Oil and the Trade Deficit

In an earlier post, I speculated that the US trade deficit is largely due to the increasing price of oil. I found this report by the Federal Reserve Bank of San Fransisco which bears out the claim, demonstarting that about 50% of the increased trade deficit is due the higher cost of oil. Interestingly, the article also predicts that in the near the future, US companies should move to more energy efficient production, which will both help the environment and reduce our trade deficit.

In addition, I made a graph that shows monthly changes in oil price and trade deficit over the past decade, and the relationship between the two. While correlation is not causation, the data clearly support the idea that the price of oil influences the trade deficit.

Population Density and Gasoline Consumption

In an earlier post, I suggested that rural citizens might use more energy than urban citizens, one reason being that on average they have to drive farther to get between places. To get an initial handle on this claim, I compared per capita gasoline use to population density by state. The graph below depicts the relationship with a linear regression that is statistically significant, barely.I did not include Washington D.C. because it's population density is well outside the range of all other states and skewed the data, though in the favor of the result from the other 50 states. What does this mean? Not a whole lot. First of all, correlation is not causation. Densely populated states contain more urban areas, which tend to elect Democrats, who might be more liable to enact energy saving laws. However, that would not explain why states like Arizona, Pennsylvania, and Colorado are among the least in gasoline consumption, or why Maine and Iowa are among the most. Secondly, the weak correlation indicates that other factors are important, such as policy, geography, and the distribution of people. Finally, gasoline is consumed for other purposes than driving, but my guess is that driving accounts for most of it. Nonetheless, it is suggestive that even a coarse-grained analysis reveals a signicant correlation between population density and gasoline use.

Unrelated Note on Mass Murder and Religion

On Christmas Eve, I overheard a brief radio conversation between its Christian hosts, I believe in response to Sam Harris' book Letter to a Christian Nation, speaking to the fact that the most recent major mass murders (the Holocaust, Stalinist purges, and Mao's killing) were committed by atheists. Actually, Hitler was probably not atheist, at least according to many lines in Mein Kampf, though I'm sure his version of Christianity does not accord with the vast majority of Christians. The radio hosts were responding to the common atheist accusation that religion provides moral justification for atrocities such as the Crusades, the Spanish Inquisition, and so forth. Conveniently, the radio hosts forget to mention Christian dictators like Pinochet or the religously motivated killings in the Middle East. Both sides forget to mention the many wars and other atrocities that have little to do with religious affiliation. In actuality, arguing for or against religion by enumerating the murders committed by either side is an excercise in futility because it is a non sequitur. Simply because a Christian/atheist committed atrocities, it does not follow that Christianity/atheism causes one to commit atrocities. Besides, even if certain leaders, religious or not, committed an atrocity, would that say anything about the truth of religion or atheism? Obviously not. I think both sides would do well to avoid such specious arguments.

Here we go again: Misplaced angst over free trade

Free trade has been a favorite punching bag for populists since globalization began near the end of the 19th Century. You read correctly. With the invention of the telegraph and the steam engine, global trade soared to levels that were not surpassed until the late 20th century. Duing the first globalization, populists tried to erect walls to trade under the erroneous belief that it would salvage the American farmer, who was being pushed into obsolescence by technology, not foreign trade. As economist Paul Krugman has argued*, neo-populists have, with striking similarity to their predecessors, rallied against free trade in order to salvage the American industrial worker, whose job has largely been mechanized, not stolen by foreign countries. I had hoped the anti-globalization movement would deteriorate owing to its specious reasoning and dirth of empirical support, but as pundits like Lou Dobbs and a recent op-ed by two Democratic congressmen in the Washington Post demonstrate, that is simply not the case. As the old adage goes, there is nothing new under the sun, and the latest assailments against free trade are merely updated rehashings of their tired ancestors. Below, I dissect the op-ed by Democratic congressmen Byron Dorgan and Sherrod Brown, who allege that free trade is responsible for the "shrinking middle class, lost jobs and exploding trade deficits." I apologize, but this post becomes a bit redundant. There simply are not enough synonyms for "wrong" and "in reality..."

