Skip to content

Should People Worry about Food Security?

March 4, 2016

Short answer: No.

People have always worried about food security. It is built into our DNA from eons of evolution. Organisms that don’t worry about food die out. So keeping that in mind, it is not surprising that people still worry about food even if those worries are outdated in the modern world.

The question of food security is an extremely dangerous one. If societies neglect it, they face famine. If they worry about it too much, genocide, war, coercive birth reduction/forced abortion, and xenophobia rear their ugly heads. The fear of starvation drove the Nazi’s Holocaust and Lebensraum policies. It’s not like the Germans all wanted 100 acre ranches for fun, they thought they would need that land to grow food. It’s also the concern that drove China’s one child policy, which led to the butchering of millions of infants, not to mention the cost of prohibiting people from having the families they wanted. It also contributed to the British inflicting the Bengal Famine on India in 1943. Food security is a deadly serious question.

Malthus
Organisms expand exponentially, unless constrained. Land is limited, and adding more farmers to a fixed plot of land results in diminishing returns: the first farmer might be able to grow 500 food, the second will increase production to 900, the third 1200, etc. Eventually the land simply won’t produce enough to feed additional farmers working it.

So, we’re left in a dilemma. Either birth rates must limited or people will have children until some of them starve. The option that actually happened – exponential food supply growth – was not considered by Malthus. In his defense, it would have seemed absurd to any level headed scientist of his time period. Today, exponential capacity to produce food has continued, but birth rates are dramatically lower than in the past, and in many countries have fallen below replacement.

worldwide population growth

world_fertility_rate_by_region

worldwide per capita food-prod-1960

And even as food production has increased at such a dramatic rate, amazingly, input use is down! That is, people are using less labor and less land to produce these ever increasing amounts of food.

mon-ag-outputs-and-inputs

crop yields Source
Poor countries could increase world yields by catching up to the developed world.

Technology
Technology has been the savior of humanity, from the plow, to irrigation, to tractors, fertilizers, domestication, selective breeding, GMOs, soil analysis, and a host of other technologies. Heroes like Norman Borlaug have saved millions of lives by developing technologies to improve food production. As the population increases, and societies get richer, more people like him will be able to discover more and more. People worry a lot about phosphorus running out, global warming, or other environmental disasters, but honestly, I think we’ll figure something out. Humans are remarkably good at coming up with creative solutions to problems.

There’s a lot of wiggle room
Vegitarianism – if famine were a real threat, people could scale back meat consumption dramatically. You lose a lot of calories by converting grain to meat.
feedtoprotien_chart

land_mammals

We waste a ton of corn turning it into inefficient ethanol:
CornUseChange
Once electric cars become cost effective, we won’t even need it anymore.

Wasted Food/meat – much of food is wasted. Now, you couldn’t get this down to 0%, but on the margin, if food became much more scarce, people could save more of it. A lot of the time, people cite waste as an inefficiency, but that’s not really true from an economic perspective. If food is very cheap, people have no reason to conserve it. You conserve valuable things, and you can afford to waste cheap things. People have never spent less on food than they do right now.

food-spending-as-a-share-of-us-personal-disposable-income-food-share-of-disposable-personal-income_chartbuilder-1

The Future
There are dozens of plausible new technologies that could massively increase food production.
Vat grown meats have the potential to dramatically lower the amount of grain needed to make meat, not to mention making it more humane. Aquaculture and mariculture could dramatically expand the available “land” available for food production. GMOs could increase yields and lower the amount of pesticides and fertilizer needed. People could eat protein made from insects instead of mammals. The most powerful technology at all isn’t new – it’s simply distributing the technologies developed and in use today in the rich world to the developing world and making the capital investments necessary to use them. There is the potential to increase food production enough to feed billions more people, and with birth rates dropping like they are, that probably won’t even be necessary. Fortunately for everyone, mass famine is a highly unlikely scenario.

The Curious Case of Martin Shkreli

February 29, 2016

Martin Shkrell is most famous for increasing the price of Daraprim, a generic drug, by around 5000% to $750 a dose. He’s currently under investigation for securities fraud as well, but most of the attention he gets is because of his unsavory business model.

How Normal markets Work
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”” – Adam Smith

Consumer demand limits prices. A demand curve is a list of everyone in the economy’s willingness to pay for a good. As the price falls, more and more people are willing and able to buy the good.

