Individual Values Versus the System

This Washington Post article is an interesting description of now-retired black men who bowl. (It's part of their continuing series on black men.) They're part of a generation that moved North and found good government jobs (post office/Metro), raised families, moved to the suburbs, put kids through college. Several of the generation (mostly but not entirely female) worked with me at one time or another. One of the things they debate is whether the younger generation has gone to hell, whether the kids blame the system when they should blame themselves (think Bill Cosby).

Over at Greg Mankiw's blog there's a big discussion, sparked by Tyler Cowen's NYTimes column from yesterday, on whether poverty is the fault of the individual or the system. The discussion seems to split two ways--one side says the poor are unwise and don't save, the other says it's the system.

What's interesting is both groups tend to take extreme positions. It's one or the other, but not both.

Cowen and Ownership Society

Tyler Cowen of Marginal Revolution has his column in the Times today, discussing universal 401K's. (As pushed by Gene Sparling of American Progress.)

The core idea is simple. The federal government creates tax-free retirement accounts for lower-income Americans, supplementing private accounts where they already exist, and matching personal contributions to those accounts. The amount of the match would depend on the income of the family and how much they save.

He seems sympathetic, but points out the likelihood of creating two classes of poor--the one that uses the savings in the 401K wisely, the other that gets sucked into misusing the money. I think that's true. Even for the EITC, which both liberals and conservatives agree is a good measure, there is a problem. Or rather two problems: one of fraud--people claiming the credit who aren't entitled; one of nonuse--people who qualify not applying.

This leads to the age-old question: is a liberal more concerned for equality of opportunity or equality of result. Typical American liberals have mostly said the first; many radicals, either of the Marxian or Christian variety, have said the second.

From Cartel to ?, the History of AAA

In previous posts I referred to the idea that the farm programs started as a cartel. To expand: a good part of the "first New Deal", at least as Arthur Schlesinger, Jr. diagnosed the economic problems as a surplus of production due to excessive competition. By permitting and encouraging different industries and management and labor to cooperate and scientifically plan their work, production could be brought back into balance with demand. So the National Recovery Administration set up codes industry by industry and boards with labor on them. Similar thinking influenced the agricultural programs. Different commodities already had had different groups working. Whereas the movement of the early 20th century was the development of the extension service and scientific agriculture, followed by the organization of the Farm Bureau (I was raised in the home of the first Farm Bureau, Broome County, NY) and then the development of farmer cooperatives in the 1920's. Some co-ops were for production, some for purchasing. For example dairy farmers got together in co-operatives to handle the marketing of milk, while such co-ops as the GLF (Grange-League-Federation) bought feed and supplies for resale to farmers.

The problem with farmer production co-ops was that they were subject to "free riders". If the cotton growers tried to limit production to raise prices, any grower who stayed outside the arrangement could grow all he wanted and benefit from any increase in prices. So a lot of the early New Deal farm legislation was putting the power of the federal government behind such arrangements--hence the agricultural marketing orders for fruits and vegetables and the marketing quota programs for tobacco, peanuts, cotton. The economists call such arrangements "cartels". (They don't call the Federal Reserve System a cartel, but that's what it is--it fixes the supply and price of the commodity known as money.)

IMO over the years the focus for the major field crops and now dairy has moved away from adjusting production to demand and setting prices and towards direct subsidies.

The Iron Triangle (Updated)

Morgan, Cohen, and Gaul (seems as if that's a different sequence than yesterday, it's got the rhythm of FDR's "Martin, Baron, and Fish") have another article on farm programs . This one outlines the various interests that come together in creating a farm bill, with particular attention to Rep. Larry Combest (R) (Texas) and the 2002 Farm Bill. They even searched out my old boss, Bill Penn, for a comment on the changing of the rules for "actively engaged" determination in 1987. (Bill and his wife-to-be wanted to require half a year's worth of work for management; Rep. Huckaby (D) (LA) said no, managers could do it in their spare time.) Following personnel is one way to follow the interlinking of interests, what the political scientists used to call the "iron triangle" (relationships between the agency, Congress, lobbyists and clientele).