1) Shrinking middle class
As an empirical fact, income inequality is increasing, though not because the middle class is going away, but because the rich are getting richer while everyone else stagnates. The authors do not make a clear case for why free trade causes the rich to become richer, but reading between the lines, they seem to suggest that the "new mobility of capital and technology" makes it possible for rich capital owners to export middle income jobs to low-income countries. Given the fact that international trade with low-income countries accounts for roughly 10% of GDP today, that seems unlikely. Paul Krugman provides some real reasons, (though I disagree on some points), why income inequality is rising. The bottom line is that the return to capital has increased contemporaneously with increased international trade (though the relationship is not necessarily causative), but capital is not evenly distributed. Rather than using fallacious reasoning to oppose free trade, as the congressmen do, progressive think tanks have proposed inventive ways to increase the equality of capital ownership without losing the gains from trade.

2) Lost jobs

This is as empirically wrong as it is illogical. First of all, the unemployment rate is low and has been throughout the period of increased global trade. The discrepency between perception and reality is propogated by visible, large layoffs that get a lot of press and the obscurity of new hiring done a handful at a time by nascent, growing firms. As economists have shown over and over, free trade has a negligable effect on jobs.

3) Exploding Trade Deficit

Once again, as an empirical fact, the US has a large trade deficit, (though it has recently undergone a precipitous decline), but the congressmen misplace their blame. They claim that free trade agreements "enable countries to ship what their low-wage workers produce to the United States while blocking many U.S. products from entering their countries." While free trade agreements allow us to import cheap goods from other countries, they also allow us to export the high-tech goods in which America specializes. The unspecified claims that other countries block American imports seems unprobable. How would countries brokering free trade agreements with the US (e.g. Latin America, Jordan, Israel) be able to strong arm our negotiaters? If anything, free trade agreements should favor hegemons like the US which have immensely greater political clout. In actuality, the rising trade deficit is largely due to increasing price of oil, which based on my own estimates, constitutes roughly 35% of our trade deficit.

Although Dorgan and Sherrod's polemical against free trade focuses on labor issues, they sprinkle in unsubstaniated claims about a global "race to the bottom" on environmental standards. Detailed analysis does not uphold their claim. Exporting firms are not dirtier than firms that sell domestically, and are often cleaner. Anti-globalization types cite countries like China that have greatly increased their pollution in response to export-oriented economic growth. Of course, we have to ask the counterfactual. If an equal amount of growth had occurred in domestic industries, would pollution be less than it is now? I doubt it. It is hypocritical for rich countries that have profited from decades of pollution to hold back poor countries undergoing rapid development. Walls to free trade will not reduce pollution in countries like China without lowering their standard of living. Instead, the US government should work with countries like China to increase domestic environmental protection laws to meet the needs of its citizens. Indeed, this is already happening, albeit too slowly, and the US is poised to begin exporting green technology to many developing countries looking to reduce their pollution. The congressmen and other neo-populists need to (re)examine the facts and revise their shoddy reasoning. Once they do, it will come as no surprise that free trade is conducive with progressive policy, a stance that think tanks like the Center for American Progress, the Progressive Policy Institute, and the Brookings Institution have advocated for years.

As a rhetorical tactic, I have cited left-wing proponents of free trade, to disabuse people of the notion that trade policy can be readily seen in a simple left-right binary. Of course, conservatives and liberatarians also advocate free trade, but tend to be more bilateral than multilateral and dismissive of some potentially destabilizing effects of globalization. Republicains also have their own form of neo-populism in the form of protectionism (e.g. Bush II's steel tariffs) and anti-immigration. Increasingly, both parties have elected to misinterpret and abuse economics to the detriment of trade liberalization. Dorgan and Sherrod do a disservice to liberals, their country, and the world to take part in the anti-free trade movement, rather than focus their efforts on policies that will actually make progress on liberal goals.