A firm’s profit is the price minus costs times the quantity. For example, if they sell 100 goods at $100 each, and their costs are $50 each, profit is $5000 [(100-50) x 100). If they raise prices to $125, but sales fall to 50, total profit will be lower.
price quantity profit

Every firm has a price point where profit is maximized. The more competitive a market is, the more options customers have, and the less willing they will be to pay high prices. Instead of a slow drop in demand as prices go up, firms in competitive industries will face sharply lower sales if they raise prices above their competitors’ prices. Markets don’t have to be perfectly competitive for prices to be fairly close to costs – as long as firms know if they raise prices, they will lose sales to their competition.

How do drug markets work?
Drugs are like software; extremely cheap to produce, but have very high and very risky development costs. It costs around $1.3 billion to bring a drug to market, and even when you do, there is no guarantee of profit.

If society allowed full competition immediately, with no compensation for research and development, no one would create new drugs. Even the most altruistic generous person in the world isn’t going to throw that kind of money at developing a drug, unless maybe they’d save a few million lives doing so. You can’t rely on charity to run the entire drug industry, because there simply isn’t enough money to cure all the diseases out there without some profit. For some perspective, if St. Jude’s Children’s Research Hospital spent their entire annual budget, they could get one drug approved. That’s it. There are thousands of diseases out there that need curing.

Total average per-drug profit needs to be at least 1.3 billion to ensure new drugs get developed in significant numbers. That means either high volume at moderate prices or high prices at low volume. If 10 million people have a disease, you can charge them each $130 and make your drug trial costs back. However, if only 100,000 people have that disease, you need to charge a whopping $13,000 per treatment. Pharmaceutical companies used to look for blockbusters – drugs that lots of people wanted so they could make their money back in bulk. These days, those sorts of drugs are hard to come by, and so instead they have to make more expensive drugs for smaller markets.

This tradeoff wouldn’t be quite so harsh if the drug approval process were cheaper. There is a tradeoff between safety and efficacy. Obviously, we don’t want experimental drugs killing a lot of people, but at the same time delays and drugs never brought to market at all cost lives too. The FDA could also leave efficacy to separate trials and only worry about safety before it clears use for humans, or allow drugs that are approved by the EU or other first world countries to be used in the U.S. without redundant trials. There are many options.

However, in Shkreli’s case, the drug was a generic, and so was off patent. Generally speaking, generic drug prices are falling. Turing Pharmaceuticals never should’ve been able to raise its price without inviting serious competition. Companies need manufacturing licences from the FDA to make drugs, and setting up new operation can be costly. If someone went through the trouble of getting one, Turing could just lower the price and destroy any profit opportunity. But in the end, someone did end up undercutting them.

Laws and Norms
On February 4th, Shkreli testified before Congress on the drug pricing change. He plead the 5th in response to nearly all questions put to him. The hearing was mostly grandstanding nonsense. Of course he isn’t going to give a speech about how evil he is or whatever. I spent a few hours looking up the records of the congresspeople on that committee and couldn’t find anything in their careers that actually addressed the problem of high priced drugs. If you want lower drug prices, you need lower costs and more competition. You get that by changing the law. If you think you can change the way a whole industry acts by dragging one guy in to testify, I got bad news for you.

If Shkreli didn’t exist, there would be 100 other guys just like them looking to exploit the system. Capitalism has virtues which are required for it to function, but if you create a system where it’s extremely profitable to break those norms, those norms are gonna get broken. At least Shkreli brought some much needed attention to drug market reform.

Assorted Links

January 29, 2016

1. Answering small questions advances knowledge on big ones.

2. Econtalk with George Selgin

3. Can Econ change your mind?

4. Starve the beasts, ISIS edition

5. Economics and culture

Review of Hive Mind

January 12, 2016

Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own is quite good, and definitely worth reading. It’s fast paced, clear, concise, and interesting throughout. It deals with controversial topics with honesty, openness, and care. I like Garett Jones’ approach of introducing a problem to be solved, giving the reader a few possible explanations, and going through the evidence for and against each one. I think that’s pretty much the best way to go about doing economics, since no story is ever perfect and it avoids the trap of having a particular hobby horse that you are attached to to the detriment of other explanations. This isn’t an easy topic, and there certainly aren’t easy answers, but Jones doesn’t pretend like their are and it always treats the reader like an adult. The book never lingers and any repetition of the same point is rare and never tedious.

