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Killing the worlds’ poor through good intentions

This sort of stuff makes me very, very angry.

Kerry Howley, writing at Reason, does an interview with Robert Paarlberg:

In May 2002, in the midst of a severe food shortage in sub-Saharan Africa, the government of Zimbabwe turned away 10,000 tons of corn from the World Food Program (WFP). The WFP then diverted the food to other countries, including Zambia, where 2.5 million people were in need. The Zambian government locked away the corn, banned its distribution, and stopped another shipment on its way to the country. “Simply because my people are hungry,” President Levy Mwanawasa later said, “is no justification to give them poison.”

The corn came from farms in the United States, where most corn produced—and consumed—comes from seeds that have been engineered to resist some pests, and thus qualifies as genetically modified. Throughout the 90s, genetically modified foods were seen as holding promise for the farmers of Africa, so long as multinationals would invest in developing superior African crops rather than extend the technology only to the rich. When Zambia and Zimbabwe turned away food aid, simmering controversy over the crops themselves brimmed over and seeped into almost every African state. Cast as toxic to humans, destructive to the environment, and part of a corporate plot to immiserate the poor, cutting edge farming technology is most feared where it is most needed. As Robert Paarlberg notes in his new book, Starved for Science: How Biotechnology is Being Kept Out of Africa (Harvard University Press), in 2004 the Sudanese government “took time out from its genocidal suppression of a rebellion in Darfur to issue a memorandum requiring that all food aid brought into the country should be certified as free of any GM ingredients.”

Starved for Science includes forwards by both Jimmy Carter and Norman Borlaug, the architect of Asia’s Green Revolution and the man credited with saving more human lives than anyone else in history. Paarlberg, a Professor of Political Science at Wellesley and a specialist in agricultural policy, wants the West to help small African farmers obtain promising technologies just as it helped Asia discover biological breakthroughs in the 60s and 70s. Instead, he says, a coalition of European governments and African elites are promoting a Western vision of rustic, low-productivity labor.

Do read the entire thing. Megan McArdle offers her comment here:

My understanding at the time was that this was even worse than ignorance: Africans keep out relief grain because they know that farmers will hold some of it for seed. They were afraid that if GM entered the food chain, they would that never, ever be able to export any plant products to Europe because of their stringent regulations (these have, I believe, been somewhat relaxed). So even if the president of Zambia knew GM was harmless, he couldn’t risk permanently impairing his country’s economic future.

In fact, let me quote some more from Howley’s interview with Paarlsberg:

reason: Can you give us a sense of what an average African farmer in, say, Zambia, is currently working with?

Paarlberg: It would be a woman and her children primarily, and they would plant not a hybrid maize, but a traditional openly pollinated variety, and they would time the preparation of the soil and planting as best they could for when they thought the rains would come. But the rains might not come in time, or they might be too heavy and wash the seeds out of the ground. It’s a risky endeavor. They can’t afford fertilizer, and it’s too risky to use fertilizer because in a drought the maize would shrivel up and the fertilizer would be wasted. They don’t have any irrigation. As a consequence, even in a good year their yields per hectare will be only about one third as high as in Asian countries, 1/10 as high as in the United States.

reason: Just as it used to be in Asia.

Paarlberg: Everywhere!

reason: No African government other than South Africa’s has made it legal to plant GMOs. You call this “out of character” for the same governments.

Paarlberg: They have not yet enacted the law, set up the biosafety committee, and granted approval, which is the laborious process that [the United Nations Environmental Program] and the European governments have coached them into adopting.

It’s interesting. In no other area are governments in Africa particularly concerned about hypothetical environmental risks. They know better than to invoke the precautionary principle when it comes to unsafe food in open air markets. They know that they need to first get rid of actual food shortages and raise income; then and only then can they afford to impose the same extremely high standards of food safety on open air markets that are imposed on supermarkets in Europe. Yet curiously when it comes to GMOs they adopt the highly precautionary European standard, which makes it impossible to put these products on the market at all. I take that as evidence that this is not an authentic African response, it’s a response imported from Europe.

reason: So the romanticization of bucolic farm landscapes unmarred by scientific advance has an American and European pedigree.

