Left Flank

Brad DeLong pits Megan McArdle against Greg Clark on the odds, that food prices will cut global economic growth. DeLong backed Clark's optimism about "...the race between technological improvement and growing demand...". Still, the price of rice continues to rise.

It seems DeLong was right. Technological improvement might save the day.

As far as I can tell it hasn't hit the English-speaking media yet, but researchers in Chile announced this week (warning: links in Spanish) the discovery of a new genetically engineered variety of rice that can be cooked with 1/4 the amount of water needed for normal rice.

Here's the official University of Santiago release, reviewing the new strain of rice and also the crush of press interest since the first reports on Monday. The project was cosponsored by Chile's governmental Foundation for Agricultural Innovation, which is sponsoring a number of other projects to help increase Chile's agricultural output.

In the context of the ongoing global food crisis, the discovery won't provide more rice, even if widely adapted. But it could reduce the costs of cooking rice in terms of both water and fuel used to heat the water, giving poor consumers a partial break. In Chile alone, economists have estimated the jump in food prices could raise the poverty rate at least 2%.

This isn't the same sort of innovation as dwarf wheat, so what Gary Gardner argues, still goes: "What's needed is a new model of prosperity that meets people's needs within the boundaries set by nature. It's what we call sustainable development. Embrace it and we can bury Malthus for good. Ignore it and we'll find that Malthus was simply ahead of his time."

Could beef start a war?

As I was sitting here in Busan, working on a paper about natural resources and civil war and listening to news of South Korean protests against the importation of American beef, I discovered the War of the Farrapos. According to the Correlates of War database, this civil war between Brazilians resulted in over 200,000 deaths on both sides and lasted ten years. The cause was trade.

The uprising is believed to have began due to the difference between the economy of Rio Grande do Sul and the rest of the country. Unlike the other provinces, the state economy focused in the internal market rather than exporting commodities, the state's main product, the charque (bovine dried and salted meat), suffering badly from the competition of charque imported from Uruguay and Argentina, which had free access to Brazilian market while the gauchos were charged high tariffs inside Brazil.

Crazy, huh? Maybe, but Seoul Searcher thinks South Koreans are even crazier.

Incidentally, watching and reading about the protests against American beef imports, I was quite mystified by the meek, almost inaudible, protests, much less action, against harmful products imported from China. So many Chinese goods, including foodstuff as well as toys, have been scientifically proven to be toxic and harmful to our health and yet not a «boo» has been uttered against their import.

Does this mean that we, Koreans, are such a gullible people that we can only react when the biased media and some unconscionable politicians and entertainers spread groundless rumors and unalloyed lies? Yes, this, I am afraid, is true to a large extent.

But what makes us so gullible? Are we collectively naïve or stupid so that we can easily be manipulated and swayed by politicians or other interest groups? I don't think so. We may be often blinded by or made to believe in something because of monetary and material greed, but never because of naivety or stupidity.

If anything, Koreans, on the whole, are very emotional and hasty rather than coolly rational and deliberate in making judgments on any social and political issue. And let's face it, we are also a pretty insecure and paranoiac bunch of people as we have long been suffering from an inferiority complex.

Because of these regrettable national traits, we easily become prey to the demagoguery of a few unscrupulous people who have their own ax to grind or political hay to make at our expense. But we are smart enough and are living in an advanced society where we should be able to make our own judgments and decisions based on objective facts, not just listen to other people and follow them blindly.

Yet, USTR Susan Schwab might be the wackiest of all! But, just in case, I'll be looking out for South Korean gauchos!

Image via Wikipedia

The nerve of those farmers!

Who says farmers are inflexible? In rich countries, they have long justified farm hand-outs by pointing to low world prices for food (never mind that low prices were partly caused by their own subsidised overproduction). Without public cash, they said, farmers would desert the land, leaving meadows to brambly ruin. Now that the world is running short of food, the farm lobby has deftly changed tack. Prices for many crops are at record highs, the new line goes, and rich countries need to protect their farmers in order to ensure that their people get fed.