The core mystery the book analyzes is that your nation’s IQ is about six times more important than your own IQ for your income. The book starts by covering what IQ tests mean, how they are performed, empirical problems with past studies and generally summarizing the IQ literature. The book then goes through why it might be the case that group IQs are so important and how group IQs might lead to virtuous cycles. Minimal time is spent on possible policy recommendations, which is probably for the best. Economic models are handled purely in descriptive terms and the book is very accessible to non-economists.

Assorted Links

January 8, 2016

1 The left should support freedom of speech because they don’t have enough popularity to impose their views. Totalitarian speech control works both ways.

3. On gun statistics.

4. A better way to do neocon

5. Sweden’s foreign minister calls out Saudi Arabia’s barbarism

The Billion Dollar Squirrel

January 6, 2016

In response to my article yesterday, Eli Dourado responded:
“Suppose a billionaire decides he wants to get you a Christmas gift. He hires 10,000 skilled laborers to craft something. They spend hours and hours of their labor getting it just right. They use lots of fuel and other resources. Turns out the gift is a(n exquisitely crafted) version of this:
http://www.amazon.com/Design-Toscano-Woodland-Squirrel-Multicolored/dp/B00BB581NQ/?tag=elidourado-20
To be honest, you don’t really like it, and it doesn’t have much resale value. You thank the billionaire; take it home. Society had to forgo lots of other products to get you that gift. But you don’t value it. Isn’t that obviously DWL?”

Dourado defines deadweight loss (DWL) as: “DWL is about whether the dollar-value of social resources is maximized.”

I replied: Adding “as a Christmas present” to “billionaire does stupid thing” doesn’t change anything.” Which Dourado agreed with.

So, it’s not obviously deadweight loss to me. It’s obviously stupid and wasteful, but by whose standards? You can go full Veblen and say most of human spending is wasteful and therefore creates deadweight loss. Anything spend on luxuries is not strictly necessary and thus creates deadweight loss. The squirrel statues are frivolous, whether you spend $35 on them or a billion.

But then Dourado says “Whatever system maximizes the dollar value of social resources has 0 DWL. Everything compared to that base.”

Maximizes to whom? Value is inherently subjective and personal. Everyone disagrees with everyone else’s preferences. Should we have a vote, and anything that doesn’t get 50% approval gets labeled deadweight loss? Should there be a cutoff, like you can spend $1000 a year on stupid junk, but anything above that is deadweight loss? As human beings, we instinctually judge others and try to promote decisions that are good for the group. Extravagantly wealthy people really throw a wrench in our intuitions because once you have that much money, everything selfish they spend money on seems wasteful to the non-rich.

Kaldor-Hicks Efficiency was mentioned in an article Eli Dourado linked to.
“A re-allocation is a Kaldor–Hicks improvement if those that are made better off could hypothetically compensate those that are made worse off and lead to a Pareto-improving outcome.”
Preventing the squirrel present would not be Kaldor-Hicks efficient, since there would be no way to compensate the billionaire enough to convince him not to give me the squirrel. The billionaire would only give the present if he valued producing such a thing at least as much as it cost to produce. Preventing the squirrel present would not be Pareto optimal either, since the give recipient would be worse off, the billionaire would be worse off, and all the workers producing the squirrel would be worse off.

People want to have a way to disagree with other people’s choices. Economists have historically been very hesitant to say that certain people’s preferences are wrong and need to change in order to be efficient. Preference agnosticism has the advantage of being universal and viewpoint independent. I think at the end of the day, if you disagree with someone’s preferences, you just have to say so in plain language rather than trying to label it inefficient. It’s not an economist’s job to second guess the choices people make. It’s their job to explain them.

Christmas Deadweight Lossism

January 5, 2016

People don’t value gifts as much as they do things they buy for themselves, with a couple of exceptions: goods the recipient didn’t know about, luxuries that they don’t allow themselves to buy because of self-imposed rules, and gifts they would have trouble financing themselves (many people chip in to buy something big, gifts to people poorer than you, or gifts to children). For the most part, from a strictly homo-economicus maximize-utility perspective, the recipient would be better off getting cash. But that is emphatically not the same as a gift having a deadweight loss.

