Comments on economics, mystery fiction, drama, and art.

Tuesday, December 28, 2004

Supermarkets and Peasant Agriculture in Guatemala

A recent article in the New York Times discusses the effects of the development of supermarkets on small-scale (peasant) agriculture in Latin America (specifically in Guatemala). The thrust of the article appears to be that changes in the retail sector have devastated small-scale producers and that the efforts of these producers to form co-ops have failed (or been doomed to failure).

What the supermarkets want is a reliable, consistent source for produce of a well-defined quality. But what supermarkets sell, their reason for existence, is a reiiable, consistent suppply of produce of a well-defined quality that is cheap. This is what they sell because this is what people who shop at supermarkets want. The benefit to consumers is the low price (which raises their standard of living), the consistent supply (which reduces uncertainty), and, often, expanded choice.

The problem is that small-scale producers individually have trouble provinding this sort of output, and, as a result, supermarkets look elsewhere. The co-ops appear to have been badly set up (undercapitalized), not well run, and unlucky. One structural problem is the lag in payments for the products of small-scale producers, but that should be easily fixed.

There are successes, and they appear to have some things in common. The first is strong management of the co-op. This makes achieving consistency and quality easier. The second is identification of a niche. By focusing, the successful co-ops find a way to make themselves valuable to the supermarkets.

Additional support for the co-ops (at least in a start-up phase) is likely to pay off. One thing not mentioned in the article, but which appears essential is providing some business/management training to the co-op managers.

Some specific comments:

"But economic growth has not kept pace with rising populations. The number of people living below poverty lines in Latin America has risen from 200 million in 1990 to 224 million this year. More than 6 in 10 people living in rural areas are still poor."

Comment: What has happened to the percentage of the population that is poor? 12% population growth would leave the percentage of the population that is poor unchanged, and I'll bet the population grew faster than that.

"Typically, each farmer is growing less than an acre of salad tomatoes in rustic greenhouses that are fast deteriorating. Their production has plummeted because of the blight that dries out the plants, which then yield very small tomatoes."

Comment: This sound s more like a production problem than a problem caused by the entry of supermarkets. Even without supermarkets, where would they have sold their product?

"The farmers themselves were uncomfortable with the rules of the supermarket game. They found it difficult to wait weeks to get paid. They did not want to sell their vegetables on the books and pay taxes that sharply cut profits. And some of what they supplied was rejected as too bruised or too limp or too members had trouble consistently delivering the quantity and quality of produce the supermarkets demanded."

Comment: The lag in payment time is an issue, but the rest of this is simply inefficient production.

"Not too far from Palencia, in the city of Chimaltenango, is Aj Ticonel, an association of small farmers that has thrived because it has something Mr. Chinchilla's co-op lacked: a shrewd and enterprising businessman to run it...The company's success has been built instead on sales of pricey vegetables for export. It now sells the same to La Fragua, and its membership has risen from 40 families in 1999 to 2,000 today...'The client buys from us not because poor people produce it, but because it's a good product.' "

Comment: The more I read, the more I conclude that the bigger issue is the difficulty that producers/suppliers face in responding to a changed marketplace. These problems would exist, in all likelihood, even without the changes at the retail level.

Monday, December 27, 2004

The Social Security Debate

I thought I would stay out of this, because I don't really have any particular expertise. But no one has yet posted (or at least I haven't seen it) some of the basic data which, in this case, are the inflation-adjusted returns to the S&P 500 Index. I used data for the first-day-of-the-year close (except for the end of 2004) and for the January CPI to compute a "real" S&P for each year from 1950 to 2004 (data in terms of "2004" Dollars). For the end of 2004, I used the December 21 S&P and an advance estimate of the CPI for December 2004.

What you get is a 4.04% (compunded) average annual real growth in the index, which sounds not too bad. The distribution of returns, however, doesn't look quite so good. The following table shows the (arithmetic) average returns for 1, 2, 5, to, 20, and 30 years, along with the standard deviation of returns, and the percentage of returns over those periods which were negative.