Thankfully, Jagdish Bhagwati and Jeffrey Sachs stress three suggestions to tackle the long-term consequences of the current food crunch that are not mentioned too often.

1. Meat production consumes grain, so, either through lifestyle changes or by removing subsidies, reduce meat production;

2. Bhagwati talks about GM food, and Sachs about climate-proof food, but science needs another Norman Borlaug to revolutionize agriculture;

3. Again, Bhagwati talks about the IMF offering short-term balance-of-payments help, and Sachs about a new Global Fund for Africa, but this crisis illustrates again how small the world is becoming.

But, reform starts with the first big swing, and that's the EU's (and American) subsidies.

Image via Wikipedia

The US needs Beijing to tackle the DPRK issue, but not how you might think.

Realizing this, the US, South Korea, and Japan should urge the one state with true leverage of Pyongyang - China - to press its own model of economic reform on the North's leadership.

Two complimentary reasons stand out for this long-term policy course. The first is that, as hinted above, without doing so, there will be little incentive for Pyongyang to cease its involvement in the trade of illicit goods. There is a much greater chance of reigning this activities in if sustainable revenue - with positive consequences for the state that do not threaten its neighbors, international security, or international markets - is a tangible reality for North Korea.

The second is that there is no alternative. A maintenance of the status quo does little to rescue North Korea's incentives to remain mired in the black market. Seeking to choke the regime, as Washington was doing until recently, can only force it into a desperate corner. Moreover, forcing a state collapse in Pyongyang is not, and probably never will be, an attractive or feasible option for a number of reasons. First and foremost, it assumes that Washington is capable of doing so, which in turn assumes that the US has any real leverage over North Korea. This is not the case so long as Beijing remains the regime's true financier and largest external source of goods. Furthermore, North Korea's neighbors have no desire to see the regime collapse anytime soon primarily because they will be the ones tasked with picking up the pieces. China, for instance, already struggles with the flow of refugees from North Korea and knows very well that in the event of a North Korean collapse, those problems will worsen exponentially and might even materialize a host of unknown (and perhaps worse) scenarios. South Korea, for its part, fears a North Korean collapse that would force it to absorb the poverty-stricken Northern state into its territorial protection - an immediate reunification that no one would have anticipated or truly planned for. The result would be a premature merging of the world's twelfth largest economy with one of the world's weakest states. Seoul is not opposed to Korean reunification in principle, but it is not willing to do so at the expense of its own economic growth, hence its emphasis on raising the standard of living in North Korea (something designed to soften the eventual blow, apart from the obvious humanitarian reasons).

This argument sounds familiar! Didn't a Heritage or AEI fellow characterize DPRK as a failed Stalinist state that needed to return to orthodoxy, by abandoning the quirky leader cult and military-first policy?

Image via Wikipedia

Again, the Indiana and North Carolina primary numbers point to the worst possible scenario: splits and near-ties. Senators Clinton and Obama split the two primaries, but Clinton just barely won Indiana where she should have trounced Obama. I won't link to all the liberal bloggers who predicted wider margins in Indiana. The demographic divide still matters, and that means, the gas tax issue might not go away, even after the summer. And, for good reason.

Both Greg Mankiw and Brad DeLong take Paul Krugman's rant on the gas tax as a starter. Ultimately, I think Mankiw has a more useful line, because DeLong is wrong about the wonky aspect of the question—the gas tax has a progressive bite. And, Mankiw lays a marker down and is more savvy about electioneering.

Now, I've pumped my own gas (in two countries, no less), and I wanted to think Clinton and Senator McCain were pandering to me, because I want to be a «salt of the earth» kind of guy. The truth is, though, that, although I worked at a 7-11 in college where gas was sold (and where I had to handle inventories), I also went to college hoping I would not have to stick metal prods down gas tanks and sniff gas fumes in the teeth-clattering pre-dawn hours to measure fluid levels all my life. So, Jerome Armstrong's sort of argument works for me. And, this is Armstrong's proof.

