooders. Do-gooders want to feel responsible for their good. It’s not enough for them to get out of the way – no one receives praise for permitting others to engage in hard work. Typically, it’s the hard-workers who get that credit. Do-gooders mistake proactivity with good intentions. The result is a desire to employ government in activities that are doomed to failure due to imperfect design and adverse incentives. The incentives provided by markets are inadequate – not for firms, but for the people who desire a prominent role as caring managers.

Affording a second child

I have been reading Matt Yglesias’s book. I’m going to quote his podcast with Tyler here:

I also think that a lot of the way society is structured disincentivizes educated professional people from having a second or third child, even though it’s not that the objective financial cost of doing it is so high.
But you think about Democratic Party micro-targeting of everything. They’ll say, “Well, okay. If this little extra boost will help lift some people over the poverty line, we should do that. But if you’re making $140,000 a year, you don’t ‘need’ help with your childcare costs.” That’s how the people in the think tanks think.

Matt Y

On the margin, people who don’t live in poverty still feel financial pressure. They still worry about whether they can “afford” more children.

The following Facebook post stood out to me yesterday. I went to high school with this woman (call her Rachel). She teaches at a public elementary school in New Jersey. She is married with one daughter.

It sounds like Rachel wants another child, a sibling for her daughter. As a working mom, I can sympathize with her desire to not quit her job.

More answers from her peers include “I’ve been also looking for this answer. Anyone I know who has had more than one, one usually stays home and the partner works. I don’t know how people do it!” and “I have to say this month has been TERRIBLE! Paying $250 a month for my baby at daycare and then having my oldest there a few days a week bc my in-laws can’t handle zoom 😳 I’m literally working for health benefits.”

This response is probably from someone who is one stage of life ahead of Rachel, “It was hard but we lived off one salary till the kids were 5 years old. We didn’t go out or do much at all. Cost of daycare for twins was insane. Once they were in school most of the day I got my job…”

Matt Yglesias wants Rachel to have another child, and a third if she wants a “big family”. That’s not how we get to one billion Americans, it’s simply how we avoid population shrinkage.

I’ll probably deal with more of Matt’s ideas in future posts. Even if you disagree with all his policy recommendations, it’s a great book to get you thinking.

I did some quick Googling and it seems like Rachel’s job pays over $40,000 per year. It wouldn’t be crazy to assume that Rachel’s household income is “6 figures”. If their daughter is currently in daycare and they have a second child who needs daycare, then they could be looking at a daycare bill over $20,000 per year during the crunch time. That crunch time wouldn’t last very long, BUT that is a daunting bill to pay when you are also paying for rent and diapers and don’t want to eat beans every day. New Jersey has relatively high property taxes, rents, and daycare costs.

Abraham and Kearney on the Decline in Employment

Katherine Abraham and Melissa Kearney just published
“Explaining the Decline in the US Employment-to-Population Ratio: A Review of the Evidence” in the Journal of Economic Literature.

The unemployment rate measures people who are actively looking for work and can’t find a job. The authors are not examining short term fluctuations in unemployment (which shot up in pandemic times). They are looking at at long term decline in employment rates of working-age adults in the US. The trend began in 1999. Employment of adults in the US dipped after the Great Recession and still has not recovered a decade later. Less-educated males have experienced the largest drop in employment.

I’m reviewing the entire paper with my Labor Economics class. Most of what the authors talk about can be found throughout our Labor Econ. textbook, but I like using the paper to organize and motivate the collection of facts and theories.

Here’s a summary of their thorough examination of possible causes of the decline in working.

They estimate, drawing on other empirical work, that two factors have a considerable and measurable impact on the decline in formal employment. Import competition from China (the US changed their position on trade with China in 2000) and automation (industrial robots) both result in lower demand for US workers.

There are three contributing forces that the authors declare them to be minor casual factors. Increased receipt of disability benefits disincentivizes working, higher minimum wages results in less jobs, and the increased incarceration rate in the past few decades takes adults out of the labor force.

The paper is called “A Review of the Evidence”. The following is a list of factors that could in theory be responsible for the decline for working but for which data is scarce:
Lack of child care
Changes in leisure options (i.e. young men play video games)
Changes in social norms (i.e. young people can stay “in the basement”)
Increased use of opioids (could be a result of diminished job opportunities)
Rise in occupational licensing
Frictions or matching issues

All of those indeterminate items represent research opportunities.

