The STEP Act is About More Than Property and Taxes

I recently caught an episode of Agritalk that included a farmer forum discussing the STEP Act. 

Link: https://omny.fm/shows/agritalk/agritalk-march-31-2021 

Senator Chris Van Wollen uses colorful language to describe the rationale for the STEP act: "This is one of the largest tax breaks in the entire federal tax code, with the Joint Committee on Taxation estimating that it is worth $41.9 billion in 2021 alone. Every dollar of the tax break from tax-free stepped-up basis is a government subsidy for inherited wealth, and the bulk of that subsidy goes to the wealthiest family dynasties." 

So how might this play out? How are these wealthy dynasties taking advantage of this sneaky loophole?

Paul Nieffer gives one among many egregious scenarios that could play out if certain parts of this act pass:

"Bill and Mary have four children and they usually gift $15,000 of grain to each child annually to help fund their college expenses.  Bill and Mary each gave $60,000 of grain in 2021.  This reduces their lifetime transfer exemption to $40,000.  If they give the same amounts in 2022, they will each have $20,000 of ordinary income to report and it may be subject to self-employment taxes."

Interesting this behavior gets characterized as a 'loophole' and simply raising a crop and earning a living counts as a 'tax break', while sending your kids to college is the thing of 'dynasties.' But the real impacts on flesh and blood human beings are abstracted behind the political rhetoric of the legislation's proponents. As the discussion went during the episode, there are lots of incentive effects to consider. Why invest and improve operations when so much is going to be taken back? What will they have to pass on to the next generation? And this is key. It's not just family farms that are going to be largely impacted, these effects will impact small businesses too. But this is just scratching the surface. Family farms do more than just produce food and small businesses do more than just produce goods or provide services. In addition to being part of the social fabric in towns and communities, and in addition to providing a source of employment they serve other important social functions. 

Thomas Jefferson wrote to George Washington in 1787:

“Agriculture … is our wisest pursuit, because it will in the end contribute most to real wealth, good morals and happiness.”

These operations also serve as important institutions that not only transfer real property and assets to the next generation, but also the work ethics and values that go with it. Growing up I raised cattle with my grandfather, but also worked on the larger farms owned by my neighbors. I also worked for a family of WWII veterans who owned a hardware store, farm implement dealership, and a propane gas company. As the author Ayn Rand writes in Atlas Shrugged, 'All work is an act of philosophy.' What I learned from these people (the value of hard work, morals, character, resilience, civic duty, the list goes on....) is more valuable than any lesson learned in college or graduate school. We have gotten so distracted with credentialization we've forgotten that education is about more than a piece of parchment we can hang on the wall.  While I won't inherit a dime in terms of what these land owners and proprietors pass on to their heirs, I'll still pass on the values and philosophical underpinnings I learned from them to another generation. 

While there are many ways that these successful farmers and businessmen give back to their community in visible ways, there are many important contributions they make to society that go unseen. I'm certainly not the only example of someone that has benefited in this way.

As we continue to spend trillions at the federal level, we definitely should be asking how are we going to pay for all of this spending. Note even the loophole above is estimated to be only in the billions (keep in mind it takes 1000 billion to make a trillion). Let's also not forget that there is a huge difference between tax rates and the revenues that are actually realized. Human beings aren't cogs in a wheel or pieces on a chess board that can be played at the will of planners and bureaucrats.  But it is also important to ask what are we paying for and trying to accomplish? What are we giving up to get it? As economist Thomas Sowell writes in 'The Quest for Cosmic Justice"

"many of those pursuing a vision of cosmic justice simply take an adversarial position against the traditions, morals, and institutions that make the survival of this civilization possible."

Along the lines of what Jefferson said, the family farm is one of those important institutions that propagate morals and traditions key to the survival of our civilization from one generation to the next. Will the STEP act put its survival at risk?

Food and Farm Bill of Rights Stereotypes Modern Ag and Family Farms

In a recent Forbes article related to food trends that will shape 2018 one trend that stood out to me was #9, Politics and Food:

"Among the most troubling political moves to food businesses has been the country's withdrawal from the Paris Climate Agreement…There are two important focused efforts that will impact our food world in 2018. The first is the San Francisco ordinance that requires retailers to report antibiotic use by meat and poultry suppliers…this ordinance could also expand across the country.The second is the Farm Bill that will set in place eating and farming policy for a five-year period."

This is interesting given the political polarization we have seen with food preferences and beliefs.  The article also references democratic representative Earl Blumenauer's "Fight for Food" and "Food and Farm Bill of Rights." 

For instance in discussing the farm bill his web site states:

“The current Farm Bill provides little help to most American farmers and ranchers. 94% of all Farm Bill subsidy payments go to a few large-scale corporate farms that produce corn, rice, wheat, soy, cotton, and peanuts. These payments do little to support local food systems and growers. The result is that, we are paying the wrong people to grow the wrong things in the wrong places.”

“It's time for a better Food and Farm Bill that provides more Americans with healthy, locally grown food; that promotes sustainable farming practices; that reduces our impact on the environment; and that builds an economy around local farmers--not massive, corporations.”

We've seen this distorted view of subsidy payments before (see Four Big Questions about Big Ag, Subsidies, and Food ) ...and it overlooks the fact that these products are subsidized because that is what we eat vs. the other way around. It is also interesting that this language calls out "growing the wrong thing in the wrong places" yet in other places seems to favor subsidizing local production which would be contrary to comparative advantage as well as less sustainable. There is a lot here that may be hard to take issue with, but careful reading seems to put America's family farmers on defense.

