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."

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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.

Peter at The Duck reminds readers of the larger cycle leading to higher food prices worldwide.

To recap, this implicates:

• Global Warming causing a drought
• High oil prices, raising costs for farmers, shippers, and sellers
• Ethanol and bio-fuels (meant to reduce the first two) sucking corn off the market
• Farm subsidies distorting food prices
• Lack of open markets
• Development in large countries (China, India) leading to increased meat consumption
• Integrated global commodities markets, allowing for speculation

Add in Australia's water pricing policies.

So, I assume the solution will be just as complicated. That hasn't stopped Tyler Cowen form trying to advocate one: «...governments are making matters worse by constraining what farmers can store and export.»

Yet, Dani Rodrik comes along and complicates the picture again.

I am puzzled more generally by how the commentary on the world food crisis misses this basic point. It's all about how the price rise is an unmitigated disaster for the world's poor, with nary a comment on the fact that some of the beneficiaries are also among the world's poorest. (Some of you will say that all the price increase is absorbed by margins, with little of it showing at the farm gate--but I doubt that is true.) The panic on the part of governments is understandable. They are much more sensitive to the urban poor, who can create greater havoc than the rural poor. But what about the rest of us?

So, that's the new way to change the world? Laziness? Self-indulgence? Check out Jared Diamond!

I wonder how far trademark American frugality lasts when vacation choices include one's lawn and walking. How will American households make ends meet?

Just to be clear, the other typical escape route—to save less—is already closed off. In the fourth quarter of 2007, the personal saving rate was zero percent.

This leaves very few other areas where consumers can make sacrifices to accommodate the pressures from higher prices at the pump. Traditionally, more spending on gasoline was also associated with less spending on cars. People are already buying fewer cars and smaller cars as the cost of driving goes up rapidly. And eventually, families will spend less on gasoline simply because there are fewer jobs to drive to.

With all of these added pressures, many more families will find themselves in an untenable financial situation. This will be especially true for lower-income and moderate-income families who spend disproportionate shares of their income on gasoline and fuel. These also tend to be the same families who feel the brunt of an economic slowdown first.

But, how will those patriotically energy-saving stand up long enough to vote for John McCain?

(The following is a proposal for a research paper)

Introduction: I will examine how natural resources affect political instability. Since civil war is the most dramatic expression of instability short of partition or secession, I will define instability as «civil war», using the Correlates of War Project, Intra-State War Data, 1816-1997 (v3.0) database. I intentionally chose such a long historical period, to reduce the the influence of cyclical factors, such as the late 19th-Century nationalism in Central and Eastern Europe or the Cold War. This period also roughly corresponds with the rise of capitalist production on a global scale, which accelerated the extraction and consumption of natural resources. Two other factors recognized in the literature are geography and third parties. Overall, I am concerned about the possibility that civil wars can generate interstate wars.

Literature Review: My interest in the American Civil War (1851-1865) prompted my first acquaintance with the dependent variable and another reason to broaden its historical scope. In The Longest Night: A Military History of the Civil War, David J. Eicher mentions the role of cotton in the development of the animosity between Union and Confederacy and the role that third-party diplomatic recognition, both by border states and European states, like Great Britain and France, played in Confederate strategy.1

Michael T. Klare's Resource Wars: The New Landscape of Global Conflict (2001) inspired the choice of the independent variable. Klare's central thesis (p. 213) provides a warning for this examination, because his central thesis, that «resource wars will become, in the years ahead, the most distinctive feature of the global security environment» replaces fact with prognostication. Of a list of reasons for this prediction, Klare includes political instability as a factor in his «new geography of conflict.» Klare boldly declares that a new map colored with the geographical sources of resource deposits, including oil and coal, water, gems, timber, and minerals will replace boundaries in the new cartography. More helpfully, Klare provides an appendix (p. 221), «Territorial Disputes in Areas Containing Oil and/or Natural Gas».

