Ending supply management would not cost $30b

In Canada, the debates over supply management – the system of production quotas and import duties limiting the supply of dairy and poultry products – has intensified in recent years.  For ten years now (literally), I have been writing, testifying and researching this insane system which moves the supply curve leftwards (even if some try to deny it in some non-nonsensical arguments stating that prices would be higher if the supply increased).

One of the groups that has been spewing non-sense is, obviously, the dairy farmers union. In one of their often-made claim, which some politicians are taking up, is that ending the policy would cost $30 billions.

That is incorrect, widely off the mark and not properly contextualized.

First of all, the number relates to the market value of the quotas (see here). Many farmers bought the quotas many years ago at a much lower price and as such, compensation would be slightly below the $30 billions. More importantly, most quotas are acquired through mortgages by farmers. These mortgages represent a value of $30 billions (capital and interest). However, farmers are riskier borrowers than governments. If the government bought back all the mortgages, it would actually become the borrower (it would hold the liability). However, since the Canadian government is at a lesser risk of insolvency than farmers, it can easily renegotiate with banks for a haircut. In fact, banks would easily accept this. They know that the government won’t default on this which means the risks on their balance sheets have just dropped dramatically and they now hold a much safer asset. I guess that they would be willing to negotiate a form of haircut on the assets that would be somewhere between the new (risk-adjusted) value and the old value.

Secondly, who the hell said the quotas needed to be bought back in one shot? Farmers could be offered a choice between many options. First, there would be the option buy-back plan that gives them 50% (in government t-bills) of the value of the share of the mortgage that they paid. The second would be a higher percentage spread out over many years. The third could be over 100% of the value of the permit in tax credits. Basically, if a farmer has paid $200,000 of a $1,000,000 mortgage, the government would commit to pay the difference to the creditor institution and offer more than $200,000 in tax breaks to farmers and their families. For example, a farmer with a tax liability of 25,000$ every year would end up paying no taxes for 10 years (as such, he would 125% of the value of his quota). As such, the cost is spread over 10 years making this a $3 billion expense annually.

And what about the context? Well, according to the famous article (recently published) on the burden of supply management, the cost in higher prices is equal to 0.84% of household income. In short, this means 0.84% of the Canadian economy or $17.3 billion a year or $173 billion over 10 years. Now, this is annually – the savings are recurrent – and the estimates does not account for the fact that productivity gains might finally allow Canadian farms to benefit from the international increase in demand. So, the $173 billion figure is pretty conservative and yet, the inaccurate $30 billion figure accounts only for roughly 17.3% of the benefits. In terms of return on investments, I am pretty sure this qualifies as a great move through which you would not even need to go down the Australian route (imposing a transitory tax for ten years).

I am sorry, but there is no way that the cost of the buyback should be considered a deterrent especially if a buyback plan is spread out over many years.

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Immigration and Jobs

A couple of thoughts about immigration. It seems that there is a widespread belief in the US that immigrants take jobs from Americans. It makes superficial sense if you also assume that the number of jobs to be filled is fixed and that just about anyone can do any kind of work.

Both assumptions are mostly false. Here is an example that illustrates why.

I keep hearing native-born Americans trained in various high-tech fields who claim that they are unemployed because of competition from low-cost H1B visa holders. H1B visas go to foreigners with skills deemed to be needed by the American economy. A large number of H1B visa holders are from India and many are from China; they also come from a wide variety of other countries, including Russia, France, Bulgaria, etc. The implicit affirmation is that were such visas stopped completely, those who complain would step right into the vacant jobs.

Two things. First the claim that foreign H1B visa holders work for less is largely unsubstantiated although it should be easy to investigate such abuse. Second, I think it’s illegal to pay H1B holders less than Americans. Why would many employers risk a distracting lawsuit? Of course, a few might because there are irrational people everywhere.

Next and last: Hundreds of thousands of high-tech jobs are going begging as I write. Are employers so vicious that they would rather have the work not done at all than to give it to a credentialed American? Or is it more likely that the unemployed native-born high-tech workers have skills that do not match demand? If the second supposition is correct, ending the H1B visa program would cause even more high-tech positions to remain empty. Of course, this would have a negative effect on everyone, on every American’s prosperity.

Missing from this narrative: the possibility that high power, accelerated re-training programs would bring unemployed Americans the skills the high-tech sector requires.

I have to begin a confession that’s going to make me even more unpopular locally than I already am. I mean unpopular among my conservative friends. I taught in an MBA program in the middle of Silicon Valley for 24 years, two quarters each year. It was an evening program squarely directed at the ambitious hard-working. During that span of time, I must have had 150 students from India. I remember only one who was a bad student. I was intrigued, so I made inquiries. Sure enough, he had an Indian first name and last name, and the corresponding appearance but he was born in the US.* I cannot report so glowingly about other, non-Indian students that sat in my classroom through the years.

This little narrative proves nothing, of course. Consider it food for thought. Do it especially if you voted for Pres. Trump – as I did.