The 2nd amendment in the Food and Farm Bill of Rights states: "Americans have a right to local supplies of fresh, healthy food, not subsidized food that makes them sick...Instead, the Farm Bill supports industrial meat production and processed foods that pose problems for human health and the environment."

This is some combination of ignorance of agricultural policy and production, hyperbole, and condescension. The causal connection between subsidized food and making people sick is tenuous at best. (a good read related to this is Tamar Haspel's recent article "Junk food is cheap and healthful food is expensive, but don’t blame the farm bill.")

Further the 6th amendment states: "Americans have a right to a healthy natural environment, and to a farm policy that does not exacerbate climate change...Our food and farm policies should reduce the emission of greenhouse gases from animal production, tilling practices, and crop selection, while minimizing energy demands.”

OK I agree but what do they have in mind? We've already pointed out the potentially conflicting goals of supporting local food and sustainability. And it is a fact that the current subsidies they are so critical of (like crop insurance) are for crops that are nearly all genetically modified and associated with sustainable practices like crop rotation, reduced tillage, improved biodiversity, as well as reduced emissions. 

For the most part this is just a recycling of myths and stereotypes about modern agriculture to garner support from the usual critics. This campaign feeds these stereotypes and appears to provide them legitimacy that may eventually lead to policies that hurt family farmers as well as ultimately the environment and the future sustainability of agriculture.

See also:

 Sustainably Feeding the World: Organic Food and Vegetables vs Conventional Commodities.

Agricultural Intensification and the Environment

The Cult of Statistical Significance...or...no bacon is not really as bad or worse than cigarettes!

Technical Efficiency, Yields, and Livestock Energy Conversion

What is the Most Effective Way to Mitigate Climate Change

GMOs and Fractional Reserve Banking

I recall a few years back being part of a Facebook discussion group supposedly dedicated to 'food and farm freedom.' In general discussion was related to reducing taxes and government regulation in agricultural production. However, there was a lot of anti-tech anti-biotech anti-corporate sentiment. The idea was that big business (like biotech companies) were conspiring with big government to control the food supply. The solution was...wait for it...more government regulation. Never mind this was a libertarian focused group and never mind that existing biotech regulations make production and release of biotech varieties 20x costlier than conventional crops despite being substantially equivalent in terms of risk (of course in-plant pesticides might necessarily require additional testing from an environmental standpoint).  So here was a free market discussion group with discussants arguing against government regulation of raw milk but calling for more stringent regulations if not actually banning biotech crops and other modern technologies in the name of safety and food access.

Changing subjects, recently George Selgin wrote an interesting piece regarding fractional reserve banking. Anyone familiar with libertarian and especially some Austrian leaning thinkers might have an idea of how much some abhor fractional reserve banking. The piece is a rather long historical look at fractional reserve banking and common law traditions going back a few centuries. But toward the end he notes:

"by encouraging people who might otherwise be inclined to oppose heavy-handed government regulation of private industries to favor, on ethical grounds, the outright prohibition of many ordinary banking transactions, the myth that fractional reserve banking is inherently fraudulent strengthens the hand of officials and others who want to hamstring bankers for quite different, but equally unsound, reasons, not excluding a general dislike of free enterprise."

I could not have put it better concerning raw milk drinking libertarians opposed to biotechnology:

by encouraging people who might otherwise be inclined to oppose heavy-handed government regulation of private industries to favor, on ethical grounds, the outright prohibition of many ordinary modern agricultural practices the myth that modern agriculture is inherently harmful or unsustainable strengthens the hand of officials and others who want to hamstring producers and others in the ag industry for quite different, but equally unsound, reasons, not excluding a general dislike of free enterprise.


References:

The "Bagging Rule" – Or Why We Shouldn't Arrest (All) the Bankers

BY GEORGE SELGIN SEPTEMBER 6, 2017 https://www.alt-m.org/2017/09/06/the-bagging-rule-or-why-we-shouldnt-arrest-all-the-bankers/

Henry Miller and Gregory Conko. 'Bootleggers and Biotechs.' Regulation. Summer 2003

Simulating Impacts of Food Taxes and Subsidies

 Just last week I posted about food subsidies. I asked:

"Could you make the argument that simply shifting money toward programs related to fruits and vegetables would have a large enough impact on price to influence consumption? How much money would that take and what would the effect size be?"

This video discusses a PLOS medicine study that finds positive health benefits related to subsidies for fruits and vegetables and the referenced study (from a 'headline' reading) indicates a 10% subsidy could have a meaningful impact on health:

http://www.msn.com/en-us/video/tunedin/making-fruits-and-veggies-cheaper-could-save-a-lot-of-american-lives/vi-BBCQCE0

The video makes no direct reference to a study. However based on this reading I think the following are the studies mentioned in the video, the first being the primary reference:

Reducing US cardiovascular disease burden and disparities through national and targeted dietary policies: A modelling study. PLOS Medicine. June 6, 2017
https://doi.org/10.1371/journal.pmed.1002311

Taxes and Subsidies for Improving Diet and Population Health in Australia: A Cost-Effectiveness Modelling Study. PLOS Medicine. February 14, 2017
https://doi.org/10.1371/journal.pmed.1002232

Both papers are simulations based on assumptions related to elasticities and projected health outcomes (vs. empirical findings). One thing advocated is to create a revenue neutral policy that taxes soda and subsidizes fruits and vegetables. I'm skeptical, but if I want to give any credit I could say cynically that in this way maybe a soda tax could be useful even if it fails to have any meaningful impact on consumption or health.