Salon pulls out a .pdf file for firepower:

But Obama is wrong. He did not learn this lesson. In fact, the only scientific study done on the pass-through of the tax holiday savings to Illinois consumers (and those in Indiana, as well, whose citizens enjoyed a similar holiday) found that it actually worked to a large extent.

The study is titled «$2.00 Gas! Studying the Effects of a Gas Tax Moratorium,» by Joseph J. Doyle Jr. and Krislert Samphantharak. Download the PDF here. The authors concluded that «the suspension of the 5% sales tax led to decreases in retail prices of 3% compared to neighboring states. And when the tax was reinstated, retail prices rose by roughly 4%.»

This suggests that the tax holiday delivered at least 60 percent of the tax savings to motorists.

The economic basis for attacks on the Clinton tax holiday is a fundamental economic theory called «tax incidence.» It says that the cost of a tax on any consumer product will be borne by those with lesser «elasticity» in the tug of war between suppliers and consumers. «Tax incidence» falls mostly upon the group that responds least to price -- the group that has the more inelastic price-quantity curve. In this instance, assuming that the supply of gas is pretty much fixed, it means consumers will end up paying those missing tax dollars directly to the gas companies in the form of higher prices. The increased demand triggered by the price cut will supposedly lead drivers to bid up the price of gas, swallowing the tax cut.

But this is not what happened in Illinois and Indiana back in 2000. And there are factors at work today that might provide equal or more «elasticity» to the producers, and prevent consumers from paying the price for the tax cut.

So, there is a real difference of opinion among experts, with very real policy outcomes, after all (contra-Yglesias, who thinks he has the policy cart selected before the proverbial horse). I return to Mankiw's quip:

Many economic issues (e.g., health care, corporate taxation, the trade deficit) are vastly complicated, with experts holding a variety of opinions. When candidates disagree, it simply means that each is siding with a different set of experts, and it is hard for laymen to figure out which set of experts is right. By contrast, the gas tax holiday is not nearly as complicated, and the experts speak with one voice.

Why, then, are candidates proposing the holiday? I can think of three hypotheses:

Ignorance: They don't know that the consensus of experts is opposed.

Hubris: They know the experts are opposed, but they think they know better.

Mendacity with a dash of condescension: They know the experts are opposed, and they secretly agree, but they think they can win some votes by pulling the wool over the eyes of an ill-informed electorate.

So which of these three hypotheses is right? I don't know, but whichever it is, it says a lot about the character of the candidates.

Now, as a «salt of the earth» kind of guy, I can handle arguments about character.

Michael T. Klare first warned about "conflict over valuable resources" in Resource Wars: The New Landscape of Global Conflict in 2001, and he has now updated that geo-economic argument.

The great risk is that this struggle will someday breach the boundaries of economic and diplomatic competition and enter the military realm. This will not be because any of the states involved make a deliberate decision to provoke a conflict with a competitor--the leaders of all these countries know that the price of violence is far too high to pay for any conceivable return. The problem, instead, is that all are engaging in behaviors that make the outbreak of inadvertent escalation ever more likely. These include, for example, the deployment of growing numbers of American, Russian and Chinese military instructors and advisers in areas of instability where there is every risk that these outsiders will someday be caught up in local conflicts on opposite sides.

This risk is made all the greater because intensified production of oil, natural gas, uranium and minerals is itself a source of instability, acting as a magnet for arms deliveries and outside intervention. The nations involved are largely poor, so whoever controls the resources controls the one sure source of abundant wealth. This is an invitation for the monopolization of power by greedy elites who use control over military and police to suppress rivals. The result, more often than not, is a wealthy strata of crony capitalists kept in power by brutal security forces and surrounded by disaffected and impoverished masses, often belonging to a different ethnic group--a recipe for unrest and insurgency. This is the situation today in the Niger Delta region of Nigeria, in Darfur and southern Sudan, in the uranium-producing areas of Niger, in Zimbabwe, in the Cabinda province of Angola (where most of that country's oil lies) and in numerous other areas suffering from what's been called the "resource curse."