For example, another old boss of mine was an assistant to Huckaby, or maybe House Ag--Parks Shackelford. He moved from Congress to USDA in 1993. This is a good piece in Gov. Executive from 1998 on the overall background, including the problems of combining agencies. Googling his name reveals that he now has twin daughters and a son on the way. His father-in-law is chancellor of Arkansas State U, and his wife is general counsel to the American Farm Bureau. He himself is working for a Florida sugar company after serving as President of American Textile Manufacturers Institute.

It's way too difficult to Google "William Penn", for obvious reasons. He first came to ASCS as a deputy director in the area office, indicating good Republican connections (he might have been a State executive director in Michigan before), showed his talents and moved up to Asst. Deputy Administrator. Moved to the field of law and Arents Fox around the early 90's, focusing on payment limitation, then back to Michigan for a farmers organization.

The same sort of thing goes on with all administrations and both parties: the ambitious come to Washington, move among Congress, the executive, lobbyists and legal firms until they become satisfied or reach their level of incompetence. Then they're shunted to "turkey farms" to live out their days.

The Post article closes with discussion of prospects for the 2007 Farm Bill.

Daylight on SS Retirement

A belated Merry Christmas to all.

I note a couple of articles relevant to the debate over Social Security. Sen. Sessions of Alabama puts my back up. But he has an op-ed piece in the Post
suggesting a bipartisan approach to SS reform. What's new, on a fast reading at least, is the acceptance of the pattern of the Thrift Savings Plan (the Federal govt's 401K equivalent) to give people individual accounts without going through Wall Street. In the past conservatives have used the bogeyman of the government controlling the economy through vast stockholdings to oppose this idea. Apparently Sessions, perhaps honoring the populism sometimes found in the South, is ready to abandon Wall Street. (Actually, the TSP system gets competitive bids from a financial firm to run its 6 funds; I think Barclays had the account for a while.)

The reason I'm encouraged by this concession is shown in a NYTimes article on the Chilean system. Apparently some in Chile have found their privatized system wanting, and propose some reforms. I was particularly struck by this paragraph:

In hopes of stimulating competition, the reform plan would let banks and insurance companies form pension funds. The six existing funds, down from a peak of more than 20, object. They appear especially fearful that the state bank will jump into a business that has yielded them a return on assets of as much as 50 percent annually.

With Wall Street getting record bonuses this year (an average of $600K per employee in one firm) I'm in no mood to give them any more business.

Takes All Kinds

Over at Marginal Revolution Alex Tabarrok posted on gift giving. Economists have problems with the concept--is there utility in exchanging gifts, etc. etc.. Anyway, I commented. Going back to read comments, I find that Virginia Postrel (who blogs and who has donated a kidney to an acquaintance) finds that O'Henry's "Gift of the Magi" (the wife cuts her hair to give husband a watch chain, husband sells his watch to give wife something--headband?--for her hair) a cruel story.

Big Farms and Foggy Language

Gaul, Cohen and Morgan have another article in their series in the Post on farm programs. This one focuses on the disjunct between our mental picture of farmers and the reality:

"Today, most of the nation's food is produced by modern family farms that are large operations using state-of-the-art computers, marketing consultants and technologies that cut labor, time and costs. The owners are frequently college graduates who are as comfortable with a spreadsheet as with a tractor. They cover more acres and produce more crops with fewer workers than ever before.

The very policies touted by Congress as a way to save small family farms are instead helping to accelerate their demise, economists, analysts and farmers say. That's because owners of large farms receive the largest share of government subsidies. They often use the money to acquire more land, pushing aside small and medium-size farms as well as young farmers starting out."