See also: 

Are Soda Taxes Effective?
Four Big Questions about Farm Subsidies

Democracy in Chains...? Was that not the vision of the founders?

There has been a lot of buzz and controversy surrounding Nancy MacLean's book  "Democracy in Chains" in relation to how James Buchanan (a founder of the public choice school of economics) and others especially connected to George Mason University have been mischaracterized in the book (see these two pieces from the WaPo here and here).

I want to zero in on one aspect of the book, pointed out by economist Russ Roberts, that also confuses me:

Russ Roberts quotes Nancy MacLean:

NM: "American democratic system of majority rule." 

RR: That phrase confuses me. The American system is a constitutional republic with very little majority rule. "

From:

https://medium.com/@russroberts/nancy-maclean-owes-tyler-cowen-an-apology-e6277ee75eb3

Note, I have not read the book but it makes me interested...is the book assuming that in fact the American system is actually a democratic system of majority rule vs. a constitutional republic that greatly restricts majority rule? Is it arguing that the latter is just a fabrication of Koch funded propaganda? And all of those taking Koch money are antidemocratic shills conspiring to covertly establish a libertarian utopian America? Is Nancy (a historian) ignorant of American History, or is she blatantly distorting it....being intellectually dishonest? Or does she (and by she I really should all along say those that think like her)  have some rather complicated and nuanced view of our history and constitution that you've got to read the book to understand because simply reading our founding documents and standard history textbooks leave something out???

I'm not sure....but the notion of an American system as a constitutional republic certainly predates James Buchanan and the Koch brothers. If we are going to be critical of the historical misinterpretations  and mischaracterizations found in "Democracy in Chains" at least we can give some credit. Noone has yet accused the author of claiming that the Federalist Papers or the Constitution were tantamount to Koch funded studies. But I have not yet read the book.

Our founders were well aware (without Koch money by the way) that a democratic system of majority rule was dangerous and they proposed a constitutional solution to check the kinds of abuses and powers that came with majority rule:

As stated in Federalist #10:

"From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties."

In Federalist #10 they also warned us about the populist appeals and uprisings that may result from the above, but proposed a solution:

“A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project…we behold a republican remedy for the diseases most incident to republican government.”

The purpose of the constitution was to ensure that the government did very little without the consent of the governed, but consent was not tantamount to majority rule.  For the most part, this was achieved through legislation held in the strict bounds of enumerated powers, with expanded powers of government coming through the amendment process.  This strict adherence to constitutional principles was the foundation for a workable democratic constitutional republic, as stated by economist Thomas Sowell in  Judicial Activism Reconsidered,

“The federal Constitution is "the supreme law of the land," not because it is more moral than state constitutions or state or federal legislative enactments, but because it represents a larger and more enduring majority. Minorities receive their constitutional rights from that enduring majority to which transient majorities bow, not from whatever abstract moral rights are imagined to exist as a brooding omnipresence in the sky.”

Democracy, limited by strict adherence to constitutional principles meant that government would have few powers and resources to spend on corporate interests or other special interests that can distort our democratic processes through campaign finance, lobbying etc.

Thomas Jefferson (who by the way had no connections to the Koch brothers) had the idea:

“in questions of power then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the constitution” - Kentucky Resolutions, 1798

I think the title "Democracy in Chains" is a good title for a book, and perhaps a better description of the American System than "democractic system of majority rule." But I think reading the book will reveal something quite different in the mind of the author and others that think like her.

Wednesday Post: Subsidies and Food Prices

WaPo:

One big reason some foods cost so much more than others

“Hint: It’s (mostly) not subsidies. Although they’ve certainly played a role in shaping our food supply such that we have huge quantities of just a few crops — a recipe for low prices — the discrepancy that seems to be at issue is the one between commodity crops such as corn and soy, and the fruits and vegetables that everyone’s trying to get us to eat more of. There’s a factor there that plays a much larger role than subsidies, and it doesn’t get much airtime…Its machines.”

An older article from 2014 in WaPo:

Farm bill: Why don’t taxpayers subsidize the foods that are better for us?

“But we also need to move away from a system that requires taxpayers to spend billions underwriting a system detrimental to public health.”

That last statement needs some qualification. We've seen something similar before from the NYT (see Are Farm Subsidies Making us Fat).  Not sure the causal link between subsidies and public health is much to talk about.

Economist Jayson Lusk knocks it out the the park. He addresses the science behind these specious connections  (and links to a number of related research articles) and includes some of his work in the area:

"There are actual lots of people who know how much farm subsidies contribute to food consumption, and they're called agricultural economists (in fact, McMillian goes on to then cite two prominent food and agricultural economists on the issue: Parke Wilde and David Just)…..In the model I used for the forthcoming paper I wrote on the distributional impacts of crop insurance subsidies, I find that the complete removal of crop insurance subsidies to farmers would only increase the price of cereal and bakery products by 0.09% and increase the price of meat by 0.5%, and would also increase the price of fruits ad vegetables by 0.7%.  So, while these policies may be inefficient, regressive, and promote regulatory over-reach, their effects on food prices are tiny, and depending on which policy we're talking about, could push prices and consumption up or down."

Could you make the argument that simply shifting money toward programs related to fruits and vegetables would have a large enough impact on price to influence consumption? How much money would that take and what would the effect size be?