Paarlberg: It’s not what we do at home—only two percent of agricultural products in the US are organically grown. And many of those that are organically grown are grown on industrial scale organic farms in California that don’t bear any resemblance to small bucolic farms. But it’s the image we promote in our new cultural narrative. It’s something that affects the way we give foreign assistance.

reason: Many of the anti-agricultural science gurus you mention in your book have a spiritual dimension. Can you talk a bit about Sylvester Graham?

Paarlberg: Sylvester Graham, the father of the modern graham cracker, was opposed to the modern flour milling industry. He didn’t like the industrialization of bread production, and he wanted women to go back to grinding flour. He was a religious man, a minister, and he had all of the narrow minded prejudices we might associate with a New England clergyman from the 19th century. He thought that women should stay in the home, he believed people should be vegetarians because that would keep their sexual appetite back. We sometimes forget what goes along with the food purist zealotry. It’s often zealotry about more than just a certain kind of food to eat.

In Zambia today there are expatriate Jesuits from the United States who have come to believe genetic engineering is against God’s teaching, though this is not a belief that is embraced by the Vatican. They believe that all living things, including plants, have a right not to have their genetic makeup modified. Of course we have been modifying the genetic makeup of plants ever since we domesticated them 10,000 years ago, but these particular fathers are focused only on genetic engineering.

reason: Isn’t it paternalistic to blame Europeans for the decisions of African governments? Is this something African elites are at least as complicit in?

Paarlberg: It’s a codependency. The African elites depend upon Europe for financial assistance, they depend upon European export markets, they depend on NGOs for technical assistance, it’s just easier for them to follow the European lead than to go against that lead. And to some extent the European governments depend upon having dependents in Africa that will, despite the difficult experience of colonization, continue to imitate and validate and honor European culture and taste.

reason: What exactly have European NGOs done to discourage productivity in farming? You quote Doug Parr, a chemist at Greenpeace, arguing that the de facto organic status of farms in Africa is an opportunity to lock in organic farming, since African farmers have yet to advance beyond that.

Paarlberg: Some of it is well intentioned. The organic farming movement believes this is an appropriate corrective to the chemical intensive farming that they see in Europe. In Europe, where prosperous consumers are willing to pay a premium for organic products, it sometimes makes sense to use a more costly production process. So they think, “Well it’s the wave of the future here in Europe, so it should be the future in Africa as well.”

So they tell Africans who don’t use enough fertilizer that instead of using more they should go to zero and certify themselves as organic. That’s probably the most damaging influence — discouraging Africans from using enough fertilizer to restore the nutrients they mine out of their soil. They classify African farmers as either certified organic, or de facto organic. Indeed, many are de facto organic. And their goal is not to increase the productivity of the organic farmers, but to certify them as organic.

I just find that to be lacking in moral clarity.

Are US policy-makers panicking?

With respect to fiscal policy, I suspect that the stimulus package will help, but believe - like every other political cynic - that the package is being undertaken principally so that candidates in this year’s congressional, senate and presidential elections can be seen to be acting.  I am not at all surprised that debate over the precise structure of the package never really rose above the blogosphere, since although that is of enormous significance in how effective it will be, it is of near utter insignificance from the point of view of being seen to act.  I find myself agreeing both with Paul Krugman, who points out that only a third of the money will go to people likely to be liquidity-constrained and with Megan McArdle, who (here, here, here, here and here) argues that if you’re going to give aid to the poor of America, doing it via food stamps is, to say the least, less than ideal.

On the topic of monetary policy, I will prefix my thoughts with the following four points:

  • The decision makers at the US Federal Reserve are almost certainly smarter than I am (or, indeed, my audience is)
  • They certainly have more experience than I do
  • They certainly put more effort into thinking about this stuff than I do
  • They certainly have access to more timely and higher quality data than I do

As I see it, there are three different concerns:  whether (and if so, how) monetary policy can help in this scenario; whether the Fed’s actions come with added risks; and whether the timing of the Fed’s actions were appropriate.