Remarkably, the 30-year return is (on average) worse than the 20-year return. This reflects the poor returns in the high-inflation period of the 1970s, the 1987 crash, and the late-1990s slump. (The first 30-year return is for the 1950 - 1980 period.) (A total return of 88.42% over 30 years is an average annual return of 2.11%, less than half the S&P's overall performance).

Even most daunting, however, is the fact that somewhere around 30% of the returns for each holding period (1-year, 2-year, 5-year, 10-year, and 20-year) , other than the 30-year holding period, are negative. The historical data suggest, in other words, that you have about a 1-in-three chance of earning a negative return to holding the S&P 500, even for long periods. Yes, the average looks good. But the downside risk is not something I'd like to bet a whole lot more of my retirement on.

Saturday, December 18, 2004

Every now and then

I wake up in the middle of the night and have something on my mind that must be written down. Once in a really great while, it's something like a poem. I usually don't share them, but whatthehell.

The Road
“I have always known
That at last I would
Take this road, but yesterday
I did not know that it would be today.”

So wrote Narihara. Or at least that’s how Rexroth translated him.

But “choose,” I think, rather than “take.”

Because the roads we are on,
Together, or alone,
Curling up a mountain,
Rushing headlong across a plain,
Circling back,
We have chosen.

Frost lamented the road not taken.
McLean, at his crossroads, sings
“All roads lead to where I stand,
And I believe I’ll walk them all
No matter what I may have planned.”
We choose. And the roads follow us.

Friday, December 17, 2004

Charles Wright, Buffalo Yoga

Charles Wright is one of the best poets currently working in America (in my opinion). His new book, Buffalo Yoga, is extraordinary. This is a bit from "Rosso Venexiano":

What else is bereft in the camera's lens, or the mirror's eye?
People, of course, and the future; Campo S. Polo:
Sabo, co fa scuro, Gran Balo Macabro the poster announced.
Lord, the detritus.

Write, the voice said. For whom? came the response.
For the dead, whom thou didst love, came the instant reply.

And will they read me?
Aye, for they return as posterity,
the voice answered one last time.

I've read his Black Zodiac maybe five times and every time I find something else. I can see that Buffalo Yoga will be like that.

Agnes Martin

Agnes Martin, a truly great painter, has died at age 92. I love her work, which is minimal, although not necessarily minimalist. Her paintings generally were monochromatic and involved some sort of grid or lines. Nothing figurative. Peaceful, contemplative, but with an emotional and spiritual depth to them. For reasons that are not terribly clear to me, I see much in her work that reminds me of Mark Rothko. Here's a link to a recent print of hers, which is, I think, very much in keeping with her paintings.

Tuesday, December 14, 2004

Motor Fuel Taxes

An article in The Chicago Tribune on Monday, December 13 ("Airlines fly in but don't fill up here/City, state taxes drive up fuel cost: ) started me thinking about the possibility of similar effects with respect to motor vehicle fuel taxes.

Consider a cluster of states, with relatively large population centers closely located across state lines (say, Wisconsin, Illinois, and Indiana). Suppose one of these states has significantly higher motor fuel taxes than either of the other two. Wouldn't we, then, expect to see people "tankering" their fuel in about the same way that airlines have begun doing? Wouldn't we expect to see truckers doing the same?

When I thought about this, I thought I knew that taxes in Illinois were significantly higher than those in Indiana or Wisconsin, so I thought it would be the case that motorists, either private or commercial, would tend to fill up in Wisconsin or in Indiana before driving into or through Illinois. Seems plausible, right?