Kevin Folta on the March for Science

A couple pieces in the HP by Kevin Folta recently:

Be effective with your rage:

"Willful ignorance has spawned a hot planet, expensive ballot initiatives for warning labels on safe food, calls to teach about a 6,000 year old planet in science class, and outbreaks of diseases long believed to be defeated. And that’s the tip of a melting iceberg....The best way I can support science and scientists it to create durable work and actively create the change I want to see.  I’m in this for the long game, not an expensive afternoon in DC. The cure to science ills is deliberate and visible investment of our non-existent time in public-impact pursuits.  I protest non-scientific perspectives daily, and have paid a professional and personal price for doing so, but we are making wonderful advances in the understanding of various publicly-controversial topics."

In a more recent piece he provides a nice succinct description of CRISPR technology and its applications:

“Gene editing uses precisely guided enzymes that digest DNA to install precise changes to genetic sequence, typically by removing a few little bits of information that disrupt the function of the gene. It is like cellular surgery, precise, effective and testable.These technologies have been used with astounding success in medicine and animal agriculture. Gene edited cells have brought infants into remission from leukemia and produced cattle that don’t grow horns, or don’t catch tuberculosis. The applications in these areas are endless.”

He also talks about how scientists can be effective right now by commenting on FDA's proposed regulations for gene editing technologies:

"Where are the protesters and science marchers? It’s stand up for science time!…this technology should not be hampered by the same strangling regulatory system that burdens new crop variety development with standard genetic engineering approaches. The ball is in your court. Stand up for science, study this issue and make your voice heard! "

See also: 
 Facts, Alternative Facts, Evidence, and Marching for Science
 CRISPR Technology

GIPSA , Lemons, and Cattle Markets

I was recently reading about how proposed GIPSA rules will impact cattle marketing in Beef magazine:

http://www.beefmagazine.com/ranching/gipsa-rule-threatens-more-cattle-beef-prices

Here is one slice from the article:

"USDA’s decision to move forward with publishing final rulemaking on the 2010 Grain Inspection, Packers and Stockyards Act (GIPSA) could force packers to pay the same price for all cattle. That would narrow or remove any spread in prices offered by cattle feeders. So, every cow-calf producer would receive the same price for calves, regardless of value."

Other places in the article talk about alternative marketing arrangements (AMAs) and thinning cash markets as well. But one thing I always thought, was that AMAs were one way that the market worked to solve the lemons problem. Conventionally, people might support regulation in cases where there are in fact lemons, and they want government intervention to fix the so called market failure.

You can read about lemons markets here, but generally in the case of cattle marketing, if you are a buyer and not sure about the quality of cattle you are buying, you would at best assume average quality and pay an average price in order to avoid overpaying for bad cattle. Unfortunately producers with good cattle would not receive a price that reflected superior genetics or management that they have invested in.  AMAs help identify better cattle with specific traits of interest and allow producers to get more for their value and allow buyers to get the quality they want without overpaying.

This looks like a case where the market solved a major problem, and the new GIPSA rule may in effect create a lemons problem all over again. The article does a good job describing the ramifications to producers, buyers, and consumers.

Trade, Jobs, and Political and Economic Disruption

Two podcasts I listen to often include EconTalk with Russ Roberts, and Masters in Business, with Barry Ritholtz. No one could have called the election based on these episodes, and none of the guests  made any projections about it specifically, but each of the these guests below discuss issues that could have been informative about what's been going on in the minds of the electorate. And why non-conventional candidates like Bernie Sanders and Donald Trump had so much appeal. They also question conventional wisdom about the distributional effects of comparative advantage and free trade.

In a past podcast, just over a year ago, Gary Shilling offers some interesting thoughts on trade:(paraphrasing not quoting).

Basically globalization has led to income polarization, with 8 years of zero to no real income growth for a segment of the population and this frustration has been expressed politically through Bernie Sanders and Donald Trump. With regard to Trump, when you strip away the blustering, he may actually be more like an old school centrist politician. When you take the impacts of globalization, the recession, and the slow recovery, conventional politicians don't know how to react. 

I think this is the kind of environment in which it was possible for the 'blue wall' on the electoral map to crumble.

More recently, Aswath Damodaran touches on this: (again paraphrasing)

Brexit should be a warning sign that we've lost perspective. In the aggregate, trade and globalization can be good for the country, but the 55 year old steel worker in Pennsylvania gets little consolation out of the fact that free trade is going to create more world wealth when he says where the heck am I going to get my paycheck next month. 

"We are paying a price for almost deliberate blindness in the financial capitals of the world to the kind of costs that are being created sometimes."

Again this echoes Shilling above. In his paper, "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade", David Autor takes a very detailed look at these issues and investigates them empirically. David was guest this past year on EconTalk with Russ Roberts. Some highlights:

