A rather damning analysis by Adam Davidson of the failure of the market to accurately price bonds issued by Greece—alas, a market failure perhaps induced by government intervention.

The original sin of the Greek crisis did not happen in Athens. It happened on those computer terminals, in Frankfurt and London and Shanghai and New York. Yes, the Greeks took the money. But if I offered you €7 billion at 5.3 percent interest, you would probably take the money, too. I would be the one who looked nuts. And if I didn’t even own that money — if I was just watching over it for someone else, as most large investors do — I might even go to jail.

Some icons

David Warsh pens a good piece, a longish read (with a surprise in it) about the twin careers of America’s best-known economists of the latter third of the 20th century, Paul Samuelson and Milton Friedman. They first overlapped at the University of Chicago in 1932.

three colors and blacksimple designMy textbook for Economics B01 (Macro) was the 9th edition of Samuelson’s Economics. The color scheme and overall design of that text retain their simple power. The book’s endpapers are something special: in the front, a line graph of per capita GNP* for the period 1870-1973 for the U.S., Germany, the U.K., the Soviet Union, Japan, and (creeping in at the very bottom) India; at the back, a family tree of schools of economic thought, from Aristotle through the Mercantilists down to the Socialists and post-Keynesians.

*Yes, that’s right: at the time, Gross National Product was the headline aggregate, not GDP (Gross Domestic Product). (What’s the difference?)


An op ed piece by Mark Lynas has been sitting in my clippings folder for several weeks. He makes the case for genetic engineering (GE) of food crops, with particular emphasis on its positive effects on yields in the developing world. While I can’t say that I’m entirely convinced, the column is persuasive — particularly when you consider that Lynas was once an activist against GMOs.

No one claims that biotech is a silver bullet. The technology of genetic modification can’t make the rains come on time or ensure that farmers in Africa have stronger land rights. But improved seed genetics can make a contribution in all sorts of ways: It can increase disease resistance and drought tolerance, which are especially important as climate change continues to bite; and it can help tackle hidden malnutritional problems like vitamin A deficiency.

At about the same time, Tania Lombrozo posted about the psychology of public acceptance of genetic engineering, or, as she put it rather bluntly in her lede,

Why do so many people oppose genetically modified organisms, or GMOs?

And, again, I’m not sure that her analysis applies to my skepticism, but the effect of the two writings leads me to consider why I am mildly opposed to expanding high tech agriculture. I think the core of my opposition lies in business models and practices, in the troubling consolidation that is taking place in the seed industry—not in subjective assessments of what constitutes a “natural” food. I look to the Union of Concerned Scientists, which offers this pro- and con- assessment:

We understand the potential benefits of the technology, and support continued advances in molecular biology, the underlying science. But we are critics of the business models and regulatory systems that have characterized early deployment of these technologies. GE has proved valuable in some areas (as in the contained use of engineered bacteria in pharmaceutical development), and some GE applications could turn out to play a useful role in food production.

Thus far, however, GE applications in agriculture have only made the problems of industrial monocropping worse. Rather than supporting a more sustainable agriculture and food system with broad societal benefits, the technology has been employed in ways that reinforce problematic industrial approaches to agriculture. Policy decisions about the use of GE have too often been driven by biotech industry public relations campaigns, rather than by what science tells us about the most cost-effective ways to produce abundant food and preserve the health of our farmland.

“Public relations campaigns:” does anyone remember when DDT was going to save the world, and Rachel Carson was called a crank?

The Union’s policy recommendations, among other things, call for food labeling laws, “so that consumers can make informed decisions about supporting GE applications in agriculture,” and I am definitely behind that idea.

I would like to think that I can be convinced by reason and evidence, so I could change my mind. But for now, I’m hanging out in the gray area.

Bubble pudding

An excellent piece of investigative business reporting in this past Sunday’s Times from Mary Williams Walsh, concerning the creative accounting that many insurance companies have happened upon: “captive reinsurance” is a fancy name for hiding liabilities on a subsidiary’s balance sheet.

She uses the case of Accordia Life and Annuity, which allocated insurance liabilities to six subsidiary companies, capitalizing the subs with egregious mutual exchanges of IOUs. It’s not for nothing that one of the subs is named Tapioca View.

But the paradox of the story is that the state of Iowa (where Accordia is incorporated), which has the express goal of making Des Moines an insurance center, is also a leader in requiring transparency, thereby making it possible for journalists to expose the shaky dealings.