Can I Borrow Your Reference Point?

That is the title of a blog I wrote for a new publication Works in Progress.

I summarize an article I published in 2020 and relate it to the current polarized political environment, which is not an extension I made as explicitly in the article.

We often talk of a moral obligation to sympathize with others and “walk a mile in his/her shoes”. We do not often “walk a mile” in the shoes of our neighbors just to be nice, and we can’t even do it for money. In a lab experiment, I put people in an environment where they could earn money for accurately guessing what others did. I found that people tend to transfer their own reference point on to other people, which causes them to make bad predictions.

There is more at the blog. I end with a conclusion that some might say is too optimistic or too generous to the opposing side:

If people of opposing political persuasions spent more time learning each other’s life stories, then we would end up with a less toxic climate.

How Much Money Is There?

It is not straightforward to define what “money” is in a modern national economy. Simply tallying the amount of coins and paper currency is inadequate. Most buying and selling is now done by shifting numbers between abstract bank accounts, not by pushing a bundle of bills across a table.  Thus, these bank accounts serve the functions of money (medium of exchange and store of value). The question then arises as to which of these financial accounts to regard as money.

Among financial assets, there is a broad spectrum of liquidity. Typically you can write a check on your checking account which, when it clears, provides immediate and final settlement for a purchase.  On the other hand, if you want to tap your brokerage account with its holdings of Apple stock to buy a television, you would typically have to sell (liquidate) your stock. A third party would have to be willing to give you something more money-like (e.g. credit your money market fund at your brokerage) in exchange for the stock at some negotiated price. Then you might have to transfer the funds from your brokerage fund into your bank checking account before you can actually buy that TV.  Because of all these intermediate steps, and the fluctuating value of the stock before you complete the sale, the stock holding would not be counted as “money”, even though its value enabled you to ultimately make your purchase.

There are a number of measures of money in modern economies. In the U.S. some of these are:

M0: The total of all physical currency (coins and paper bills).

MB (“Monetary Base”): The total of all physical currency (coins and bill) plus Federal Reserve  Deposits (special deposits that only banks can have at the Fed). This is money essentially created by the government plus the Federal Reserve, which does not necessarily enter the private economy to be spent.

M1: Physical currency circulating outside of the Fed and private banking system, plus the amount of demand deposits, travelers’ checks and other checkable deposits. This is highly “liquid” money, i.e. accepted and used for transactions in the private economy.

M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000). The funds in these additional savings and money market accounts can in general be easily transferred to checkable accounts, and thus could go towards making purchases if desired.

MZM: “Money Zero Maturity” is one of the most popular aggregates in use by the Fed because its velocity has historically been the most accurate predictor of inflation. It is M2 – time deposits + institutional money market funds.

Below is a chart showing the growth in the U.S. in the past fifteen years of M0 (total currency, labeled “currency in circulation), MB, M1, and M2. The grayed areas are recessions, i.e. 2008-2009 and the present.  [1]

Various Measures of “Money” in the U.S.

The M1 money supply (green line) was about $1.4 trillion ( $1,400 billion on the chart) in 2005, was fairly steady for several years, then started a steady ramp up to $4 trillion by January, 2020. Due to the extraordinary events associated with the Covid-19 shutdown (government stimulus package plus Fed purchases of securities), M1 jumped up to $ 5.4 trillion by August of this year. M2 followed similar trends, though on a much larger scale, rising to$18.3 trillion this year. This compares to a current U. S. total GDP of about $21 trillion.

The lowest line on the chart is the physical currency (blue line), which has grown slowly but steadily. The “Total MB” (red) line, was essentially on top of the blue line up until the 2008-2009 recession. Since MB = physical currency plus reserves, this meant that the amount of money in the reserve balances at the Fed of the private banks was nearly zero before 2008. The reserves jumped up (difference between the red and blue lines) in 2009, with the onset of massive purchases of securities by the Fed (“quantitative easing”). The Fed buys these securities from the banks, and credits their reserve accounts. The Fed has tried to taper down its holdings in recent years (red line declining 2015-2019), but suddenly purchased trillions more this spring (red line jumping up in 2020).  Most pundits hold that all this Fed money injected into the financial system has been the major cause of the enormous rise in stock prices in the past decade, especially in the past six months.