• one of the standard arguments for free trade and globalization is that it makes the pie bigger, and sometimes the story sounds like some people get larger slices than others, but everyone gets a bigger slice, so on the net everyone is better off. 
• Another way of thinking about this is that trade increases aggregate wealth, and this increase more than offsets the losses for those that are displaced in the labor force.
• Autor points out that yes, gains can offset losses, but the gains are going to different people
• Example: sure consumers gain by saving 5 cents on the broom they buy at Wal-Mart, and if you add up all of those nickels its more than the total losses for people whose lives are ruined.
• But this is little consolation to those whose lives are ruined, it takes years to find alternative opportunities and often at a fraction of the salary they earned before
• In the past, maybe these distributional effects were of less concern because trade largely reflected differences in comparative advantage across different types of manufacturing- for example maybe we would lose jobs manufacturing electronics but make up for it with other jobs building tractors-And balanced trade resulted
• In the past, skillsets were much more congruent across different industries with changing comparative advantages- i.e. it was not extremely difficult to move from manufacturing one good to another if your former job was displaced by trade
• More recently, with globalization, things changed. Instead of reallocating across sectors of manufacturing, countries like China just supplanted manufacturing on a much larger scale. And instead of paying for imports with different exports for which we had a comparative advantage we ran trade deficits (of course with surpluses in capital accounts)
• However, the kinds of investments being made with the new wealth created by global trade are in areas and sectors where skills are not congruent for many workers supplanted by the trade outcomes
• Ultimately we have experienced a sharp decline in demand for labor that has been contractionary

Hence this is the 'stagnation' in real wage growth that so many have been talking about. Could it also be why conventional stimulus and monetary policy has not really moved the needle in terms of economic growth? Is this because our comparative advantage is in services, technology, marketing, research, and engineering and these sectors are not soaking up the excess labor freed up when manufacturers shut down or relocate overseas?

The conventional wisdom has always been with trade, labor and resources that were once tied up in lower valued uses are reallocated to higher valued uses creating more wealth making everyone better off. But Autor is arguing that this just isn't happening or is taking too long. Maybe its the next generation or two that reaps the rewards. But not necessarily. If you've got a good gig and lose it, you may end up living in an area with bad schools, or may not have the resources to provide your children or the next generation with the education and training required to take advantage of the new economy jobs where the gains more than offset the losses from globalization. 

This also makes me wonder...supply side policies designed to promote economic growth and  aggregate wealth (under the terrible misnomer 'trickle down economics' ) might not work quite as well as they used to either given the structural environment depicted by Autor in his paper. But that probably goes the same for fiscal stimulus related to infrastructure. It might boost those sectors related to construction, but the traditional multiplier working its way through manufacturing and labor demand just likely won't work the way the Keynesians believed it would 30 years ago. 

So what is the answer? Surely a world with trade is in aggregate better than one without. Does this mean renegotiating NAFTA? Should we put the brakes on future globalization and phase in tariffs and trade restrictions and slowly fade them out so that sectors can readjust over a few generations? (things Donald Trump may seem in favor of) Or more aggressive and progressive policies called for  to provide a soft landing for those future displaced?  Some combination?  This gets to more spending on a number of programs, healthcare, and education. (things Hillary Clinton would have supported)

I'm not sure what the answer is after considering the incentive effects and the impacts for long term economic growth and development. Not to mention government spending. However, it was the lack of policy response to these questions that made this past election what it was. 

References:

"The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade," by David H. Autor, David Dorn, and Gordon H. Hanson. National Bureau of Economic Research Working Paper, January 2016.

Science + Economics = Sound Policy

There has been a lot of controversy over the last year regarding IARC and their opinion of Glyohosate. Recently from Reuters, Exclusive: U.S. lawmakers to investigate funding of WHO cancer agency.  By Kate Kelland, Health and Science Correspondent:

"In a Sept. 26 letter to NIH director Francis Collins, Oversight Committee Chairman Jason Chaffetz describes IARC as having "a record of controversy, retractions, and inconsistencies" and asks why the NIH, which has a $33 billion annual budget, continues to fund it.
"IARC's standards and determinations for classifying substances as carcinogenic, and therefore cancer-causing, appear inconsistent with other scientific research, and have generated much controversy and alarm," Chaffetz wrote."

This is interesting. I think that critics are so tired of hearing that science is NOT on their side, they are desperate to (as Thomas Sowell has said) use the 'name and prestige of science to override other people's choices.' i.e they would like governments to ban or restrict glyphosate on the basis of their science.

And this is where economics comes into play. Economics is the study of people's choices and how they are made compatible, or the study of people's choices and the unintended consequences of those choices. So even if the IARC statements were based on rigorous science, the relevant question, at the margin, does not turn necessarily on whether glyphosate is carcinogenic, the question is how carcinogenic (or persistent in the environment or other environmental factors for that matter) is it in comparison to other chemistries or products that farmers would substitute in place of glyphosate and the consequences that follow.  Previous research has shown that the use of biotechnology has led to reductions in greenhouse gas emissions and that biotech trait adoption related to glyphosate (Roundup) has resulted in a substitution away from more toxic chemistries. So if even if we did take the IARC statements about glyphosate as gospel and acted on them, would it make sense from a health and environmental standpoint to discontinue its use and substitute with more toxic chemicals and farming practices that on a systems level be worse for our health and the environment?

In the case of glyphosate, it looks like both the science and economics are in favor of more...not less, or at least some optimal level. Economics can put science, good or bad, into a context relevant to the things we really care about. Unfortunately, many activists have an ax to grind that cuts counter to the principles they claim to be promoting. Economics can dull these sharp charades.

See also:

A Safer Food Future

More on how economic theory can help us determine which 'facts' are 'relevant'

References:

Genetically Engineered Crops: Has Adoption Reduced Pesticide Use? Agricultural Outlook ERS/USDA Aug 2000

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics report

Greenhouse gas mitigation by agricultural intensification Jennifer A. Burneya,Steven J. Davisc, and David B. Lobella.PNAS  June 29, 2010   vol. 107  no. 26  12052-12057

Sam Clovis, Blake Hurst, John Cochrane-Economic Growth, Regulatory Uncertainty, and Agriculture

In an AgWeb blog post I wrote back in 2009 (More Regulation for Global Agriculture ) where I quoted:

"We may well see increasing public control by human decision-makers over almost every detail of food production, marketing, and distribution." 