When theory and practice disagree, it’s the theory that’s wrong. The actor is the gift giver, not the recipient. It’s not the opportunity cost of the gift to the recipient that matters, but the alternate uses of the giver’s money. When you buy someone a present you are revealing that their affection is worth to you than anything else you could buy for yourself. Outright bribery for affection is normally a faux-pas, but for a few times a year. People engage in rituals to strengthen social bonds. Your family is not governed by the same norms that more distant economic relationships are.

Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within the different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e. of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once.” – Hayek, from The Fatal Conceit

Why would a giver give?
1. Signal how well you know someone by getting a gift they want.
2. Signal how well you listen to them by getting them what they ask for
3. Watch them say thank you, appreciation.
4. Every time they use the gift they think of you, so strengthening a personal connection
5. Signalling group loyalty and generosity by giving nice presents
Etc.
6. Getting a gift in return
7. Give a gift to someone less materially well off than yourself
8. Children don’t generally buy things for themselves.

1-5 are all about using money to strengthen social ties. You can’t buy that for yourself, no matter how much you spend. 6 is prehaps the most “selfish” but doesn’t really make sense. Gift giving is very costly relative to buying yourself things. You wrap presents, wait for a particular day (birthday, Christmas, etc), try to be secretive. All of this suggests signalling is the key reason, not efficiency. 7 seems plausible to me, but most social groups are fairly equal, socioeconomically. The biggest use of 7 is probably to reduce jealousy of more successful members, so once again, you’re back to strengthening social ties. Children (8) is also mostly about social ties. Children are often more materialistic than adults, they don’t have the information or opportunities to buy things as much as adults, they aren’t as opposed to being paid for affection, and they just seem to get much more excited about presents than adults. So, it seems to me that gift giving rituals are all about signaling and strengthening social ties.

Is gift giving euvoluntary?
(1) Conventional ownership – Yes
(2) Conventional capacity to buy/sell – No
(3) Absence of regret – Yes
(4) No uncompensated externalities – Yes
(5) Neither party coerced by human agency – Yes
(6) Neither party coerced by circumstance; the disparity in BATNAs is not “too large” – Yes

So, generally speaking, gift giving is euvoluntary. You can’t buy and sell presents freely, but since the whole purpose is signaling about relationships, that’s not surprising and it would defeat the whole purpose. You can resell presents, or take them back to the store (many people include receipts so the recipient can do just that). For the rest of the criteria, the answers seem obvious, but if readers think I’m wrong about any one of them, feel free to comment.

Dreaming of Better Worlds
Technically, a deadweight loss occurs when there is something preventing trades from taking place at the free market equilibrium price. It has nothing to do with there being a higher possible utility that exists only in the imagination of some third party observer. There aren’t price floors or ceilings for gifts. There is such a thing as a gift tax, but it’s not really applicable for Christmas presents for most people.

But Christmas deadweight loss isn’t about any of that. It’s a new animal.

Suppose I valued a red shirt at $5 and a blue shirt at $6, and someone gives me a red shirt, which cost them the same either way. Is that (this new kind of special) deadweight loss?

Information is scarce and costly. In a world of perfect information, the giver would’ve gotten me a blue shirt, but that’s not really meaningful outside of an economic model. Literally every purchase you make, theoretically there could have been a better thing to buy if you had perfect information. Maybe you bought a Honda Civic and you should’ve gotten a Toyota Corolla or vice versa.

Regret really isn’t critical, because all that means is that you found out about a better option in the future. Suppose you have three options A, B, and C, but you don’t know about A, so you pick B. Later on you find out about A, which is better, so you regret not picking it. But since you didn’t know about it, it’s irrelevant for the economic model of decision making.

All human action faces the uncertainty of the future. You buy things because you think it might bring you utility (whatever that means). All purchases face information problems. That gift giving has more information problems than normal spending isn’t really that insightful. People already know that. That’s why it’s so hard, and that’s why it’s a good signal. That’s also one of the main reasons why people mostly buy things for themselves.

What are the actual insights?
Get people things you know they will like (what they ask for, what you have seen them buying for themselves on special occasions).

Don’t lecture people about how their choices are wrong because of some model you just made up. Instead, observe the real world and try to explain what you see.

Follow

Get every new post delivered to your Inbox.

Join 40 other followers