Friday, October 30, 2015

How Progressive is the Tax Code?

The federal tax code has been a big topic of discussion this election cycle. A lot of this discussion has been driven by the increased focus on income inequality. Whatever your views on this subject, I think it's useful to look at the way the tax burden is distributed across income groups. In this post, I'll present data from the Congressional Budget Office (CBO), which you can download here.

The charts below were created using three data series: market income, transfers, and federal taxes. Each series runs from 1979 to 2011 (unfortunately, 2011 is the most recent year for which this data is available) and is broken down into quintiles by market income. The top 1% is also split out into its own category. Every data point is a household average for the group. The data set linked above breaks the top quintile into a few more groups if you're interested in that.

Wednesday, October 28, 2015

Major Environmental Legislation and EPA Regulations

In my last post on EPA regulation of agriculture, I looked at the majority party in the House, Senate, and the party of the President from 1974 to 2014. Some of it lined up with what I think most people, including me, would assume (i.e. Democrat control means more regulation), but much of it didn't. I suspect part of this is a function of our short memories but a good portion of it could be the relative independence with which regulators operate. They don't necessarily need legislative mandates to change the regulatory environment. One other thing to keep in mind: the regulations in this index can apply to any aspect of agriculture. Regulatory restrictions on forestry, crop farming, ranching, concentrated animal feeding operations, and aquaculture are all included in this index.

In this post I want to show some major legislation and regulatory actions laid over the same 1974-2014 regulatory restrictions data. I don't know if the events I identify on the chart are the causes of subsequent increases in regulation. I picked most of these events off the EPA History website, so the agency itself believes they're significant. If and when I dig into the RegData data for a research project, I'll be able to tell a more interesting story.

The graph shows EPA regulatory restrictions on agriculture. Data were taken from the RegData Database at the Mercatus Center at George Mason University. The data are counts of restrictive words in the Code of Federal Regulations such as "cannot," "must," "shall," etc weighted by the probability that the particular Title and Part apply to agriculture. This time I converted the restrictions count into an index (something the Center recommends) in part to make it easier to see just how much regulatory growth the ag industry has experienced. In 2014, there was 492% more regulation on agriculture than there was in 1974.

Monday, October 26, 2015


Brent Gloy and David Widmar at Agricultural Economic Insights revisit the issue of declining farmland values and come to roughly the same conclusion they did earlier this year.
Farmland values and cash rents in the Corn belt continue to come under downward pressure. When current cash rents are compared to current farmland values, the outcome is a capitalization rate of around 3%. This value is reasonable given current longer term interest rates. However, the bigger question is whether cash rents can be sustained at current levels in this economic environment. 
When one considers the returns that would be generated by a farmland owner-operator relative to current farmland values the rate of return is very low. This means that farmland values and cash rents are likely too high to be justified given the current economics of crop production. This low rate of return can be addressed through farmland values and cash rental rates falling and/or the row crop income situation improving.
Jayson Lusk points to an interesting article that he says should be filed under "Unintended Consequences."
Researchers find that a ban on bottled water on the University of Vermont campus (presumably to cut down on waste) led to more plastic bottles being shipped to campus and to more soda consumption. 
Marian Tupy and Chelsea German at tackle Akerloff and Shiller's recent op-ed in the Washington post on the effects of markets on our well-being.

Arnold Kling provides some wisdom on proper critiques of economics. My favorite bit:
A bias toward “engineers” rather than “ecologists.” That distinction comes from Greg Ip’s new book, Foolproof. The engineer is like Adam Smith’s man of system, who ignores evolution, both as a factor that may permit markets to over come their own failures and as a factor that may cause government “solutions” to become obsolete.
Continuing this theme, Steve Forbes provides a critique of economic theory. I enjoyed reading the first page, but lost interest on the second.

Don Boudreaux points to Gene Epstein's response to some of Bill Gates' comments in an interview.

Friday, October 23, 2015

The Foreign Subsidies Database

If you've ever wanted information about agricultural subsidies in other countries, the Foreign Subsidies Database at Texas Tech is a great resource.