 I concluded:

"Hopefully, we won't have to waste a decade mired in stagnation while we rediscover the basic principles of individualism, freedom, and liberty that made this country so exceptional"

Fast forward almost 7 years later Sam Clovis (an advisor to Donald Trump for Agriculture) discussed a number of policies on Agritalk. A lot of details were discussed, but the most important thing relates to a general attitude Sam has in favor of less regulation.  Clovis intends that Trump will take this head on:
“Mr. Trump on day one of his presidency will impose a moratorium on rule-writing,” he says. “Then, each department will have 30 days on the rules that have been written over the past five years so we can have a look at them.”

Also related to this,Blake Hurst offers a nice anecdotal story titled 'Missouri Farmer Discusses  The Unbelievable Reality of Regulation' recently on AgWeb about Charlie and John, who own a small fertilizer plant and are farmers respectively and the challenges they face from over-regulation.

"Our present regulatory state can’t be believed if you haven’t been in the crosshairs of government bureaucrats. It can’t be parodied or made fun of, because no matter what “myth” we farmers might make up, the reality is even worse, and more strange. It’s past time to reform this system and rein in a government that seemingly knows no limits."

This is not just about agriculture, but nationally, when you look at income stagnation and consumer confidence and overall national growth its the same story. Recently, and timely, on EconTalk, Russ Roberts talks with John Cochrane about regulation and economic growth:

John: "if you think about the important issues of economic policy, economic growth is it. It just begins and ends at economic growth…..just nothing matters as much as reestablishing or improving on the traditional growth rates....it's not just more stuff: it's better stuff--better health, better environment, ability to pay off the government's debts, ability to pay for our social programs--really just everything hinges on economic growth…..people talk about the stagnation in middle class incomes and so forth. That's a phenomenon of the slowdown of growth"

And what is causing this slowdown- they discuss several possible theories, but most plausible is, you guessed it...regulation:

"My view is that we have creeping regulation sanding the gears. What's hard about this is every little market is screwed up. There isn't one big 'Aha,' we just need a stimulus program and we're all done. But if every little market is screwed up then the economy as a whole slows down.....To your question, there are plenty of measures that say the American economy is losing its dynamism. I think one new bank has been chartered since the passage of the Dodd-Frank Act, and that was designed to help Amish people. No new health insurers; in fact, lots of health insurers are disappearing. We are heading towards industries--banking and health insurance are heading toward a very European model: 3 or 4 very regulated"

And how many major players are we looking at in the Ag sector when it comes to seed and chemicals? About three depending on the pending deals we see on the table now.

Additional Comments and Links:

Its not just regulations themselves that are causing stagnation, but the uncertain environment they create

'Baysanto' and the Competitiveness of the Ag Sector

There is a nice post summing this up over at the Farmer Hayek blog:

It seems to me that the relationship between anti-trust legislation and regulation is an under-discussed issue in these cases. Agribusiness firms are heavily regulated by three of the most powerful regulators in the US: the FDA, the USDA, and the EPA. Many regulations function as fixed costs, implying that there are economies of scale in regulatory compliance. Thus, the greater the regulatory burden placed on firms in an industry, the greater the inducement to merge.

Similarly, from a 2003 issue of Regulation:

'In the end, EPA and the USDA regulatory policies place federal bureaucrats in the middle of virtually all field trials of gene-spliced plants, spelling disaster for small businesses and academic institutions whose scientists lack the resources to comply with burdensome, expensive, unnecessary regulation. The cost of field-testing gene-spliced plants is as much as 20-fold higher than for virtually identical plants crafted with older, less precise genetic techniques.' -Regulation, Summer 2003 

See also:
More details related to this from a 2010 post at EconomicSense - Monsanto Antitrust Case

Reference:
Henry Miller and Gregory Conko. 'Bootleggers and Biotechs.' Regulation. Summer 2003

Great Insight on Food Policy and Reform

Jayson Lusk has a very good summary of probably one of the best pieces I have read about the politics of food policy in a long long time. Very well written.

Read more:

The Politics of Food Reform Has Disappeared From the Democratic Agenda - by James McWilliams (Pacific Standard)

Link

Also in the article we find:

"If there is to be any hope of bringing agriculture back to the plate of national politics, we need to move beyond the dichotomies that frame our current debates. We need a new set of organizing principles. A starting point might be to shift our thinking away from how food is produced to something more fundamental: What is it that we’re even producing? The United States grows a handful of staple crops — mostly corn and soy — to feed a handful of animal species — mostly chickens and cows. What if we could re-claim those resources to pursue a diversity of food production — mostly plants — in a way that focused on nutritional rather than caloric density? "

The author does use the word *might* but there are a lot of trade-offs that go unrecognized with this line of argument....like the fact that grain is a complement in a much more complex food production process turning inedible plants into high quality protein that we other wise would not have were it not for raising the grains....i.e. feeding them to livestock. Sure we could have some form of grass finished food production but the environmental costs would be much higher leading to less sustainable sources of protein.

See also:

Telegram: Beef, It's What's for Dinner

The environmental impact of dairy production: 1944 compared with 2007. Journal of Animal Science,Capper, J. L., Cady, R. A., Bauman, D. E. 2009; 87 (6): 2160 DOI: 10.2527/jas.2009-1781

Are Farm Subsidies Making us Fat....