First up, we have concerns over whether monetary policy will have any positive effect at all.  Paul Krugman (U. Princeton) worries:

Here’s what normally happens in a recession: the Fed cuts rates, housing demand picks up, and the economy recovers.  But this time the source of the economy’s problems is a bursting housing bubble. Home prices are still way out of line with fundamentals … how much can the Fed really do to help the economy?

By way of arguing for a a fiscal package, Robert Reich (U.C. Berkley) has a related concern:

[A] Fed rate cut won’t stimulate the economy. That’s because lending institutions, fearing their portfolios are far riskier than they assumed several months ago, won’t lend lots more just because the Fed lowers interest rates. Average consumers are already so deep in debt — record levels of mortgage debt, bank debt, and credit-card debt — they can’t borrow much more, anyway.

Menzie Chinn (U. Wisconsin) looks at these and other worries by going back to the textbook channels through which monetary policy works, concluding:

In answer to the question of which sector can fulfill the role previously filled by housing, I would say the only candidate is net exports. The decline in the Fed Funds rate has led to a depreciation of the dollar. In the future, net exports will be higher than they otherwise would be. However, the behavior of net exports, unlike other components of aggregate demand, depends substantially on what happens in other economies. If policy rates decline in the UK, the euro area, and elsewhere, additional declines of the dollar might not occur. (And as I’ve pointed out before, if rest-of-world GDP growth declines (as seems likely [2]), then net exports might decline even with a weakened dollar).

I think the main point is that the decreases in interest rates, working through the traditional channels, will have a positive impact on components of aggregate demand. With respect to the credit view channels, the impact on lending is going to be quite muted, I think, given the supply of credit is likely to be limited. In fact, I suspect monetary policy will only be mitigating the negative effects of slowing growth and a reduction of perceived asset values working their way through the system.

James Hamilton (U.C. San Diego) is more sanguine, arguing that:

[I]t is hard to imagine that the latest actions by the Fed would fail to have a stimulatory effect.

[A]lthough interest rates respond immediately to the anticipation of any change from the Fed, it takes a considerable amount of time for this to show up in something like new home sales, due to the substantial time lags involved for most people’s home-purchasing decisions … According to the historical correlations, we would expect the biggest effects of the January interest rate cuts to show up in home sales this April.

[The scale of any effect is unknown, though.] Tightening lending standards rather than the interest rate have in my opinion been the biggest explanation for why home sales continued to deteriorate after January 2007 … The effect of rising unemployment and expectations of falling house prices on housing demand is another big and potentially very important unknown.

Going further, Martin Wolf at the FT worries that the Fed may be doing too much, that they the recent cuts in interest rates may serve only to renew or exacerbate the problems that caused the current crisis in the first place.

[P]essimists argue that the combination of declining asset prices (particularly house prices) with household overindebtedness and a fragile banking system means that monetary policy is, in the celebrated words of John Maynard Keynes, like “pushing on a string”. It may not be quite that bad. But, on its own, monetary policy will not act swiftly unless employed on a dramatic scale. The case for fiscal action looks strong.

Yet, in current US circumstances, monetary loosening should have some expansionary effects: it will encourage refinancing of home mortgages; it will weaken the exchange rate, thereby improving net exports; it will, above all, strengthen the health of banking institutions, by giving them cheap government loans.

This brings us to the biggest question: what are the risks? Unfortunately, they are large. One is indefinite continuation of an excessively low rate of US national saving. Others are a loss of confidence in the US currency and much higher inflation.Yet another is a further round of the very asset bubbles and credit expansion that created the present crisis. After all, the financial fragility used to justify current Fed actions is, in large part, the direct result of past Fed efforts at the risk management Mr Mishkin extols.

Moreover, the risks are not just domestic. If the US authorities succeed in reigniting domestic demand, this is likely to reverse the decline in the current account deficit. It will surely reduce the pressure on other countries to change the exchange rate, fiscal, monetary and structural policies that have forced the US to absorb most of the rest of the world’s huge surplus savings.