The page has several interactive features. One feature is the Subsidy Tables which are laid out in table form and includes information from Argentina, Australia, Brazil, Canada, China, Egypt, the 27 countries of the EU, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, Russia, South Africa, South Korea, Thailand, Turkey, Uzbekistan, Vietnam, and the West African countries.

The tables include information on direct support (price supports, direct payments, import quotas and tariffs, subsidies and export taxes), indirect support (state trading and ownership, investment assistance, and credit and transport subsidies), and statistics on the production, consumption, export, and import market share by country. Commodities listed in the database include corn, cotton, rice, sorghum, soybeans, sugar, and wheat.

The site also includes more detailed information in narrative form on the commodity support in the countries/areas listed above in the Searchable Database. Some of the data goes back several decades. For instance, here's a graph of Australian cotton production, consumption, imports, and exports:
If you're interested in the way other countries subsidize their ag industries, I suggest you check out this site.

Thursday, October 22, 2015

The Nirvana Approach in Ag Economics - Contributions of E.C. Pasour

Back in April I wrote about an article by Harold Demsetz that juxtaposes two types of economic analysis: the nirvana approach and the comparative institution approach. In his 1969 article entitled "Information and Efficiency: Another Viewpoint" in the Journal of Law and Economics, Demsetz defines these approaches:

The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing "imperfect" institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements. In practice, those who adopt the nirvana viewpoint seek to discover discrepancies between the ideal and the real and if discrepancies are found, they deduce that the real is inefficient. Users of the comparative institutional approach attempt to assess which alternative real institutional arrangement seems best able to cope with the economic problem; practitioners of this approach may use an ideal norm to provide standards from which divergences are assessed for all practical alternatives of interest and select as efficient that alternative which seems most likely to minimize the divergence.
In spite of Demsetz's critique, the nirvana approach is often used in economics to diagnose market failures; that is, failures of markets to live up to an ideal, theoretical norm. This is no less true in agricultural economics than it is in economics, but in both professions there are New Institutional and Public Choice economists who take Demsetz seriously.

Thursday, October 15, 2015


Jayson Lusk disputes the claim that local foods are good for the environment.

Helen Viet writes "An Economic History of Leftovers"

Angus Deaton's Nobel Prize
Pete Boettke's commentary

Peter Klein points to Deaton's critique of randomized control trials.

Jared Meyer discusses the effects of regulation on economic growth.

Bonnie Christian on regulating the gig economy

David Henderson comments on Sunstein's review of Akerloff and Shiller's book "Phishing for Phools."

Tuesday, October 13, 2015

Nobel Criticism and Agricultural Economics

This year's winner of the Prize in Economic Sciences in Memory of Alfred Nobel went to Princeton economist Angus Deaton. The internet was abuzz with commentary all day, so this post is a bit late.

I would wager that most ag economists who took PhD consumer demand after 1980 used "Economics and Consumer Behavior" by Angus Deaton and John Muellbauer in that course. For those of us who don't work in development, Deaton's work on the Almost Ideal Demand System was probably our introduction to him. The blog posts I read today (here, here, here, and here) brought me up to speed on his tremendous contributions and I certainly recommend reading them.

As the title suggests, I read another commentary on the Econ Nobel that was notable for its negativity toward the prize and (at least the author seems to think) to economics in general. The article, written by anthropologist Joris Luyendijk, excoriates the Sveriges Riksbank (the Swedish central bank behind the Econ Nobel and its $1 million cash prize) for failing to present the award to social scientists in different fields, and the economics profession in general for its inability to live up to its claimed status as a science.

Certainly there's a lot packed into the article, but I just want to respond to a few things. First, no one is stopping any organization interested in sociology, anthropology, or political science from establishing an annual prize for contributions to those fields.

Sunday, October 11, 2015

Video Series Highlights the Importance of Agriculture

An interesting YouTube series entitled "How to Make Everything" has recently made the rounds in the media. The big story was about Andy George's experience making a chicken sandwich literally almost from scratch. He spent 6 months and $1,500 to make the sandwich.