There is a big difference between when those on the left criticize farm subsidies vs those on the right. Coming from the left, its not the subsidies they dislike, so much as subsidies for politically incorrect agriculture. In fact, many times in the same argument they will turn around and advocate for more subsidies for politically correct agriculture (local, organic, etc.) For the left, a criticism of farm subsidies is more often an underlying criticism of modern agriculture. From the right arguments are more about efficiency and distortions. The irritating thing is sometimes some on the right might get a little lazy and sloppy in their thinking about subsidies and take up some of the same specious arguments made by the left...helping the cause for more regulation, higher prices, and fewer choices for consumers.

Any way, along these lines there was almost what I would call a hit piece in the NYT recently drumming up a connection between farm subsidies and obesity. Its more like sci-fi than anything science based. They are basically extrapolating some meaningless correlations until they turn into a giant industrial ag monster. Worse, its like a bad sequel, because we see this spurious connection creeping up time to time in the popular media.  Following the typical script its not the subsidies in general that they don't like....in fact some of the authors interviewed advocate for subsidies for 'politically correct' foods. Its the connection to politically incorrect industrial agriculture that is the emphasis here. This isn't really a critique of subsidies so much as a critique of modern agriculture itself.

From the NYT: How the Government Supports Your Junk Food Habit

"While the study does not prove cause and effect, its authors say that this strong association is consistent with other research showing that diets that are higher in subsidized foods tend to be poorer quality and more harmful to health."

“This tells us that the factors that influence the prices of our foods are an additional factor,” said Ed Gregg, chief of the epidemiology and statistics branch in the C.D.C.’s Division of Diabetes Translation. “We’re hoping that this information reaches policy makers and the people who influence how subsidies work.”

The causal chain of events they are suggesting just completely breaks down. The factors that influence prices…i.e. farm policies…have way too small of an effect on the retail prices consumers pay. And consumers just aren’t sensitive enough to these prices to respond by consuming more. That’s at least what the science tells us…and I hope that information reaches policy makers.

Economist Jayson Lusk knocks it out the the park. He addresses the science behind these specious connections  (and links to a number of related research articles) and includes some of his work in the area:

"There are actual lots of people who know how much farm subsidies contribute to food consumption, and they're called agricultural economists (in fact, McMillian goes on to then cite two prominent food and agricultural economists on the issue: Parke Wilde and David Just)…..In the model I used for the forthcoming paper I wrote on the distributional impacts of crop insurance subsidies, I find that the complete removal of crop insurance subsidies to farmers would only increase the price of cereal and bakery products by 0.09% and increase the price of meat by 0.5%, and would also increase the price of fruits ad vegetables by 0.7%.  So, while these policies may be inefficient, regressive, and promote regulatory over-reach, their effects on food prices are tiny, and depending on which policy we're talking about, could push prices and consumption up or down. " 

Here are 3 more big questions that might serve as trailers for future sci-fi NYT ag hit pieces:

1) Do farm subsidies encourage farmers to plant biotech or GMO seeds?

2) If subsidies drive the production of commodities and most of these are GMO,  aren’t we indirectly subsidizing GMOs?

3) Do farm subsidies largely prop up wealthy farmers vs. helping small farmers thrive in a volatile, competitive global and corporate dominated marketplace?

For answers to these questions (and a big spoiler alert to anti-ag activists) see:  http://ageconomist.blogspot.com/2015/04/whats-big-deal-about-farm-subsidies.html

Freedom is the miles I'm rollin' on.....not if you can't meet GHG standards

People think about the importance of certain freedoms, like freedom of speech or the right to bear arms. But one freedom we might think less about is the freedom to travel...to move from place to place at will..to work...to enjoy life. Its in many ways the essence of the pursuit of happiness. Unfortunately overzealous regulations are indirectly taxing this important freedom, and it is showing up in the price of new trucks and SUVs.

From:

http://www.agweb.com/mobile/article/ford-f-150-has-big-problem-after-overhaul--blmg/

"Ford Motor Co. executives spared no expense in overhauling the crown jewel of their empire, the F-150. They gave the truck a new aluminum body, smaller turbocharged engines and a lighter and stronger steel frame -- all with an eye to appease U.S. regulators demanding cleaner vehicles. The initiative took six years and cost Ford more than $1 billion."

“Not meeting the standards is not really an option, especially on your most profitable product,’’ said Gopal Duleep, president of H-D Systems, a Washington research company. “On fuel economy, the regulators allow you to pay a fine if you fall short. But on greenhouse gas, they don’t. You either meet the standard or they shut you down.’’

"The new technologies save fuel but add thousands in consumer costs…Between 2011 and May 2016, the average price of full-size pickups jumped 24 percent -- almost triple the pace for all new vehicles -- to $41,606, according to J.D. Power & Associates."

These costs are outrageous. How are middle and working class Americans supposed to afford these kinds of increases? Even if you buy used, more people turning to less expensive older vehicles likely will translate in to increased demand and higher prices in those markets as well.

Adding insult to injury, these regulations are NOT science based. At best they are political feathers in bureaucratic hats, at worst they are based on pseudo-scientific quasi-religious claims about the impacts of emissions on climate change. These regulations and costs are way out of proportion to any scientific consensus on climate change. It is way too weak to offer much guidance on actions, or very precise estimates of actual risks/benefits. ( see here, here, and here).

