A Quick Thought

Today someone asked how economic can be a field where the same data results in two totally different theories. The answer is that economic systems are ultimately based on individuals, and not all will act rationally and in their own self interest. In a perfect world, everyone would be a profit maximizer who did all of their actions to maximize benefit compared to cost, however that is not true for societies of millions upon millions of people. People become swayed by emotion, confuse short term and long term goals, and make decisions with the interests of others in mind. Since these actions are a part of human behavior, economic models must deal with such variables and there is a discord between the theoretical and the practical.

A Seedy Business Perhaps?

Browsing through the financial stories today I came across a particularly interesting storyi nvolving the largest US seed manufacturer, Monsanto. The United States DOJ is investigating whether their use of patented seed results in antitrust by having users controlled by the seed supplier. For example, the soybean crop in the United States uses 96% Monsanto seeds, so anyone wishing to produce the crop is pretty much reliant on a single supplier. This is called monopsony.

Monopsony is the same principle as a monopoly, but reflecting a single buyer(IE inelasticity in the supply curve) versus the single seller (inelasticity in the demand curve) of a monopoly. Frequently monopsonies arise from issue where government is the sole buyer, such as a universal healthcare system, research funding, and in analysis of labor markets for welfare economics. One example of a monospony would be the labor market in a small town with one major ocmpany, say a Wal-Mart or a mine, for instance. Since the single employer has no outside competition, since there is no store which can compete with the company becuase there is some economic factor preventing competition, the employer can charge below market wages since they have price-making power. This difference in wage at the the output level of the monopsonist is exploitation, since a free(completely competitive) economy would pay a worker W(higher) while the wage taker pays (W(monopsony). In other words, by controlling the ability to hire in a market, the monopsonist firm get more money out of each worker since they know the worker cannot easily leave the market.

If you want to read through an econometric research paper on the topic which reaches the conclusion that Wal-Mart is a monopsonist in rural areas and in the South, while having reducing monopsony power in areas where they facor labor criticisms and competition on the West Coast and Northeast, here it is courtesy of the University of Connecticut.

Cuba discovers profit

In a move over sixty years too late, the Cuban government has announced plans to allow farmers to cultivate unused land and sell as much as they can produce. The interesting thing is that it took so long and so much denial of history for the Cuban government to realize reducing output for agricultural goods makes them less profitable to sell when coupled with state-mandated price controls at or below costs. The same policies have been tried in Venezuela, the former USSR, and assorted other failed states. In the Soviet Union the agricultural policy killed nearly a million Ukrainians and led to the worst starvation in the history of Europe. Why would anyone continue such failed policies?

Perhaps the mindset from a third-world nation is such that they see that as more and more people are, sometimes forcibly, placed on formerly vacant land that the output will rise even if the price is set near cost. In the short term this might happen, but in the long term a decline happens because the productivity of farming decreases since the lack of a profit motive means that no investment is made to make the land more fertile. Add into this outright fraudulent agrarian scientific work and you end up with an unsustainable agricultural system.

Well what about the United States you ask? WE are on the other end of the spectrum in that this nation subsidizes food production to the point where a crop like corn is used in everything becuase it is so cheap to produce. In the US system of farm subsidies, over production becomes a bigger problem because the subsidies drop down the cost of production to a point below the completely competitive equilibrium, which results in overproduction of some crops and underproduction of others. To see an example of this phenomenon, look at all of the products containing corn bbyproducts. From sodas to batteries to plastics, this single grain exists in every consumer good at some point in the production process. Why? Because it is cheap and the subsidies that already existed for decades were supplemented by further subsidies for ethanol so corn was produced in even larger amounts.

In short, this is a simple economics lesson. Ceteri parabus, the more you subsidize a behavior or item, the more of it you get. The more you tax an item the less of it you get. This is true for most things, however in some instances the societal cost of reducing a tax may outweigh the benefit. These shall be discussed later.

the answer to healthcare, beg for it!

The joy of walking

On a completely different tnagent than this blog is normally on, I wish to convey the joy of walking. I never realized how great longs walks in the evening were until living in a hilly area with good weather. It really gives one time to relax and think at the end of each day. I highly recommend it

A great mystery of sorts

As I prepare in the coming weeks to get my first paycheck in about five years subject to a state income tax, I ask myself where the money goes. The state I am now living and working in is now bankrupt and the roads are terrible. I ask myself how a state of over thirty million people can have roads that are in the same shape as the least meaintained roads back home, where there is no income tax. What does the money go towards?

I wonder this question when I drive to the beach and it is ten dollars jsut to drive in and wlak around, far more than in other areas I passed through to get there. If this state does not pay to maintain its roads and charges so much for parks, where is the money going? This state has proposed to close up to a hundred state parks, which would save something on the orders of 0.01% of the amount needed to close the deficit, while it has an unholy amount of taxes and fees. I do not object to the taxes, I want to know what return the taxpayer is getting on their money. It is disgraceful that a state with a GDP in the top 8 in the world, cannot maintain their roads and are contemplating releasing prisoners to put some stop to the fiscal bleeding. The schools are poorly rated year in and year out, so where is the money going? All I know is that it is not going to basic needs for the state.

RIP Norman Borlaug

Since I have been out of contact with the world for stretches being the netless nomad, I did not get a chance to comment on the passing of one of the more influential and unknown human beings of the 20th Century, Norman Borlaug. The 1970 Nobel Prize winner for his work on creating high yield wheat, his work allowed billions to live and reduced the amount of land required to be cultivated to support the world's food supply. His work angered the usual elitist environmental groups who decried the use of chemicals to increase crop yields, to which he reponded :

“Some of the environmental lobbyists of the Western nations are the salt of the
earth, but many of them are elitists. They’ve never experienced the physical
sensation of hunger. They do their lobbying from comfortable office suites in
Washington or Brussels. If they lived just one month amid the misery of the
developing world, as I have for fifty years, they’d be crying out for tractors
and fertilizer and irrigation canals and be outraged that fashionable elitists
back home were trying to deny them these things.”

Anyone who would call out the hypocrites in the so called "green movement" who live in mansions while complaining about high yield crops gets praise from me. RIP to the great humanitarian, Norman Borlaug.