[1] Chart produced on the St. Louis Fed “FRED” site, https://fred.stlouisfed.org/categories/24 . This site has a wealth of economic data. Unfortunately, it is not easy to change units, so I was stuck with “billions” instead of “trillions” for the axis labels. Also, the M0 and MB numbers were only available in “millions”, so I had to divide those numbers by 1000 to get them to fit on the plot with M1 and M2. The grayed out spots on the graph labels is where I blotted out the “ /1000 ” which the plotting software put in. It would have been cleaner, in retrospect, to have exported the data to Excel and replotted it there.

Thoughts from the 55 hour non-stop ESA Conference

I am a long-time member of the Economic Science Association, if someone my age can be a long-time member of anything. This is an excellent group of people. The leadership team designed a virtual replacement for what would have been an annual in-person conference.

The first time I saw the schedule it seemed epic. The schedule runs for 55 continuous hours. There is an Asia-Pacific period, which from my perspective in the US starts at night and goes “late”. I would stay up to tune into some of those events. The European time period was during the very early morning in the US. People were given a presentation slot that occurred as a good time of “day” for them.

Here’s a tweet quote to demonstrate the dedication to helping us all keep track of what was going on:
Another #2020ESAGlobal Conference Hang-out. For 2 hours at 6am L.A., 9am New York, 3pm Paris, 9pm Bejing, 11pm Melbourne.

The willingness to think outside the box and take advantage of the virtual format impressed me. It seemed like there were trying to make everyone in the world feel included.

Virtual conferences are not the same as in-person. I prefer in-person conferences and I will return to in-person experiences when I can.

There are advantages to virtual conferences. I’m not the first person to notice this, nor am I the first person to wonder if there will be more virtual conferences after the pandemic has completely subsided.

Working parents face certain costs and benefits to leaving for a conference. Working parents enter a totally different world when they fly away from their domestic responsibilities and attend an in-person conference. The flying is expensive and the domestic responsibilities have to be taken over by someone. Nothing if free. The benefit is that the working parent has an opportunity to focus on their profession which I consider to be valuable.


In a special social session, I had a chance to hear Ryan Oprea talking. I’m going to make a plug here for all of his work. He’s incredibly smart and dedicated to his craft. He’s generous with good ideas and practical help. Maybe you haven’t heard of him if you are Very Online, because instead of tweeting out hot takes he’s writing enduring research papers and doing professional service.

Money as a Social Construct

Wikipedia offers the following definition of “money”:

Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context or country. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value.

To illustrate why all advanced societies use money, let us consider a village which operates on a barter system. (Many primitive cultures probably operated on a basis of mutual gifting rather than strict barter, but that does not affect the point at hand). Suppose the baker has produced two loaves of bread that will go stale in a day, so they would be best sold today. The baker would like a pair of sandals from the cobbler. They agree this is a fair trade, but the cobbler is backed up and will not be able to make the sandals for a couple of days. Thus, they cannot immediately make a swap. For this mutually advantageous transaction to proceed, the cobbler must agree to the obligation to deliver something (namely, a pair of sandals) in the future, in return for the loaves of bread today. The baker must believe that the cobbler will deliver on his promise.

Here we see the importance of credit and debt, which depend on mutual trust, to enable transactions where there is a time lag between the actions of the two parties. The cobbler’s promise may just be a verbal agreement, but now suppose the cobbler writes down on a piece of paper, “The holder of this certificate is entitled to one pair of sandals from me, the village cobbler,” and gives this to the baker. Now this piece of paper is nearly the equivalent of a pair of sandals in value. It has become a store of value. If the baker later decided that he would rather have some candles instead of the sandals, he might be able to exchange this certificate for the candles. Thus, this piece of paper, which started as a statement of a debt between two individuals, would serve the function of money. (In fact, such “bills of exchange” issued by merchants were an important form of money in late medieval Europe).