…before you blame Iowa for playing fast and loose with the legacy of [19th-century reformer] Elizur Wright, remember: Most states now allow captive reinsurance. So do the traditional offshore insurance havens like Bermuda. And most keep it secret. But Iowa has decided to stick its neck out and let people look at the deals, knowing full well that they might not like what they see.

Quality, not quantity

The Economist’s Free Exchange blog interprets recent research which suggests that the economic effects of environmental regulation are not nearly as severe as those on the pro-business right would have it.

There are several possible explanations for the finding. One is that damage from environmental regulation is not great enough to change the overall productivity figures. A rule of thumb says a 10% change in the oil price is associated with a 0.2% change in GDP, so if green taxes push up energy prices by only a few cents, their macroeconomic impact might be modest. The effect on jobs, investment or trade, though, might be greater.

Another explanation may be that stricter environmental regulations do as much good as harm.

Follow the yellow brick road

Definitely an oldie but a goodie: in a 1990 paper for Journal of Political Economy, Hugh Rockoff put together a marvelous reading of L. Frank Baum’s Wonderful Wizard of Oz (1900) as an allegory of the pros and cons of bimetallism as a progressive-era monetary policy (caveat lector: there are some scannos in this copy of the paper). (The Free Silver crowd argued for the [inflationary] return to silver coinage as a means to break out of the U.S.’s late-19th-century deflation.) Those of us familiar only with the 1939 film version might scoff, but when Rockoff reminds us that Baum gave Dorothy silver slippers to wear, not ruby, as she skipped along the golden road—well, the parallels begin to line up. My favorite is the explanation of Dorothy’s vanquishing the Wicked Witch of the West (William McKinley) with a bucket of water: in an era when dryland farmers of the Plains west of the 100th meridian claimed that just a little more rain would make their lands bloom, it all makes sense.

(Ah, it turns out that Rockoff was anticipated by Quentin Taylor and others.)

N. Gregory Mankiw, Principles of Economics, 7/e

Some links: 69

Another post to clear out the inbox:

  • Steven Portugal et al. equipped 14 Bald Ibises (Geronticus eremita) with miniaturized GPS units to study the energetics and aerodynamics of flying in V formation. As the leader summarizes, each bird does indeed time its wingbeats to maximize the drafting effect of following another bird–abstract and heatmaps on the article page.

  • W. R. Grace & Co. has emerged from bankruptcy protection, as Catherine Ho reports.

    I interned for Grace in its New York headquarters in the late 1970s, and then somehow convinced someone at one of its newly-acquired retail businesses, Bermans, the Leather Experts to hire me full-time. (I lasted a year, and the lit out for Washington.) Bermans is long gone, merged into Wilsons and later Georgetown Leather Design, then gradually declining into liquidation in 2008. Back in the 1970s, Grace described its organization as a three-legged stool—specialty chemicals, energy, and consumer retail and restaurants. The energy game was no kinder to the portfolio than brands like Channel home centers and Houlihan’s restaurants. And, as Ho reports, personal-injury lawsuits stemming from asbestos contamination of the company’s vermiculite products sent the company into bankruptcy court.

    My workplace, the soaring building on 42nd Street (with a plaza that extended close enough to Sixth Avenue to give it an Avenue of the Americas address) still stands, but what’s left of the chemicals-only firm is now headquartered in Columbia, Maryland.

  • Brian Hayes uses a rhododendron shrub as a thermometer and wonders at the curled leaves’ apparent piecewise linear response to ambient temperature. Is the curling response a means to curtailing water loss, or a way to minimize UV damage to this understory shrub? Erik Tallak Nilsen likes the latter explanation.

Decline of the West: 1

First it was the lights coming on at Wrigley Field, then the closing of Tower Records and Ollsson’s Books, and then the end of the zone system for D.C. taxicabs. We endured. But this blow is too much to take: the Metropolitan Museum of Art has discontinued its colorful admission buttons, replacing them with paper tickets, stickers—and advertising. A spokesman for the museum says that the the new paraphernalia will save the organization two cents apiece. Bah!

hoping for a freebieAnd Godzilla here was working on collecting a full set, hoping to score a free admission when his color came up again.

Next steps

An intriguing piece from a few weeks back by Nicole LaPorte on Kenneth Lander’s THRIVE Farmers Coffee. THRIVE seeks to move beyond the fair trade co-op model, to capture more of the value added by the coffee supply chain (roasters, distributors) for the farmer who got the beans out of the ground in the first place. THRIVE farmers follow organic methods, although not all go through the process of USDA certification.

It’s a small operation now; it will be interesting to see whether it can scale up from its current annual volume, somewhat more than 300,000 pounds of coffee.