And for Indiana and Illinois, it not only seems plausible, the tax differentials would support it. Illinois taxes gasoline at $0.198 per gallon, and diesel fuel at $0.223 per gallon, compared with $0.18 and $0.16 in Indiana. But in Cook County (IL), there's an additional $0.05 tax, and in the city of Chicago yet another $0.05. So the tax difference between northwest Indiana and Chicago is $0.138 for gasoline and $0.173 for diesel fuel. (Wisconsin is a different story; taxes there are $0.28 for all types for motor fuel, so the fuel tax advantage for Wisconsin is much smaller.)

Consider someone like me. I live in Chicago and work in northwest Indiana. Every two weeks, I fill up about three times, about 12-13 gallons each time. By buying in Indiana, I save somewhere around $1.70 every time I fill up. With 78 fill-ups per year, that's around $130 per year. For over-the-road truckers, who might have four fill-ups per week, at around 100 gallons per fill-up, that's more than $3500 per year. I have a moderate incentive to buy in Indiana. Truckers have a huge incentive.

And it shows up in the location patterns of gas stations, and even more dramatically, truck stops. Within 10 miles of the Illinois-Indiana state line, on I80/94, there are five or six truck stops in Indiana. Over the border, to the best of my knowledge, none.

What does Indiana gain, and Illinois lose in motor fuel revenue? Beats me. But it's almost certainly significant.

Monday, December 13, 2004

Taxing the miles you drive, or the gas you burn?

I've been thinking about a proposal being floated in California (see this article in the LA Times), ever since I saw a reference to it by Kevin Drum . Joan Borucki, appointed by Arnold Schwarzenegger to be the director of Californians Department of Motor Vehicles, has proposed ending that state's tax on gasoline, and replacing it with a tax on the number of miles driven per year.

Ignoring for the moment the issues surrounding the technology needed to do this, and the privacy concerns, and any questions one might raise about taxing California drivers for miles they drive out of state, what does this look like as a tax?

Let's start with the traditional purpose of gasoline taxes. In most states, and at the federal level, they have been dedicated taxes, directed to funds reserved for building and maintaining roads. That is, they function as user taxes. In this sense, shifting to a (revenue-neutral) mileage tax would seem to accomplish the same objective, if those funds were similarly dedicated. An argument is that the mileage tax functions better as a user tax than does a gasoline tax, because (to some extent) it's the amount you drive, not necessarily the gasoline you burn, that defines the benefits you get from the highway system. On the other hand, less fuel efficient cars are heavier and cause greater wear. For equal mileage driven, larger, heavier cars pay more in tax. Which functions better as a user tax, then, is not immediately clear.

But that's not the only issue to deal with. For one thing, gasoline taxes have other consequences. And shifting to a mileage tax also has other consequences.

First, gasoline taxes raise the price of gasoline relative to other energy sources. So they provide an incentive, even if only a minor one, for the development of automotive fuels other than gasoline. And because these alternative fuels are likely to generate less pollution, a gasoline tax can also be thought of as a tax on the pollution caused by burning gasoline. Indeed, the gas-tax-as-pollution-tax strand may lead to an argument that the gas tax should be increased (and offset by reductions in other taxes in a revenue-neutral way).

Shifting to a mileage tax, of course, shifts away from the pollution-tax aspects of the gas tax. It even, perversely, works in the opposite direction. Unmodified, the mileage tax shifts taxes from people who drive fuel-inefficient vehicles to those who drive fuel-efficient vehicles. Consider two people each driving 15,000 miles a year. If one drives a car that gets 40 miles per gallon, that driver uses 375 gallons of gas per year; if the gas tax is $0.60 per gallon, s/he pays $225 a year in gas taxes. If the second driver gets 15 mpg, that's 1,000 gallons of gas, or $600 per year. Now shift to a mileage tax that's revenue neutral--$825 for 30,000 miles, or $0.0275 per mile. Both drivers now pay $412.50 per year. Note that the effect is to "punish" the driver with the fuel-efficient car, and to (at the margin) discourage fuel conservation, which (at the margin) will lead to increased use of gasoline and increased air pollution.