It would be even cleaner if the baker could simply sell the bread to the cobbler for something that functioned in that village as “money”, such as silver coins. The baker could then use some of the coins to either buy shoes or buy something else, either now or later.  In this case, the coins operate as a convenient medium of exchange and also as a store of value. Both functions enormously aid financial transactions, which is a reason that money is so ubiquitous. Money also facilitates taxation by central governments, so governments have an incentive to put a monetary system in place.

In Money We Trust

For this system of money to work, the key players all have to believe in the value of the silver coins. Thus, money is a mainly social construct, an article of mutual faith.

With the rise of banking in the Renaissance, banks issued paper certificates which were exchangeable for gold. For daily transactions, the public found it more convenient to handle these bank notes than the gold pieces themselves, and so these notes were used as money. People generally trusted that the banks actually did have the gold in their vaults; if people lost confidence in the bank notes, they would all come at once to demand their gold in a “run” on the bank, which usually did not end well.

In the late nineteenth and early twentieth centuries, leading paper currencies like the British pound and the U.S. dollar were theoretically backed by gold; one could turn in a dollar and convert it to the precious metal. Most countries dropped the convertibility to gold during the Great Depression of the 1930’s, so their currencies became entirely “fiat” money, not tied to any physical commodity. For the U.S. dollar, there was limited convertibility to gold after World War II as part of the Bretton Woods system of international currencies, but even that convertibility ended in 1971.

Many older Americans and Europeans have a gut feeling that gold is “real” money. Its main advantage over fiat currencies is that there is only a limited world-wide amount of it, so it cannot be multiplied at the whim of some government or market force. However, even gold is just a shiny yellow metal whose value is whatever people believe it to be.

Money and Social Order

There are “preppers” who hoard gold coins, expecting that in the apocalypse they will be able to purchase goods with gold. But who knows how many gold coins it would take, in such a scenario, to buy a can of beans? Or if you show up in town flaunting gold coins, how long before the local warlord’s gang comes calling at your doomstead? I suspect in such a scenario society would revert back to using “commodity money”, using items with real alternative value, such as AA batteries, food items, or ammo.  In the 1700’s frontier, beaver pelts, which had intrinsic value, were used as a common denominator for pricing and exchange.

If people lose faith in the value of some form of non-commodity money, it will in fact become valueless. For instance, during the American Civil War of 1861-1865 both the North and the South issued paper currency to fund their military efforts, since neither side had enough gold to pay their soldiers and suppliers of military goods. These were both fiat currencies, not at the time redeemable in gold.  The North retained its government and a strong economy, and only a portion of its money stock was paper, so it experienced only moderate inflation. However, towards the end of the war, with excessive printing and with defeat of the Southern Confederacy in sight, the Confederate dollar lost nearly all its value. People no longer wanted to accept Confederate dollars in exchange for real goods, since they (rightly) feared that they would be unable to exchange the “greybacks” for the same amount of real goods in the future.

As long as a given government remains in power and does not issue crazy amounts of money (as in post WWI Germany or recent Zimbabwe), or some catastrophe does not strike, fiat currencies tend to remain in use. The value of fiat money derives in part from a government declaring that it must be accepted as a form of payment (“legal tender”) within that country, for “all debts, public and private”. The government typically requires that its citizens come up with some amount of its currency to pay their taxes, so that automatically creates some level of domestic demand for the currency.

Today, most “money” is not even tangible printed bills, but is in the form of digital entries in accounts “somewhere”. Nearly all of my life savings exists in the form of investments in stocks or bonds of corporate entities, which are held in accounts that I only ever access from my computer. I rely on on-going functional, reasonably honest government to enforce rules on the stewardship of those funds at multiple levels. So I am betting everything on the supposition that law and order prevail.

Bento Lunchbox Centerfold

The magazine version of school lunches is like the magazine version of humans. It’s unbelievable. My header image for this post is a picture I took of a glossy centerfold in Parents magazine.

I can’t stop looking at these bright colors and whimsical shapes. Are there parents who cut food into stars for their kids on a daily basis? As soon as women were told that we don’t have to physically measure up to supermodels, we immediately joined the bento lunch rat race. Check out this one from Instagram!

Personally, I am content to drool over the contrasting bright colors in the pictures of supermodel bento lunches and yet also never make them myself. I am new to the school lunch packing world. So far I have made PB&J on wheat every day. Take it or leave it, kid. Nothing smiles at my son when he opens his lunchbox.