* Search for article titled "The uncomfortable truth about NAFTA: It's foreign policy, stupid." Though he addresses NAFTA specifically, many of his arguments apply to current trade issues as well.

Examining Local Food

One claim made by proponents of buying local food is that it reduces the amount of fuel used during transportation, so-called food miles. It is conceivable that one could cherry pick examples that affirm and contradict that claim. However, specific cases do little to inform our shopping choices. Therefore, I will develop a thought experiment to ask whether, in general, one could expect that buying local reduces the number of food miles. I consider three common food sources:

1. Chain grocery store (e.g. Safeway)
2. Buying directly from a local farm (e.g. Community Supported Agriculture, perhaps)
3. Buying from farmer’s market that sells local food

For this thought exercise, I assume that food production is identical. This is certainly not true, but I wish to focus purely on food miles. To calculate food miles we must divide the distance travelled (miles) by the load (lbs.) and the fuel efficiency (MPG) for transporation from the production site (farm) to the source (grocery store, market) and from the source to the home. Afterwards, we get a value in terms of gallons per pound of food.

Realizing that my calculations are sensitive to the numbers I choose, I will use an order of magnitude comparison. Essentially, an order of magnitude is the amount of 0’s in a number. For example, 10 and 100 differ by one order of magnitude. If two numbers differ by an order of magnitude or more, we can hopefully assume that difference between them is real and robust to modifications to how they were calculated. Conversely, with numbers of the same order of magnitude, it may not be safe to assume that the differences are real or robust, and a more precise analysis would be required to parse them out.

Scenario 1: Grocery store

Distance from farm to store: 3000 miles
Load: 20,000 lbs.
MPG: 5
Food miles: 0.03 gallons/lb.

All of these parameters likely overestimate the food miles, but I will use them for arguments sake.

Distance from house to grocery store: 10 miles (round-trip)
Load: 20 lbs.
MPG: 25
Food miles: 0.02 gallons/lb.

Total for Scenario 1: 0.03 + 0.02 = 0.05 gallons/lb

Scenario 2: Buying from local farm

Distance to farm: 50 miles (roundtrip)
Load: 20 lbs. (same as above)
MPG: 25 (same as above)
Food miles: 0.1 gallons/lb.

Total for Scenario 2: 0.1 gallons/lb

I used the number of 50 miles for mathematical simplicity, but I think it is not a bad guess since the average citizen lives in a city or suburb, not in a rural town.

Scenario 3: Farmer’s Market

Distance from farm to market: 50 (roundtrip; same as farm to house as farmer’s markets tend to be centrally located in a community)
Load: 2000 lbs. (1 ton pick-up)
MPG: 10 MPG
Food miles: 0.0025

Distance from house to grocery store: 10 miles (round-trip; same as grocery store since farmer's markets, like grocery stores, are centrally located)
Load: 20 lbs.
MPG: 25
Food miles: 0.02 gallons/lb.

Total for Scenario 3: 0.0025 + 0.02 = 0.0225 gallons/lb

I have used some useful approximations to generate order of magnitude comparisons. What have I found? Buying produce from the grocery store or the farmer’s market uses about about half or a fifth, respectively, of the gas used to transport food bought at a local farm directly. The grocery store and farmer’s market comparison is more equivocal, but it appears that food from a farmer’s market may use substantially less fuel. One caveat though. Since people who shop at farmer’s market usually still go to grocery stores for other goods, a more appropriate comparison might remove the food miles from the grocery store to the home, in which case buying from the grocery store or the farmer’s market are practically indistinguishable at this level of refinement.

What does this exercise tell us about the environmental impact of buying food locally? It is likely that under a wide variety of conditions, driving to a local farm to buy food increases the food miles compared the grocery store or farm market. The reason is clear: by driving a car, you substitute an efficient mode of transport (semi-tractor trailer or utility vehicle carrying 1000-20000 pounds) for an inefficient one (your car carrying 20 pounds). If one substitutes going to the grocery store by going to the farmer’s market, then buying food from the farmer’s market likely reduces food miles. However, as farmer's markets carry a limited basket of goods, this is not necessarily true for most consumers. Therefore, food miles for grocery store food and farmer’s market food might be about the same under most conditions.