What struck me about his experiences was that they show the importance of agriculture in our everyday lives. In the sandwich and suit videos, George brings the viewer face to face with the production of wheat, vegetables, poultry, wool, and cotton necessary to feed and clothe us. We can hope that these videos pique the curiosity of viewers who don't know where their food and fiber come from.

These videos also highlight the immense complexity of our modern economy. They are real-world examples of the "I, Pencil" story. They can be economically instructive as well, as Arnold Kling notes in his post:
I just don’t think you capture the phenomenon of specialization and trade with textbook economic models. It is not two-by-two trade.
We owe our immense modern standard of living to the mechanization of agriculture and the specialization it has allowed. George's videos are well worth your time and could certainly be used in an introductory economics course.

Thursday, October 8, 2015

Tradeoffs Between Social Policy and Growth

Mark Thoma's recent Fiscal Times column seems to me to be heavy on politics and light on economic analysis. He sets out to convince the reader that there is no tradeoff between social insurance provided by the federal government and economic growth, but I think there are good reasons to doubt this notion.

Tuesday, October 6, 2015


Bob Murphy of the Texas Tech Free Market Institute goes through the recent literature on the minimum wage.
Bob concludes:
In the 1980s, there was a genuine consensus that a 10-percent hike in the minimum wage would reduce teenage employment by 1 to 3 percent. However, in the 1990s, various "case studies" began challenging this orthodox view, and more recent studies have generalized techniques to apparently find negligible employment effects. Many economists have used this new research to assure policymakers and the public to pay no heed to warnings about harmful job losses from even aggressive minimum wage hikes.
However, in reality, the employment effect of the minimum wage is still an open question even for modest hikes. Since the 1990s, scores of articles have found negative effects of minimum wage increases. These include "case studies," with one serving as the mirror image of the famous Card and Krueger study. Furthermore, critics have challenged the entire premise of the new techniques, which claim to construct better control groups than the traditional approaches.
Finally, even if we take the very best examples of the "new" results at face value, they provide little comfort that large hikes in the minimum wage—such as a doubling to $15 per hour—will have modest impacts. Policymakers and the public should be wary of the glib assurances of some prominent economists when they claim that such large hikes will not cause teenagers to lose their jobs. The odds are very high that they will.

Arnold Kling has some more thoughts on economic methods.

Two blogs I follow both posted on Instrumental Variables regressions on the same day (here and here). I pointed this out on Twitter and they both wrote responses (here and here). Interesting stuff, but certainly wonkish.

Some interesting commentary on globalization and poor cities in the US from Kevin Williamson.

Peter Klein (and Larry Summers) on behavioral economics as a re-statement of clever (but old and well-known) business practices.
From the article Peter points to:
Have behavioral economists really discovered anything new, or have they simply replaced some wrong-headed notions of post-World War II economics with insights that people in business have understood for decades and maybe even centuries?

Monday, October 5, 2015

Basic Textual Analysis of EPA Regulations

In the last post I showed the relationship between the majority party in the House, Senate, and Presidential office and EPA regulatory restrictions on agriculture from 1974 to 2014. As I noted there, the relationships aren't always clear and they definitely aren't what a "naive" understanding of the current political divide would predict. In this post I thought I'd take a step back and provide a more general summary of EPA regulations, without the focus on politics and agriculture.

The RegData 2.2 database provides highly detailed data on regulation at the federal level. Cutting it down to just EPA regulation yields 11,353 observations. Each observation gives a number of restrictions and word count for a given Part in a given Title in a given year in the Code of Federal Regulations. Titles are divided into Chapters, Subchapters, and Parts, but RegData doesn't split the data up by Chapter or Subchapter.

The Title designation basically tells you which agency you're looking at, though agencies like the EPA can be found in several Titles. The primary Title for the EPA is 40. Parts divide the Titles into subject areas. For instance, Title 40, Part 171 includes information about the certification of pesticide applicators. Part 406 details effluent guidelines for grain mills.

The chart below shows the number of Parts in Title 40 from 1974 to 2014. There are more than 3 times as many Parts now as there were in 1974. Most of the growth in Parts since 1974 occurred before the mid-1990s. If you look at my previous post, the number of parts generally tracks with the number of restrictions on agriculture. I don't know whether this is a coincidence or not.