Second, we know that lower-income people are, other things equal, likely to buy more fuel-efficient vehicles than are higher-income-people. So the mileage tax is also a shift in the tax burden from higher to lower income taxpayers.

The LA Times article suggests that these effects can be adjusted for by varying the per-mile tax based on the fuel efficiency of cars. This (and here I'm not ignoring administrative complexity) would significantly increase the administrative complexity of the system. Any system with multiple tax rates is harder to administer than a system with one tax rate.

[To continue with the administrative problems. California had about 35.5 million people--about 20 million households, about 2.75 million businesses, and about 30 million motor vehicle registrations, and a half a million motorcycles, in 2002, and collected about $3.3 billion in motor fuel taxes. There were about 24,000 gas stations. (All data from the Statistical Abstract of the United States.) I don't know about you, but collecting taxes from 24,000 sources seems easier than collecting taxes from the roughly 20 million to 22 million taxpaying units--households plus businesses with motor vehicles--that'd pay a mileage tax.]

Take all this together, and then think about the shift to a mileage tax. The environmental consequences would be bad. The distributional consequences would be bad (well, in my opinion, anyway). The administrative complexity of collecting the tax would be greater. And in favor? That maybe--maybe--a mileage tax would work better as a user tax.

Friday, December 10, 2004

The BALCO Frenzy

I'm watching & reading the BALCO revelations (and so forth) with some amusement. The amount of piling on is the funny part. Take Marion Jones. One piece I read implied that the fact that she's never failed a drug test is evidence that she's taking drugs. The writer said her defense--that she's never failed a drug test--is the last refuge of dopers. So how does she prove a negative?

Did Bonds knowingly take stuff? I don't know, but probably. Does it show up in his performance? That's a harder question. I looked at his numbers before and after 1999, and (leaving the 73-HR season out of it), his hits, total bases, and HRs per plate appearance (not per at-bat) are all about constant...what he's done is turn about 100 outs a year into about 100 walks a year...and the change started before the 73 HR year...maybe steroids would help you do that? As I wrote somewhere on a baseball site, it's like he decided to stop making outs (his K rate has also declined precipitously).

Will a stronger testing regimen change things? Probably. Will that be a good thing? Again, probably. But the amount of ink being spilled about, and airwave time spent on, this is out of proportion to its importance. My list of more important stuff is pretty long (and look at what I'm doing).

Monday, December 06, 2004

Posner and Becker

Richard Posner and Gary Becker have begun a joint blog and the first two posts deal with the concept of preventive war. Posner's post, in particular, is a prime example of the misuse of economic arguments. He writes: "A rational decision to go to war should be based on a comparison of the costs and benefits (in the largest sense of these terms) to the nation." Well, yeah. But so what? As Publius at Legal Fiction points out, this amounts to saying, "Wage preventive war when it's a good thing. Don't wage preventive war when it's a bad thing."

To make a benefit-cost analysis of preventive war work, it's necessary to assume that one can (a) identify all the things that constitute costs and benefits and (b) place values on them that render them capable of being compared (money values can do as a measuring rod).

Psoner goes on to write: "The benefits are the costs that the enemy’s attack, the attack that going to war now will thwart, will impose on the nation." This may not be immediately clear. The proposed benefits of preventive war, to Posner, are that damage that we prevent. He goes on to say that he is concerned with "future costs that are largely nonpecuniary" and that if "the threat of attack lies in the future it is difficult to gauge either its actual likelihood or its probable magnitude."

But on Posner's own terms we are now prevented from doing benefit-cost analysis. The benefits of preventive war have an unknown probability of coming to pass and cannot be measured in a way that meets the test of inter-subjectivity. So it does not matter what we say or do, we cannot compare the benefits and costs in any way that approaches objectivity.

So if I think the war is a good idea, and you think it is a bad idea, benefit-cost analysis is incabable of converting either of us. The idea of benefit-cost analysis, applied in this realm, is intrinsically unconvincing.