It's fair, although using John Phipps, who has an interesting blog, as an example might be a stretch, but he gives good quotes. There's the usual blurry (from a biased viewpoint) language. Discussion of "corporate" farming. I think it's true that most "corporations" involved in farming are composed mainly of farm families (and their city relatives). But I doubt that's the image evoked in people's minds. There's also mention of "income", but no description to say whether this was the gross income of the farming operation or the net income the farmer got, two very different things, particularly for someone like a dairy farmer.

And as my ag teacher pointed out many years ago (my high school actually was phasing out its ag instruction--the teacher took over driver's ed, which was inappropriate inasmuch as he was the most nervous man in the school (may have been after effects of war service)), income can be ambiguous for other reasons. Dairy farmers (IMHO the only "true" farmers) in particular have lots of capital invested in land and equipment and animals. When you're accounting for the invested capital on your books, you should really charge the operation for the interest the capital could be earning. In other words, if a man has 600 acres of land worth $4,000 an acre, he has $2.4 mill capital. If he sold, and bought bonds he could earn a comfortable 5 percent on his money, or $120,000 a year just clipping coupons (except that they've done away with coupons on bonds and only us old fogies understand it). But if Gaul, Cohen, and Morgan say the guy has $150,000 income, they don't point out that he's only earning $10 an hour for his labor (using a 3,000 hour year).

Why Do Farmers Like To Swim?

The title's a smartass way of leading into a subject raised by the recent discussion of the Post's article on dairy. What's the subject--why dairy farmers and others like pools or cartels.

Imagine you're a dairy farmer. Twice a day [warning--this is based on information 50 years old] you milk your cows and put the milk in the cooled storage tank. You know the milk truck has to come to empty the tank, because the cows have to be milked or they'll go dry and there's no way to use the milk on your farm. You can't store it. You have to sell it or dump it.

Who do you sell it to--your local processor. Maybe you have a choice; maybe there are two processors within driving range. But even if you have a choice, you can't auction your milk off daily or weekly to the highest bidder. The processor will take all the milk you produce, knowing that cows produce soon more after calving than 6 months after, that quantity can vary by time of year (though I suspect less so now than 50 years ago when most cows still calved in the spring). So you choose your processor once and change very seldom.

The bottom line is that you've no leverage, no market power. Your processor doesn't have much more. If there's more milk than can be sold as fluid, it can be processed into butter, cheese, or powdered milk. That permits a temporary surplus to be stored.

So what do you do if you've no market power--you combine. It's a time-honored American tradition, whether it's a farmers cooperative, a labor union, an oil trust, or a steel cartel. You get yourselves together to pursue your common self-interest. That's why dairy farmers swim.

Surge or Not?

The Washington Post reports that some in the White House want to "surge" the troops; the military apparently is reluctant. If I understand, "surging" essentially means robbing Peter to pay Paul. You keep some troops on longer, you accelerate the deployment of other troops, and maybe you change some rules so you can use the Reserve/National Guard more often. Bottom line is you use assets today that you won't have tomorrow. So that gives some political logic to the WH position. Do the "surge". If it works, great. If not, even the right wing will say we've done all we could. That's cold logic for those who might be killed in the surge, but cold logic is the logic of statecraft.

NY Times and Organic Agriculture

Two articles in the Times today seem to me to be relevant to the organic agriculture debate: one describes the effects of iodine deficiency; the other describes how vodka sellers are getting $60 per bottle by packaging it in bottles that look like perfume. How do they relate:

• there's a fervency of belief in organic agriculture that can lead to mythology. The iodine article reminds us that just because we eat foods from nature doesn't mean that they're sufficient for our nutrition. We need to add iodine to our diet in most parts of the world because the food doesn't contain enough for mental development.
• some of the marketing of organic food (full disclosure, I own stock in Whole Foods) is the developing of tastes that have nothing to do with good nutrition or even with good taste. Not that there's anything wrong with that. Vodka is just another example of it. Farmers in developed countries should push this all they can, as the vineyards have. Most of us could care less about wine tasting, but we spend more money for the higher priced bottle for special occasions anyway.