I find it impossible to look at what the US is now trying to do without feeling severely torn. If it succeeds it will renew and, at worst, exacerbate the fragility, both domestic and international, that triggered the turmoil. If it fails, the US and, perhaps, much of the rest of the world could well suffer a prolonged period of economic weakness. This is hardly a pleasant choice. But that it is indeed the choice shows how weakened the world economy and particularly the financial system has become.

In reaction at the FT’s hosted blog, Christopher Carroll (Johns Hopkins U.) argues:

This situation provides a more than sufficient rationale for the Fed’s dramatic actions: Deflation combined with a debt crisis make a toxic combination, because as prices fall, real debt rises. This point was amply illustrated in Japan, where deflation amplified both the number of zombies and the degree of zombification (among the initial stock of the undead). It was also the basis of Irving Fisher’s theory of what made the Great Depression great, and has clear echoes in the macroeconomic literature on the “financial accelerator” pioneered by none other than Ben Bernanke (along with a few other authors who have pursued more respectable careers).

In this context, the risk of an extra year or two of an extra point or two of inflation (if the deflation jitters prove unwarranted and the subprime crisis proves transitory) seems a gamble well worth taking.

Martin Wolf then replied:

[W]hat the Bernanke Fed seems to be trying to halt (with enthusiastic assistance from Congress and the president) is a natural and necessary adjustment, as Ricardo Hausmann argued in the FT on January 31st. I agree that this adjustment must not be too brutal. I agree, too, that both a steep recession and deflation should be avoided. I agree, finally, that market adjustments must not be frozen, as happened in Japan. But I disagree that the US confronts a huge threat of deflation from which the Fed must rescue the economy at all costs. What I fear it is doing, instead, is bailing out the banking system and so trying to reignite the credit cycle, with the consequent dangers of a flight from the dollar, considerably higher inflation and much more bad lending ahead.

Which leaves us with the third concern, over the timing of the rate cuts.  The first of them, of 75 basis points, was the largest single cut in a quarter century.  The fact that it came from an out-of-schedule meeting makes it almost unprecedented.  When we add the fact that the world was in the middle of a broad share sell-off - exacerbated, it turns out, by the winding out of US$75 billion of bets by Societe General - it definitely has the appearance of a panicked decision.  Adding the 50bp cut eight days later made for an enormous 1.25 percentage point drop in rates in a fraction over a week.

So what’s my take?  Well …

1) The Fed is not as independent as central banks in other countries are.  Greg Mankiw may not like it, but the fact is that both Congress and the Whitehouse actively seek to influence monetary policy in the United States.  This photograph of Ben Bernanke (chairman of the US Federal Reserve), Christopher Dodd (chairman of the US senate’s banking committee) and Hank Paulson (US Treasury secretary) from mid-August 2007 is typical:

bernanke_dodd_paulson.jpg

As Martin Wolf noted at the time:

This showed Mr Bernanke as a performer in a political circus. Mr Dodd even announced Mr Bernanke’s policies: the latter had, said Mr Dodd, told him he would use “all the tools ” at his disposal to contain market turmoil and prevent it from damaging the economy. The Fed has its orders: save Main Street and rescue Wall Street.  Such panic-driven politicisation is almost certain to lead to both overreaction and the creation of bad precedents.

2) The Fed is mandated to keep both inflation and unemployment low.  By comparison, the other major central banks are only required to focus on inflation.  When they do look at unemployment, it plays lexicographic second fiddle to keeping inflation in check.  At the Fed, they are compelled to take unemployment into account at the same time as looking at inflation.

3) The banking and finance system is central to the real economy.  Without a ready supply of credit to worthy and profitable ventures, economic growth would slow dramatically, if not cease altogether.  Although it creates a clear moral hazard when bankers’ pay is not aligned with real economic outcomes, this - combined with the first two points - implies that the so-called “Bernanke put” is probably, to some extent, real.

