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10/28/2007

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Jack

Among the "sensible" actions might be more cooperation with others. Becker points out that we impose a high tariff on Brazilian ethanol. But sugar give and 8 : 1 return on energy invested by comparison to 1.25??? or less? for corn. Are we no longer believers in relative advantage and "free trade?"

Even worse this is a description of Mexico's sugar situation:

With the North American Free Trade Agreement, NAFTA, the industry hoped to export their sugar excess to the United States, and thus acquire additional revenue that would be used to pay for the harvest, repay part of the loans, and invest in modernizing the existing infrastructure. Unfortunately, the US has not fulfilled NAFTA's agreement on sugar and thus, the mills are left with tons of sugar in their warehouses without buyer: they cannot sell them at home, because of the saturization of the domestic market nor in the US. The loss is unquantifiable and the industry will need more than a restructurization to bring it out of 90-year crisis. The government has been left with a great challenge: restructure the industry while providing for those 2.5 million people that depend on the industry for their monthly income.

http://www.american.edu/TED/mexico-sugar.htm#r1

If we're at all serious about slowing the migration of Mexicans to the US shouldn't we be looking for win-win trading opportunities that would employ them on their own economy?

Let's see, an $8 billion subsidy for the barely breakeven corn ethanol as compared to spending the $8 billion on an 8 : 1 source in a low wage country should give us at least $50 - $60 billion of ethanol and help to solve a portion of Mexico's surplus labor problem, not to mention making tortillas affordable again.

Am I missing something or are "our" lobbyists choking us to death?

Lee

Another considered and informative pair of posts.

But why the newspaper column style, free-floating from anything that has been said in the blogosphere this week? I think you'd attract a more sophisticated audience if you dropped it and engaged the other elite economics bloggers --- Brad DeLong, Tyler Cowen, and Paul Krugman. They're part of a friendly but critical conversation that has gained a lot of media influence.

You guys could really tear them up if you'd just engage! Please!

ChinaCoalWatcher

Congratulations, Professor Becker, on your being announced as one of this year's recipients of the Presidential Medal of Freedom. Say hello to your co-recipient, C-Span's Brian Lamb, for me.

Phillip

I thought you made good points on the share of a countries income being higher in developing countries than developed however I have a question.

Wouldn't that rise be partially be offset by the rise in food? I expect that these same countries have a higher percentage of their income from agriculture too, so a rise in prices would increase their paychecks.

This all depends on how much the rise in income is, they could still be worse off.

Wes

Given that food is one of the major goods traded in the world economy, that the US dollar is one of the major currencies used internationally and that many analysts in the financial sector have biases, I would not be surprised if it were to be eventually realized that the increase in food prices was due to the falling value of the US dollar (along with certain other currencies) rather than the rising value of food.Maybe the costs of food production really have increased or maybe there really is more demand or maybe there really are market inefficiencies creating artificial shortages but there's also the USA's massive budget deficits (that the Iraq war sure hasn't helped) and the Federal Reserve's policy of buying up the debt in order to keep interest rates low while China buys up US dollars to keep the dollar from devaluing. These kinds of questionable policies could be creating a situation that we'd like to believe is an increased value of food but that is in fact something else entirely.

Jack

Wes I think you've hit many of the factors. I don't know, on average, what the energy component of food is but add up farm production, and I think US food is transported over 2,000 miles, the energy used to make products and box or wrap them, and the energy consumed in stores with open coolers etc. and it must be substantial.

Somehow wars always add to food costs, perhaps filling up the pipeline to get food delivered half way around the world, much of it wasted as wastage is inherent in wars and perhaps especially in Iraq's climate, plus Iraq is now so screwed up we're probably providing half of their food too....... one war cost I don't object to when H-burton actually delivers what it charges for.

Ha, Ha! The US, with huge trade deficits, instead of cashing in a bit on the high corn prices our idiotic ethanol subsidy has created, is instead trying to fill the tanks of its fleet of gashogs with even pricier fuel made with increasingly costly fossil fuels! Oh well, perhaps make it up on volume?

Jack

Whoops! Left out the effect of $90 price of oil on low wage farmers and workers when the increase from $20 to fill a small tractor takes more than the guy used to earn in a month.

Tucker

I agree primarily that policies should encourage food production, especially abroad, but the Mexico case was brought on by NAFTA. American access to the Mexican corn market dropped prices enough to drive many domestic farmers out of the market. Mexico should have filed an anti-dumping case against the US, but didn't and this was the result. Meanwhile the WTO was supposed to lower barriers and allow access to OECD agricultural markets but due to the way it was negotiated that didn't happen. This is the issue where the Doha negotiations are stalled.

The real problem is that the bias in expanding agricultural production (which is needed) is toward extreme labor efficiency when where the production needs to be expanded labor is a much cheaper factor. In order to re-establish falling food prices there needs to be technical advancement to allow the efficient allocation of factors in the third world.

kio

I agree that new (fuel) role of bio-products with increasing oil price may cause people starve in near future. No remedy, although. Just economic efficiency.
Hopefully, genetics can meet requirement of ethanol production with some breeds which are not eable. Again economic efficiency.

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