If local food does not generally reduce food miles, and may increase them, why should one buy local? The typical response is that locally produced food, such as that done by the USDA Community Supported Agriculture (CSA), produces food using less energy. My first response would be that if local food saves energy on the production and not transportation, why purchase it locally in the first place? That said, does local food produced under the CSA model use less energy? I don’t know, but I can provide a couple reasons why it might not.

The local food model saves energy through reduced reliance on pesticides, fertilizer, and irrigation. How might it use more energy? First, locally produced food is more labor intensive, encouranging more people to move into rural communities. While we may cherish rural communities for their aesthetic or cultural value, they are not bastions of energy efficiency. Without public transportation and dense commercial areas, rural citizens must drive more and further. In addition, the densely-packed high rises of cities confer energy savings on heating and cooling compared to rural areas. Locally produced food, even without inputs of fertilizer, pesticides, and irrigation may just take more energy. For example, in northern areas, growing strawberries is often done in greenhouses that operate year-round and must be maintained and heated. Strawberries grown in California can grow without those inputs. It may well turn out that despite these factors, local food is still more energy efficient, but I think they should provoke cause for further investigation rather than wanton dismissal.

New Layout

After an extensive Environmental Impact Statement (EIS), I submitted a proposal to change the layout of this blog and it was approved. You'll notice that I have reduced line space, preserving more habitat for the threatened LCD-Screen Wombat. In addition, the simplified format will lower consumption of electronic ink, reducing my overall ecotronic footprint. Enjoy.

Carbon-negative biofuels: too good to be true?

A paper in this week’s edition of Science reports that low input high diversity (LIHD) biofuels may offer a carbon negative energy solution. Let’s define some terms to make sense of that statement. By low input, the authors mean that fields require minimal or no irrigation, pesticides, or fertilizers. In contrast, current biofuels (corn and soy) require all three inputs, which take energy and create pollution. High diversity means that plots contain a mixture of species, probably between 8 to 16 for maximum efficiency, rather than a monoculture, the conventional mode of agricultural production. LIHD biofuels are carbon negative because over time they sequester carbon dioxide in the soil, whereas monocultures are carbon neutral or even carbon positive. It gets better. Unlike corn and soy which must be grown on fertile soil, directly competing with food production, LIHD production can take place on degraded agricultural land. This means that not only do LIHD biofuels not compete with food production, but they don’t necessite additional habitat destruction. I wonder if LIHD biofuels might cure cancer too?

Besides the obvious practical implications, there is some really interesting ecology behind this study. The research was led by ecologist David Tilman and is an extension of research in a sub-discipline called Biodiversity and Ecosystem Function (BEF). Researchers in this field have shown that, more or less, biodiversity improves the health of an ecosystem, often measured as the amount of biomass production. I should note that, due to their complexity (e.g. What does ecosystem function really mean? and, How do you measure it in a naturally meaningful way? are not simple questions), results from the field are often contentious. Nonetheless, the emerging synthesis is that biodiversity really does improve ecosystems in nature. Most BEF experiments, the present study included, involve sowing many fields with varying diversities. In this study, they used fields with either 1, 2, 4, 8, or 16 plant species. Why does biodiversity improve biomass production? The BEF literature suggests several possible, non-mutually exclusive possibilities that are worth mentioning here:

1. Resource partitioning - Imagine a forest. If every tree were exactly the same height, they would all compete for sunlight at the canopy. Inevitably, some sunlight would get through the canopy, but there would be no trees there to capture it. If instead, trees came in diverse heights, they could partition the sunlight resource, some utilizing light that passes through the canopy. Similarly, fields with higher species diversity can parition light, as well as many other resources, compared to a monocuture.
2. Avoiding pests – Many herbivores and pathogens specialize on a single species, population, or even genotype. In a field with 16 species, a pest may be able to adversely affect one species, but it is very unlikely it would be able to harm all 16 simultaneously.
3. Temporal variance – Weather and other conditions vary day to day and year to year. A single species may do well at one time, but quite poorly at another. With 16 species, each reacting somewhat differently to changes in the environment, it is likely that some species will be doing well at all times.
4. Functional diversity – Not all plant species are created equal. Legumes, for example, are a functional group of plants that can transfer atmospheric nitrogen into soil nitrogen which can be used a fertilizer. A diverse field is more likely to have more functional groups represented.