As much as I refuse to join the bento beauty contest, I do like to pack fun sides in my son’s lunch. Fruit, cookies or pretzels add crunch. It was the cute unattainable pictures that inspired me to invest in this bento-style lunchbox.

That link will take you to the product on Amazon that I bought and really like. My 5 year old can navigate the snaps. It’s well made. You can take it apart and clean it easily. The extra compartments make it easy to add snacks that stay crisp.

The alternative is to send several items in zip lock plastic bags that mush around in a (semi-waterproof, maybe) zipper lunchbox. ‘When I was a boy’ (girl, actually) that’s what we had. I love NOT having that mess of moist flaccid baggies to deal with.

Econ Pop Up: Lunch boxes are qualitatively better than they used to be. Cell phones are obviously better than they used to be. This makes is difficult to accurately measure inflation. The US government tries. They track how prices of products change over time. Usually, products become a bit more expensive every year. We say that the real purchasing power of $100 declines with inflation. However, I’m glad that I live today. I’d rather have $100 to spend today on our better stuff than $100 to spend in 1994 when I was toting my soggy lunchbox to school.

Code Burst: Podcast on Coding Bootcamps

Journalist and researcher Henry Kronk has a podcast (link above) about a coding bootcamp aimed at the population in Appalachia that has seen their economic opportunities decline with the loss of many coal mining jobs.

The primary reason for recommending this podcast is that retraining the American workforce for tech jobs is huge news. If it only takes 3 months of classes to turn any unemployed ex-miner into a highly-paid computer programmer, then let’s fund the heck out of coding bootcamps. The bootcamp that is the subject of this podcast did benefit from some public funding. Unfortunately, the teachers did not deliver everything that they promised to their student or to the US government.

Code Burst introduces the listener to a fascinating cast of real characters. I have been studying aggregate statistics on this topic for years, but I learned a lot from these anecdotes. If programming sounds boring but you liked the podcast S-Town, then I would encourage you to check out Henry Kronk’s work. There is intrigue and drama to go along with discussions of whether Ruby on Rails is superior to Java for web programming.

Unlike this bootcamp for miners, some of the other bootcamps that appear to have the best outcomes for students carefully screen the people they are willing to take on. There is some value added to the intense training provided for students who already have significant coding skills, but it would be incorrect to assume that any American chosen at random would benefit from the same training.

Students who appear to benefit from coding bootcamps:

  • often had some high level skills before they started, which could include programming experience
  • usually work extremely hard for very long hours, meaning that they forgo opportunities to make money or advance in another career during the period of the bootcamp

I’ll end with the description from the podcast:

In the practice of coal mining, there’s something known as rock burst. It happens in deep mines and tunnels around the world. Deep drilling causes the rock to shift and buckle. Shards can unexpectedly burst from the tunnel walls, injuring or killing miners.

Code Burst is a story about a violent, unexpected shift in the structure of the global economy. It involves the growing skills gap, the growing tech industry, the growing obsolescence of higher education, and one married couple who either tried to make a difference, or tried to make a buck. This is a story about trust.

New Blog: Via Egnatia

My friend Dr. Alex Salter started a blog a month before I did. We are almost blog twins. His blog, which has multiple contributors, is Via Egnatia. You know it’s going to be good when the name is in Latin and immediately sends you to Google a fascinating ancient road.

These posts are deep. The modern mind (I’m thinking of you, dear reader, and myself) likes to go deep but not for too long. Thus, a blog post is the perfect size.

Liberal Economics? is Alex’s first post. Alex has articulated what the opposition thinks:

Perhaps a well-rounded education contains a bit of economics, as a concession to the distasteful reality of our calculating, commercial society.

Alex’s summary of what many people think about economics classes

I believe that my students can incorporate the economics they learn in our department with the “great books” they read as Freshman at Samford. Economics makes a student more well-rounded. Commercial society is not distasteful. You don’t have to take my word for it. Alex is going to convince you, one blog post at a time.

I will be posting in the future about the elective course I teach in which students will study The Grapes of Wrath alongside Tyler Cowen alongside a mainstream economics textbook.