Thursday, November 3, 2011

Marginal returns to schooling

There has been some debate for a while about whether expanding college education helps people, on average, or whether it just pushes more people into college that will not really benefit from it.  In the American Economic Review I got today there is an article by Carneiro, Heckman and Vytlacil that argues that the marginal return to education for the average college attendee is six times higher than the marginal return for the marginal person, which is low enough to conclude that these college expansion policies were a bad deal for those who where induced to attend school that would not have otherwise.

The article is not a light read, as you might expect from these authors, but the methods and conclusions are interesting.

Wednesday, November 2, 2011

Eating Locally

Mark Bittman usually has interesting things to say about our food system, but today he picked up the topic of eating "local" food, and unwittingly illustrated the paucity of good justifications for altering our food system to favor local production.

His arguments for eating local seem to be the following:

  • Local food production is more secure, since we are not depending on another country for our produce.
  • Local food gives us a reason to celebrate seasons, since we will only get asparagus for 2 months out of the year.
  • We should prefer food produced close to us, because we can meet the farmers.

Go read the post to see if I have been unfair to him.  The first argument works if you expect foreign food suppliers to "cut us off" during a crisis or war, but you could just as easily argue that the more secure food system is the one that has the widest possible network of suppliers.  The second argument seems somewhat arbitrary - we don't need our food system to give us seasons.  If the weather is not enough, the Church calendar does nicely.  The last argument seems to be primarily about preferences, and I am not sure what to do with it.  I have never yet met a farmer I did not like, but the same goes for shoe makers.

What would a better case for eating local look like?  Here are the best arguments I have heard:

  • Eating non-local produce from conventional retailers wastes energy by shipping food excessive distances, which in turn uses too many fossil fuels which pollute the air.
If we assume for a second that the price of gasoline accurately reflects the true social cost of production and use, then this argument has the weight of economic logic stacked against it. It seems unlikely that shipping food long distances would be done if a more efficient local option were available.  Some studies have been done on this topic and generally find that the economies of scale in food production are significant, such that it is often the case that local food, even when it travels fewer miles, uses more fossil fuels.

If you accept that modern supply chains are actually efficient, then we have to deal with the issue of the price of gasoline.  It may be that the market under-values gasoline because we ignore pollution and subsidize energy production.  Even if this is the case, there might be an economies of scale argument for long supply chains. It is probably the case, though, that a person extremely conscious about fossil fuel use could, with effort, find a producer and vendor combination that used less fuel than the standard supermarket fare.

  • Eating local produce encourages better farming and consumption practices because it allows relationships to develop between producers and consumers.  
This argument rests pretty heavily on either having a middle-man vendor that buys local and monitors the food production methods (through a local co-op or similar organization), or putting a lot of time into choices about what to purchase. It also ends up making a moral argument against some of the efficiency gains that a market system thrives on. One of the best parts of our economic system is that we don't have to monitor every part of the supply chain - price competition ensures that resources are used efficiently and government regulation ensures that outright fraud and poison are usually unprofitable. This allows the economies of scale to work, which, in turn, allows us to do a lot more with less.  

Still, you could make the case that government regulation is incomplete, and that the regulators don't care about all the right things.  You could argue that, in some cases, low-cost production techniques might be immoral for some reason.  Or you could argue that commerce should always be embedded in relationships, not for pragmatic reasons but in order to promote a particular type of community and certain economic virtues.

In the end, though, none of these arguments have yet convinced me, so I enjoy fresh bananas year round and buy local produce only when the price & quality seem to warrant it.

Tuesday, November 1, 2011

Two types of inequality

David Brooks has written a thought-provoking piece on income inequality, in which he points out that the gap between the top 1% and the rest is widening for different reasons than the gap between the 75th and 25th percentiles.

Here is his conclusion:

But the fact is that Red Inequality is much more important. The zooming wealth of the top 1 percent is a problem, but it’s not nearly as big a problem as the tens of millions of Americans who have dropped out of high school or college. It’s not nearly as big a problem as the 40 percent of children who are born out of wedlock. It’s not nearly as big a problem as the nation’s stagnant human capital, its stagnant social mobility and the disorganized social fabric for the bottom 50 percent.
If your ultimate goal is to reduce inequality, then you should be furious at the doctors, bankers and C.E.O.’s. If your goal is to expand opportunity, then you have a much bigger and different agenda.