The authors do not actually investigate specific mechanisms in this case (or at least they were not reported), but their results are highly suggestive. For example, high production occurred without the use of pesticides, likely because no single pest could seriously affect all 16 species at once. Their inclusion of legumes in the study likewise obviated the need for nitrogen fertlizers.

What does this study mean for energy production on a massive scale? The authors estimate that using only degraded agricutural land, LIHD biofuels could reduce carbon emissions by 15%. Not bad. Are there reasons to be skeptical? Certainly – as the old adage goes “If it sounds too good to be true, it probably is.” There are many steps that go into industrial energy production. A major obstacle at any one of them could doom a potential new energy source. On the environmental side of things, unlike commercial corn and soy bean, LIHD fields would presumably contain semi-natural communities that could interact and interbreed with surrounding communities, potentially producing unforseen consequences. In any case, these are simply reasons to be cautious, not to abandon any prospect of carbon negative biofuels. At the very least, the present study presents a strong case for spending some fraction of the billions allocated annually to corn and soy subsidies on research and development of LIHD biofuels.

What are organic, fairtrade and local food producers really selling you?

The cover of The Economist magazine this week featured a headline that piqued my interest: “Good Food? Why Ethical Shopping Harms the World”. The article is short and accessible, so I refer you to the original for specifics (if you have access, you may find the article through LexisNexis Academic). The Economist is an intelligent and evenhanded publication, so when it questions our intuition, I generally take notice. In actuality, their conclusion that organic, fairtrade, and local food do not improve the world was not wholly surprising. If organic and local producers actually produced food of equal quality with comparable yields using less resources, they would be conventional. After all, industrial agriculture is run by “greedy” corporations that wouldn’t sacrifice the bottom line just to damage the environment out of ideological spite. As for fairtrade, there is no evidence that normal trade is unfair, but I will grind that ax another day. If The Economist is correct, why do consumers buy ethical foods and why do environmental groups promote them? It is quite easy to see why consumers would want to shop ethically – the terminology begs the question of why they would not. As The Economist remarks, organic, fairtrade and local “food allows shoppers to express their political opinions…everytime they buy groceries” rather than waiting for the next election. A seductive proposition indeed. Of course, the notion of shopping ethically is predicated on the proposition that what you are buying actually improves the world. Below I summarize the article’s primary reasons why it does not:

1. Organic food may reduce the use of harmful fertilizers, but it generally lowers yield and therefore requires more land and energy.
2. Fairtrade does not significantly help farmers because most of the mark-up for fairtrade goods goes to retailers. Furthermore, the guaranteed high price induces overproduction, the very cause of low wages. At best, buying fairtrade is an inefficient means of foreign aid. Given the choice between $6/lb for conventional coffee and $8/lb for fairtrade coffee, you would be advised to buy the former and send $2 to a third world farmer directly.
3. Buying from local producers rather than grocery stores that import their food from the throughout the world often decreases fuel efficiency because you substitute efficient trasportation (tons of food packed tightly in a truck) for an inefficient one (a grocery bag in the back of your car). An environmentally friendly compromise might be locally produced food sold at grocery stores. However, food production may be so much more efficient in some locations that translocating it thousands of miles is more efficient than producing it locally. I highlight one example from the article further along.