The danger, of course, is that the great powers will be sucked into these internal conflicts. This is not a far-fetched scenario; the United States, Russia and China are already providing arms and military-support services to factions in many of these disputes. The United States is arming government forces in Nigeria and Angola, China is aiding government forces in Sudan and Zimbabwe, and so on. An even more dangerous situation prevails in Georgia, where the United States is backing the pro-Western government of President Mikhail Saakashvili with arms and military support while Russia is backing the breakaway regions of Abkhazia and South Ossetia. Georgia plays an important strategic role for both countries because it harbors the Baku-Tbilisi-Ceyhan (BTC) pipeline, a US-backed conduit carrying Caspian Sea oil to markets in the West. There are US and Russian military advisers/instructors in both areas, in some cases within visual range of each other. It is not difficult, therefore, to conjure up scenarios in which a future blow-up between Georgian and separatist forces could lead, willy-nilly, to a clash between American and Russian soldiers, sparking a much greater crisis.

What makes the 2008 version "new", though is, that Klare has dropped his 2001 call for a "global authority", an extension of the International Energy Agency, to coordinate research on alternative fuels and protect current resources. Instead, Klare tepidly advocates "...rather than engage in militarized competition with China, we should cooperate with Beijing in developing alternative energy sources and more efficient transportation systems." Klare reprises Alfred Thayer Mahan, to underscore the US Navy's redeployment from its Cold War Rimland strategy to routes near Africa, the Persian Gulf, and the Malacca Strait, and bases in Iraq. Finally, Klare raises the issue of the military industrial complex: military spending to compete with PRC and Russia will dry up funds for research into alternative sources of energy. But, that funding also perversely ensures the US will seek conflict.

I'm uneasy about Klare's retreat. Certainly, PRC is a formidable competitor—CIA Director Michael Hayden's comment is encouraging—for resources and diplomatic influence, and the Washington should engage it. However, bilateral relationships can degenerate into animosity. In the wake of Iraq, the US needs to simplify its relationship with the world to facilitate better ties with the rest of the states it has marginalized in the last eight years. In other words, it needs a policy, not a monkey on its back. Global cooperation on energy spurring global growth, backed by American naval power, is as good as any power point presentation could offer. The monster of military procurement needs to be shoved into a cave where it can scare pirates and dictators but not impede commerce. Klare can only follow the last eight years' nightmare of nationalism with a stronger dose of responsible internationalism.

Image via Wikipedia

The Orlando Sentinel offers two analyses showing how a public good, environmental protection or transportation, hits the wall of interest-group retrenchment. It's a good example of good intentions and rhetoric withering in the face of the latest rationalization.

Welcome to the state of Florida. The nation is on the brink of a fuel crisis. Prices are headed toward $4 a gallon and destined for even greater heights as the thirst for fuel grows in China and India. God forbid the terrorists ever pull off a major attack on a Saudi oil facility.

Florida responds by killing one mass-transit project and crippling another. On top of that, the Legislature also has jeopardized a major I-4 widening project because there isn't an alternative transportation network to use during construction.

Meanwhile, Orlando has moved to fourth in a national ranking of congested cities.

You expect the Tallahassee trial-lawyer lobby to view the world through the myopic lens of huge settlements. You also would hope that political leaders, for once, could set aside that cynicism and look at the big picture.

Alas, this is Florida.

This state not only needs commuter rail but a corridor linking Orlando and Tampa, which are slowly merging into one huge megalopolis. It needs to connect this rail line to the East Coast and hopefully hook up with a passenger service that one day will link Miami and Jacksonville.

And off of these main routes we need to build a feeder network of smaller rail lines and buses.

We can't plan 50 years ahead based on the notion that we'll always be able to drive to the Mobil station and fill up with gas at prices the middle class can afford.

The target of the Florida Justice Association's ire was a proposed $100,000 cap on jury awards for accidental injuries or deaths.

«A lot of the reason for this is the frustration a lot of the senators had with the way this deal was put together,» said Paul Jess, an official with the trial-law