Reminder: H1B visas are awarded to individuals with an occupational qualification deemed to be in short supply in the US. Right now, it’s likely that most of those who get an H1B are trained in some IT area but that’s not all. For a long time, farriers from everywhere could easily get one. (If you don’t know what a farrier is, shame on you and look it up.)

There are other – presumably non-specialized – categories of immigrants who are widely suspected of taking jobs from Americans. The truth is not always easy to discern, not even conceptually. Five or six miles from where I live in Santa Cruz, there are growers who are tearing off their hair. Their problem is that they can’t figure out who is going to pick the crops they are now putting into the ground. As I have said repeatedly, the Mexicans they counted on in years past have largely stopped coming.

A quarter of a mile from where I live, and in the same direction, there are dozens of perfectly healthy US-born Americans who are working as “sales associates.” The apparent conceptual issue is this: sales associates earn $10/hr while a moderately experienced crop picker earns $15. The question arises of why we don’t see a full exodus from the sales positions to jobs that pay 50% more?

I think it’s lazy to call the US-born sales associates “lazy.” The reality is that the Mexicans who came, and are still coming, to pick vegetables and fruits in California overwhelmingly came from a rural population. They were reared under conditions where almost everyone around them labored in the fields. When they arrive in the US – legally through family reunion – or illegally, they are ready to take picking jobs. They then just do here more or less the same work they would do at home but for five times the pay or more.

In American society that kind of population disappeared several generations ago through mechanization and, of course, through the importation of foreign labor, precisely. Native-born Americans won’t do the work because it’s alien to their background. I think US-born people of Mexican ascendancy whose parents labored in the field won’t do the work either. Their parents do what they can to make their own work experience alien to their children. I am not surprised, that’s another expression of the American dream. It’s  what many would do back in Mexico but then, why emigrate?

I am pretty sure that any immigration reform should include a temporary agricultural program, a sort of H1A ( “A” for “Agriculture”) visa. It would allow foreigners to come to the US legally, just to work in the fields and for a set period only. It would not lead to permanent residency, nor, of course, to citizenship. Such a program existed between the forties and the early sixties, if memory serves. It was called the “Bracero program.” I don’t know why it was terminated. (Perhaps a reader can tell us.)

Mexicans would be the first to take advantage of such a program. As Mexico’s economy develops, they may be replaced by Central Americans and, eventually, by Africans. Such a program would sidestep the kind of assimilation problem France, for example, is facing right now with its North African population.

PS Personally, I think Mexicans make good immigrants to the US. I would bet than in ten years we will be begging them to come.


* Disclosure: I am married to an Indian woman. She is not in high-tech unfortunately.

Sex, again

Below is an excerpt from my book I Used to Be French: an Immature Autobiography. You can buy it on amazon here.


Note: This takes place in Brittany when I was sixteen.

The threshing work was divided by age and sex. Young men and boys would stand on the very tall wheat pile; it was thirty feet high or so at the beginning of the process. From there, they would throw sheaves of wheat down to a handler who placed them on a conveyor belt leading into the business end of the machine. That was a dangerous job left to a specialist because the threshing teeth, designed to strip the grain from the stalks, could mangle the man’s arm as he positioned the sheaves. Out of the other end of the machine, came sacks of grain and bales of compressed straw that someone had to tie immediately. Moving and stacking those outputs was the job of girls and young women.

The heat was infernal, the dust was infernal, and the cadence was infernal, so that each team worked only for one hour at a time. At the end of each hour, a supervisor would blow a whistle above the thresher’s din, signaling replacement, which was accomplished in one fell sweep, without breaking rhythm. Those being replaced would move to the area outside the kitchen where food was served continuously, or they would walk out to the hedges lining every road, to relieve themselves. They pretty well had to because they drank without cease, possibly several gallons a day. Since no one ever drank water, they took in huge quantities of cider.

Though low in alcohol, and although heat and exertion probably burned some of that alcohol, cumulatively, the cider must have had some positive effect on the prevailing mood. In addition, everyone dressed lightly because of the same heat and exertion, the girls, in not much more than a sleeveless blouse and a skirt, possibly nothing more at all. No wonder, then, that during breaks, some young people walked well past the point that public decency required for a simple leak. They would wander into meadows made deserted by the on-going work around la mécanique (the thresher). Unavoidably, some young men and some young women ran into each other there. It was summer and the grass was tall under the apple trees, easily concealing people lying down. Anyway, I think, perhaps that was the normal Breton betrothal ceremony. This was so well understood that every time I came back from my break that day, older boys would asked me loudly if I was engaged yet. I was not, not yet, but I came close, damn close! Several times. With several girls. Eventually, I moved away from Brittany, and even from France, and it took me another fifteen years to tie the knot. It would have been sooner if I had lived near a wheat-threshing machine, no doubt.