There are too many margins and too many market based and technological possibilities to use such a blunt and REGRESSIVE regulatory apparatus to address climate change.

See also: Hybrid Corn vs Hybrid Cars

Farmers and Ranchers May Sue to Stop Clean Water Regulation of Ordinary Farmland

Its almost folklore, the story about farmers being targeted and sued by Monsanto over trivial cross pollination events. In reality, only the most deliberate and egregious violations have ever been taken to court. However, if we are really concerned about predatory litigation practices, we find the EPA/US Army Corps of Engineers taking legal actions that could lead to imposing fines up to $37,000 per day on farmers found in violation of a tangling web of regulations related to clean water rules. The tide may be turning.

 From: http://www.fb.org/newsroom/news_article/441/

United States Army Corps of Engineers v. Hawkes Co., Inc.

"A unanimous Supreme Court today ruled landowners may challenge the federal government whenever the Army Corps of Engineers tries improperly to regulate land with regulations designed to protect water....Today's decision removes a huge roadblock that has prevented landowners from obtaining relief from the courts when the Corps illegally claims their land is federally regulated water"

More details of an interesting case where one farmer sued the EPA and won:

http://www.agweb.com/article/how-one-wyoming-rancher-fought-the-epa-and-won-naa-anna-lisa-laca/ 

About three months later, the Johnsons received an administrative order in the mail threatening a fine of $37,500 per day over the completed project. The agency wanted the Johnsons to rip out the stock pond, hire a consultant to revise a new plan, and submit it within ten days. “I knew the minute that I got the administrative order it was wrong,” Johnson says. “I told my wife we aren’t going to do this. It would have costs us $50,000 to $70,000 to do what they wanted us to do, going through a consultant and all the hoops to rip the pond out.” The Johnsons decided to fight back and in the end, they won.

You can also get more details with an interview with Andy Johnson on Agritalk  (May 19):

http://www.agweb.com/agritalk-podcast/

Do Preferences for Regulation or Labeling of Biotech Foods Differ Across Political Spectrums?

Jayson Lusk has an interesting post on his blog related to an article in the Journal of Agricultural and Resource Economics finding an interesting relationship between left leaning voters and their willingness to support GMO labeling initiatives:

“One distinction, which I think is missing, is the greater willingness of those on the left to regulate on economic issues, such as GMOs, than those on the right. Stated differently, there are questions of science: what are the risks of climate change or eating GMOs. And then there are more normative questions: given said risk, what should we do about it? Even if the left and the right agreed on the level of risk, I don’t think we should expect agreement on political action.”

In other words there might be different thresholds for the level of risk required to support a given policy interventions across the political spectrum. I go into some deeper dives about states of knowledge and risk perceptions in relation to this at economic sense - see Left vs Right Science vs Risk vs Propensity to Regulate.

Some thoughts and references related to a $15 minimum wage

 Despite a large literature finding negative impacts of minimum wage increases on employment opportunities for low skilled workers, a few studies have found minimum effects. For a list of annotated references see:  Do Minimum Wages Cause Unemployment).

While some of the studies finding no negative impacts use very rigorous experimental designs, they are still not perfect. There are a lot of margins that impact an employer's response to labor costs, and cutting jobs is only one among many of possible impacts. We can't always measure the relevant variables or outcomes that matter. Many of these impacts are in fact long term as well.

A very good post regarding this as well as the issue of survivorship bias can be found here:

 http://blog.independent.org/2016/04/03/beware-survivorship-bias/

"Many of the effects of increasing the legal minimum wage, for example, take the form of actions that never occurred and hence cannot be observed, for example, jobs that were never created because at the higher minimum wage entrepreneurs did not consider the formation of certain types of new firms or the creation of certain types of new jobs to be worthwhile.
In short, in gaining a solid understanding of economic events, we must beware of survivorship bias and never fail to consider the unseen as well as the seen consequences of government interventions in the market. A corollary is that we must not fool ourselves into the naïve positivist belief that only countable data deserve consideration in scientific work. The seen and the unseen, the counted and the uncounted—all are proper raw materials for the serious and properly trained student of economic and social life."

 It is also interesting, in some of these states I have heard that there are some built in safety valves. For example, provisions that back off on the planned wage increases if detrimental effects become evident. It is interesting that politicians are aware that these kinds of wage increases are drastic and unprecedented, and these safeguards indicate they at least are cognizant of the evidence and plain common sense that indicates this could be bad. Actually, maybe that's a positive in terms of moving in the right direction of economic literacy?  Unfortunately, this will only be based on short term and obvious measures like unemployment rates. Really bad outcomes like reductions in job training and job creation won't show up. The hidden costs won't get counted.

Some politicians have publicly stated that despite the economics, the arguments for these policies are morally compelling.  But why not put their money where there mouth is if they truly believe that? If they truly believe that people are entitled to a minimum standard of living they could just as well legislate an income supplement or negative income tax equivalent to achieve this.

There is simply no way to argue that those that benefit from these policies 'gain' more than those that lose their jobs, or never get the opportunity to begin with because the new business that would otherwise employ them never opens as a result.

While some politicians want to make it illegal for the poor inner city kid to advance their career potential working for $7.50 an hour at McDonalds,  it will remain perfectly legal for the rich kid in the suburbs to take the unpaid summer internship with the investment bank at $0/hr. That's how regressive progressive policies will ensure the poor get poorer and the rich get richer. But if you are in the class warfare business its a great way to generate repeat customers (voters) and garner support from the affluent progressive parents of those interns. Not a bad gig huh?