Michael L. Ross, in «How Do Natural Resources Influence Civil War? Evidence from Thirteen Cases» conducts a small-N comparative case study of 13 civil wars that occurred between 1990 and 2000 selected on a «most-likely» basis, to ascertain if natural resources are related to civil wars. Ross applies seven hypotheses, divided into three categories, onset, duration, and intensity, and in the process finds evidence for four further hypotheses. Ross concludes that there is a causal connection between natural resources and civil war, but that he can not rule out reverse causality or a spurious connection. For his sample, Ross also finds that oil, minerals and gems, and illicit drugs are related to civil wars. Furthermore, natural resources have multiple, indeed sometimes even beneficial effects upon civil wars. Ross argues that natural resources play a weightier role in civil wars involving separatist conflicts, but not non-separatist ones. Finally, Ross suggests as a guide for future research testing one hypothesis against the entire civil war dataset, not just a subset.2

In «What Do We Know about Natural Resources and Civil War? », Michael L. Ross conducts a qualitative review of 14 comparative case studies based on econometric data, namely the correlation of natural resource extraction to GDP. He notes four regularities in those conclusions. Firstly, oil affects the onset of civil war positively. Secondly, «lootable» commodities, like gems and illicit drugs, affect the duration of civil wars, but not the onset. Thirdly, there is no relationship between legal agricultural commodities and civil war. Fourthly, the relationship between natural resources and civil war is unclear. Ross ascribes four reasons for the inconsistencies he finds in his analysis of the 14 studies, including differences in databases, definitions of civil war separatist vs. non-separatist), procedures for determining the end of a civil war, and different procedures for handling missing data.3

James D. Fearon and David D. Laitin, in «Ethnicity, Insurgency, and Civil War» conduct a quantitative analysis of 161 states with a population over 500,000 experiencing civil wars between 1945 and 1999. They conclude that the occurrence of civil war was not related to the end of the Cold War. Also, ethnic or ethnicity does not cause civil wars. Finally, political grievances also do not relate to civil wars. The authors related civil wars to insurgent activity, and the propensity of governments to conduct inept or corrupt counter-insurgency operations. insurgencies. «Insurgency is a technology of military conflict characterized by small, lightly armed bands practicing guerrilla warfare from rural base areas.» Positive correlates of civil wars include newness, large populations, and mountainous terrain, but not natural resources.4

David E. Cunningham, in «Veto Players and Civil War Duration», argues that third-parties affect the duration of civil wars. Cunningham redefines civil war duration from units of «year» to «month» generating a dataset of 288 states involved in civil wars without a pause of a maximum of 24 months since 1945. Cunningham also argues that civil wars have three main types of participants: government, rebels, and third-parties, or veto players. Cunningham concludes that civil wars with more veto players last longer and are harder to resolve.5

Nicolas Sambanis, in «What Is Civil War? Conceptual and Empirical Complexities of an Operational Definition » tackles the issue of competing definitions of civil war with a qualitative analysis of the COW project and prominent definitions offered by most of the authors above.. Sambanis offers 11 conditions by which an armed conflict can be defined as a civil war, including internationally recognized states with at least 500,000 people and well-defined political statements from both the government and insurgents. Sambanis also recognizes the possibility of third-party participation. Onset occurs in the first year when 500 to 1000 deaths occur, or if 500 deaths occur within a 3-year period. Sambanis defines duration as «sustained violence», with at least 500 deaths in a 3-year period, but not decreasing below 100 deaths for either side. Finally, an end is declared by either a peace treaty lasting six months or an insurgent victory.6

Research design/methods: Following cues from the literature above, and my reading of the American Civil War, I have decided to pursue Ross' hypothesis, that «Resource wealth increases the likelihood of civil war by increasing the probability of foreign intervention to support a rebel movement.»7 I will also extend the scope of the examination to cover the 1816-1997 period covered by the Correlates of War Project, Intra-State War Data, restrict my examination to the question of onset, and adjust for Sampanis' definitional qualifications. One implication of this hypothesis is, to recognize Cunningham's insight, that civil wars have three types of parties. For the dependent variable, I will select a sample of ten civil wars, five from the 18th-century and five from the 20th-Century, with both the highest aggregate deaths and longest duration, but distributed as evenly as possible continent-wise. For the independent variable, I will select the ten natural resources I will examine fit into five categories: carbon-based products, including oil, natural gas, and coal; mined resources, including copper, and gemstones; legal agricultural commodities, namely timber, cotton, and sugar, and illicit drugs, such as opium and coca. Because I am drawing anecdotally upon one case, the American Civil War, a small-N quantitative comparative analysis is possible.

Discussion/Findings: I expect primary agricultural commodities will correlate more positively with civil war in the 19th-Century than in the last century. I also suspect that coal and civil war will be similar for both centuries.

Conclusion: Pro-Secessionist Southern planters banked on King Cotton to attract British and French support, West and Central African conflicts seemingly defied political boundaries, attracting broad regional participation. Finding which natural resources have ensured longer, bitterer civil wars would guide international and national policy-makers how to establish the international organizations Klare advocates to distribute natural resources wisely, if at all.