PEN-L message, Re: [Pen-l] the Ekon Pres

On Jul 13, 2008, at 9:56 AM, Jim Devine wrote:

The New York Times / July 13, 2008

Economic View
What if the Candidates Pandered to Economists?
By N. GREGORY MANKIW

In the months to come, John McCain and Barack Obama will be vying for
the support of various voting blocs. It is safe to say, however, that
one group won't get much attention: economists... Imagine that those
running for office tailored their economic positions to attract the
experts in the field. What would it take to put the nation's
economists solidly behind a candidate?

On many issues, from universal health insurance to increased taxes on
the rich, economists do not speak with a single voice. But on some
issues we do. Here is an eight-plank platform designed to attract a
majority of economists. It is based on discussions I have had with my
colleagues [i.e., his clique] — call them focus groups, if you'd like
— and polls of my profession:

<snip>

OPPOSE FARM SUBSIDIES Economists like free markets, a principle that
applies to agriculture as much as any good or service. Again, Senator
McCain has the lead. Senator Obama's endorsement of the recent $300
billion farm bill, his support for domestic ethanol subsidies and his
opposition to imported sugar ethanol may bring votes from farmers, but
economists view these policies as a burden on taxpayers and consumers.

[Here, I generally agree with Mankiw. However, at this juncture, Mr.
Mankiw should worry about the way that the ending of these programs
might encourage deflation, which is a macroeconomic disaster. Of
course, he doesn't know much about macro subjects.]

Coyle:

Here Mankiw (and Devine concurs) that free market principles "applies to agriculture as much as any good or service".

Let me begin by saying the US farm program is badly designed, unjust as between farmers, and a boondoggle. Then I will add that the US farm program is doing a lot of damage to farmers elsewhere.

Having said that, Mankiw is simply ignorant -- one might say criminally ignorant, since he's teaching this garbage to his Harvard students -- of the production costs involved in commodity crops. A grain farmer essentially sells at marginal cost. That might be high, resulting in high profits, or it might be low, resulting in losses. (Or it might be anywhere in between.) If sales at marginal cost are below the full costs -- i. e. fuel, fertilizer, labor, etc. PLUS overhead costs -- land rent or ownership, mortgage, annual cost for the expensive machinery, etc -- then there is a loss for the year. There often is.

The standard theory of competition fails in industries where the product sold is an undifferentiated commodity, and, separately, where production requires large fixed investment, or “overhead costs.”

We've been through this "free market" story before, even as recently as 1996. Congress passed, at the urging of many farmers, the "Freedom to Farm" act. By 1999 that was repealed, with multi-billion subsidies restored and maintained since.

"Competition" can't work with undifferentiated commodities, hence Mankiw reveals himself to be ignorant or worse. I'll end by repeating that the current farm legislation is unjust, both domestically and internationally.

Gene Coyle

N. Gregory Mankiw is a professor of economics at Harvard. He was an
adviser to President Bush and advised Mitt Romney in his campaign for
the Republican presidential nomination.

Copyright 2008 The New York Times Company
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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