Why farms die and should die


In Canada, I have the frustrating habit of criticizing government support to the agricultural sector especially entry-barriers in the form of production quotas. Most of those policies are regressive in the sense that they reallocate income from the poorest to the richest. In fact, their entire aim is to artificially increase the income of farmers (especially dairy and poultry farmers) at the expense of the rest of the population. However, when lobbyists for these subsidies come out in public, they do so under different disguises. Their favorite? Farms are dying.

In each radio debate where that boogeyman is raised, I reply that “yes, they are dying and its a good thing”. If we can feed more and more people with less and less farmers using less and less land, that’s a good thing. In fact, it’s the greatest thing that happened in economic history. Less two centuries ago, 90% of the workers in some western economies were involved in agricultural activities. Today, that proportion has fallen to less than 1.5%. Thousands of farms disappeared, we liberated millions of acres of land to return to their natural state and in the process, we became rich and well-fed!

In testimony of this fact, which is my favorite economic history fact, I decided to recompute a graph by Mark Perry of the American Enterprise Institute but I added the GDP per capita figures for the same period (1790 to 2013).

GDPagriculture

Yes, let the farms die. Let the most productive stay in the fields and let them feed humanity while the others become engineers, doctors, teachers, businessmen, welders, carpenters or whatever trade they are best at!

The Paleo Diet and the Vegetarians

I have been defending the “Paleo diet,” named after the book of the same name by Loren Cordain. Unlike many of its critics, I have actually read the book. I like the fact that it rests on an overall defensible viewpoint based on evolutionary theory while its specific claims are explicitly and painstakingly related to modern research.

The Paleo diet or v “caveman’s diet” simply says that our genetic apparatus cannot have changed much since the spread of agriculture, 7,000, 8,000 or 9,000 years ago (more like 6,000 for people of European ancestry). Therefore, the author argues, we should limit our food intake to what our pre-agriculture ancestors ate: Vegetables, fruits, nuts, and especially fish and meat. Thus, it excludes cereals, beans, dairy products and sugar, among other staples. That’s the general argument. As I have said, there are also specific arguments pertaining to different classes of food that are linked to contemporary scientific research.

I have been observing the Paleo diet, with some systematic cheating, for a little less than a year. The cheating involves two items: wine and coffee. Cavemen obviously had the solace of neither (but they had the thrill of trying to escape giant cave bears). Basically, I would rather be unhealthy than give up either drug. My adherence to the Paleo diet is not a “faith.” It’s completely rational, as the accommodation I make at this stage in my mind with the information available to me. I could turn on a dime on this.

Two things have happened since I started the Paleo diet: First, I have had Diabetes Type II for twenty years. Less than three months after I started, my basic blood sugar number became almost normal. (That’s the same number I have been monitoring for fifteen yeas.) It became completely normal another three months later and has stayed there.* Second, I have lost a little weight without even trying. I keep losing. It’s very little but it’s consistent. (I use to gain a little weight consistently.) There is no mystery about why I lose weight: I seldom feel hungry and when a I do, I am able to cut hunger with ten almonds.

Of course, the coincidence in time of this positive health development with the diet may just be that, a coincidence. This is how I am thinking about it: For twenty years, there are no good news; I go on a specific diet that promises specific improvements; shortly thereafter, I get specific good news pertaining to the improvement the diet promises.

Of course, it’s possible that in addition to positive health outcomes, the Paleo diet is destroying my heart, or my kidneys. As to the first, my Stanford Medical school cardiologist is not concerned. My other doctor, the internist who hates fads has not said anything about danger to my kidneys.

The Paleo diet has not made me more handsome, nor smarter, nor yet kinder, I must admit.

My testimony just remains this, a personal testimony; it’s a truthful one. The critique below is more than a personal testimony though if you believe that the nature of its warriors tells you something about the validity of a particular war.

Of course, the Paleo diet has triggered the anger of vegetarians and “sustainable” agriculture advocates, and well it should have. Sustainable Ag people simply don’t have a leg to stand on. Veggies are apparently tired of simply arguing that theirs is an ethically superior stance. (I believe it is.) There is an article in the June 3 2013 issue of Scientific American that just came to my attention. I surmise, it’s an expression of this anger. It treats the Paleo diet as just another unscientific fad. In the middle of the article, the author uses the following words with respect to our ancestors: “[they] evolved a mutation.” Cut, stop press! Mutations don’t “evolve,” they just happen; they happen all the time. The verb matters, it suggests that a particular mutation appeared in response to something. Mutations are not (adaptive) responses to anything; they are the material on which evolution plays. Natural selection simply retains spontaneous mutations.

End of story; end of reading. The author just demonstrated that he lacks a basic understanding of evolutionary theory, the main material of the view he is criticizing. How about the editors of Scientific Americans, what were they thinking when they allowed this monstrosity? Is there a reason for the laxness? Is there an agenda or is it just an expression of ordinary slothfulness?

This big mistake in a big publication dedicated to the spread of science does not make the Paleo diet right of course. I will await with interest a critique by someone who know what he is talking about.

* I am still taking the full complement of diabetic drugs. It’s a precaution and my doctor, a skeptic, does not seem to know how to phase them out without risk.