4) The latest GDP numbers and IMF forecasts were released in between the two rate cuts.   I have nothing to back this up, but I wouldn’t be the least bit surprised to discover that the Fed gets (or got) a preview of those numbers.  Seeing that markets were already tanking, knowing that the reports would send them tumbling further, perhaps believing that they might already be in a recession, almost certainly fearing that the negative news, if released before the Fed had acted, might send risk premia skywards again and recognising that what they needed was a massive cut of at least 100bp, perhaps the Fed concluded that the best policy was to split the cut over two meeting, making a smaller but still unusually large cut before the reports were released to ensure that they didn’t trigger more credit-crunchiness and a second one after in notional “response.”

My point is this:  Which would seem more like a panicked response?  The way that things did pan out, or a global stock market melt-down that took several more days to settle, followed by the markets being hit with surprisingly negative reports from the IMF on the global economy and the BEA on the US economy, and then a 125 b.p. drop in a single sitting by the Fed?

From marriage to trade with China

In another great example of bouncing topics around in the often-academic blogs, we have this:

Betsey Stevenson and Justin Wolfers wrote an article for Cato Unbound: “Marriage and the Market“. Here is a brief summary of their idea (the exact snippet chosen is stolen directly from Arnold Kling):

So what drives modern marriage? We believe that the answer lies in a shift from the family as a forum for shared production, to shared consumption…the key today is consumption complementarities - activities that are not only enjoyable, but are more enjoyable when shared with a spouse. We call this new model of sharing our lives “hedonic marriage”.

…Hedonic marriage is different from productive marriage. In a world of specialization, the old adage was that “opposites attract,” and it made sense for husband and wife to have different interests in different spheres of life. Today, it is more important that we share similar values, enjoy similar activities, and find each other intellectually stimulating. Hedonic marriage leads people to be more likely to marry someone of their similar age, educational background, and even occupation. As likes are increasingly marrying likes, it isn’t surprising that we see increasing political pressure to expand marriage to same-sex couples.

…the high divorce rates among those marrying in the 1970s reflected a transition, as many married the right partner for the old specialization model of marriage, only to find that pairing hopelessly inadequate in the modern hedonic marriage.

It produced a flurry of responses and reactions, but the chain I want to follow is this one:

Which finally brings me to why I wrote this entry. I love this sentence from Tyler:

Symbolic goods usually have marginal values higher than their marginal costs of production; Americans for instance love the idea of their flags but the cloth is pretty cheap, especially if it comes from China.

Brilliant. :)

Are You Irony-Impaired?

Thanks to Megan McArdle, I was reminded of the wonderful magazine of Dr. Boli.  This entry jumped out at me right away:sarcast-o-meter-01.png

Organic food, standards and conspicuous consumption

There is a fantastic article up at the Financial Times by Bee Wilson, entitled “What makes a pig organic?“  It’s clearly part of a publicity push for her soon-to-be-published book, “Swindled:  From Poison Sweets to Counterfeit Coffee - The Dark History of the Food Cheats” (Foyles, Waterstones, Amazon), which was recently book-of-the-week on the BBC.  It starts with:

This is a tale of two pigs. The first - let’s call him Soren - is reared in Denmark. For the first few months of his life, he lives a cramped existence in a barn. This pink, flabby creature is castrated so that his meat won’t taste too strong. When at last he is allowed outside, his only freedom is a small concrete run. At a young age, he is killed and turned into bacon, using potassium nitrate and sodium nitrite. When you put slices of him in a pan, white watery liquid runs out.

The second - let’s call him Juan - was lucky enough to be born in the Iberian peninsula. He is sleek, black and hairless, a descendant of the original wild boar. Juan spends his life munching acorns among the oak trees. By the standards of animals destined for pork, he is allowed to live a long, calm life. He is only killed when he is 20 months, oldish for a pig, after which time his flesh is cured in sea salt until his fat turns to oleic acid, a fatty acid similar to that in olive oil. Juan is now jamón ibérico de bellota. When you eat slices of him, the salty flesh melts in your mouth.

It should be perfectly obvious which pig has led a better life and makes for better food. But there is one further crucial difference between the two. Because he has had only organic feed and has not suffered the worst indignities of factory farmed pigs - overcrowding and no access to outdoor space - Soren the Danish pig ends his life in a British supermarket labelled “organic”. Whereas Juan, for technical reasons, doesn’t qualify for the organic label.

… which is just a little bit sensationalist, but gets the point across.  A little later we start getting into the truth of the matter:

When you buy an organic egg you are not just buying the means to make an omelette, you are buying a dream. It is the dream of something delicious, which will simultaneously be good for your body and good for the hens and people who produced and packed it. It is the dream of being self-indulgent and virtuous at the same time - which essentially encapsulates the main yearning of our consumerist world. As Lynda Brown says: “Everybody wants an organic egg to come from a chicken that has led an idyllic life. But most people don’t actually want to pay for it.” The result is that when you look behind the dreamy label of much organic food - as with Soren the pig - you find it is not so very different from the industrial, compromised food you were trying to buy your way out of. The yolk is still pallid. The workers are still underpaid. The hens are still crowded - just a bit less than for conventionally farmed eggs.

In other words, buying organic is a form of conspicuous consumption.  How do we know that buying organic is a “dream of being self-indulgent and virtuous at the same time”?  Well, as Bee notes later on:

Take soy milk. In the Tesco longlife milk aisle, you can choose between: first, Tesco Calcium Enriched Soya Drink (at 63p a litre), your basic average soy milk; second, Tesco Organic Unsweetened Soya Drink (at 99p a litre), a premium-looking product with a price tag to match; and third, Tesco Value Unsweetened Soya Drink (60p a litre) with its no-frills packaging. Yet if you look at the small print, you will see that the Value soy milk is organic too. In other words, you are being offered a choice between spending 60p on organic soy milk that doesn’t appear to be organic or 39p more for the organic soy milk that loudly trumpets the fact. By paying that 39p, you are effectively admitting that organic food is simply an idea to you. It is an idea that says wealth and health (whereas “Value” is an idea that says poverty). This is the reductio ad absurdum of “organic” as a brand.

However morally-driven we might all pretend (and like) to be, people like Megan McArdle are a rarity.  For the vast majority of us, buying organic is a way of tickling our egos or showing off to our dinner-party guests.  If we actually end up easing the living conditions of the creatures we eat, that’s a largely unnecessary bonus, because it’s the label that counts.  This is not unique.  In a very real way, buying organic food is much the same as buying “fair trade” food.  We’re buying the highly-visible feel-good factor.  Don’t believe me?  Here’s another titbit of evidence.  Bee Wilson notes:

In the US, [t]he USDA allows many more nonorganic ingredients to be used in “organic” food than are permissible in the UK. Last year, there was outrage when the USDA certified Anheuser-Busch’s Wild Hop Lager, which included hops sprayed with pesticides and grown with chemical fertilisers, as an “organic” beer.

Wild Hop Lager does get lampooned, but not because they failed to make their product truely organic.  People bag it because it’s a bad beer.  Here are it’s reviews on RateBeer.com, BeerAdvocate.com and hop-talk.com.  Notice that none of them are rejecting it because of it’s judicious use of the word “organic.”  They’re rating it on the basis of what makes a good beer.  The closest we get is from the latter, saying:

Why is it awful…? Because once again a megabrewery is trying to make a product that looks like a craft brew, yet they are pouring their money into marketing it and not into making it.

… which is really saying nothing about the desirability of environmental sustainability or the avoidance of man-made chemicals.  If Anheuser-Busch produced a not-at-all organic beer that nevertheless tasted good this reviewer would be all over it.

A rose by any other name …

Today’s prize for amusing me goes to Megan McArdle for this beauty of a post:

Some freelance socialist not only stole my bike from in front of my house, but left the lock. The deliberate taunting seems highly unnecessary. 

Megan, if you read this, I feel your pain.