Given the evidence that ethical shopping might not help the world, why do many environmental groups promote it? Perhaps they have alternative motives. In a world of 6 billion people, we feel pretty powerless and retailers know this. Taking advantage of our insecurity, some are liable to abuse ethical shopping to extract higher prices. The serious flaw with this argument is that many groups promoting ethical shopping, such as environmental NGO’s, don’t make any money at all. Another possibility is that environmental groups use ethical shopping to make an anti-corporate message. Of course, if this is true, why would they spend their resources on an unproductive and childish endeavor? The other problem is that organic and fairtrade are rapidly becoming quite corporate – just go into any Starbucks. I speculate that instead, environmental NGO’s act much like political parties. Their clout rests on public popularity. An easy way to make more environmentalists overnight is to prescribe quick solutions that don’t actually require any substantial change in lifestyle. In a consumer culture, nothing could be better than saving the environment through shopping.

What bothers me is that I had to find this information in The Economist rather than, say, from the Sierra Club. Why aren’t environmental groups doing the research and critical thinking about spurious environmental claims themselves? As the examples above illustrate, you do not need sophisticated techniques or reasoning to see why organic, fairtrade and local foods may not help the world. The explanation, I believe, lies in the fact the environmental impact of agriculture is complex and multi-faceted. As with my example below on minimum wage, this makes it easy to find numerous facts that support your previously held conclusion, even if on balance you are wrong. I hold out hope that organic and local agriculture are on balance better for the environment, (I don’t think there is hope for fairtrade), but I don’t think we will know conclusively until environmental groups treat the issue with the requisite complexity, taking into account all pertinant factors.

Until that day comes, I suggest a provisional solution. My interpretation is that in some cases there are positive environmental consequences of ethical food shopping, but organic, fairtrade and local labels are not reliable indicators. Consequently, consistently shopping in the most environmentally manner requires detailed information on inputs of energy, land, and labor at all points along the supply chain, the trade-offs between those factors (how many acres of rainforest are equal to a ton of pollution?), the scarcity of the product and its inputs, and how inputs and scarcity change through time. I propose that environmentalists adopt the use of a simple, universal index that, ceteris paribus, has the following properties:

• Increases with increasing inputs of energy, land, and labor (signalling that you should buy less of it)
• Increases with scarcity (signalling you to stop buying a resource as it becomes rare)
• Takes into account all trade-offs
• Adjusts rapidly to changing conditions (so you can change your behavior optimally)

Of course, the obstacle to such an index is the synthesis of continuous inputs from everyone in the world. Seems impossible, right? What if such an index already exists and that you use it everyday of your life? Fortunately, it does. It’s called price.

Obviously, if the price mechanism were enough, there wouldn’t be environmental problems, but prices are distorted by many sources. Government outlays and taxes alter prices, changing the signals given to producers and consumers. For example, domestic agricultural subsidies incentivize overproduction. Restrictions to trade, such as tariffs and quotas, shift production from efficient sources to inefficient sources, increasing prices. The article cites a finding that lamb produced in New Zealand and shipped to England uses less energy than lamb produced and sold in England. A hypothetical trade barrier between the two countries would harm the environment by causing the English to produce more lamb domestically. Lest someone accuse me of being a libertarian, we must also consider market failures, where price does not accurately reflect cost. For example, taxes on fossil fuels, while distorting the market price, arguably improve economic efficiency by mitigating the adverse impacts of climate change. As The Economist advises, environmental progress will be made by pressuring politicians to enact such taxes rather thean by ethical shopping.

If you still want to send a message at the grocery store, trying spending less. It may not be as fun as ethical shopping, but less demand for food will undoubtedly decrease agricultural output.

Unrelated Note on Minimum Wage

There has been a lot of discussion of late on the prospect of raising the minimum wage in the US. The current proposal is for a phased increase to $7.25 per hour. Arguments for raising the minimum wage are that it will reduce poverty and inequality, especially among minorities and women. Arguments against say that it probably won't reduce poverty or inequality, and that whatever small gains are made will be offset by decreases in employment and economic efficiency. My inclination is to believe the former, but that is because I was raised in a liberal family with liberal peers. What sounds good likely reflects how I anticipate my opinion will be received by my social network, and not by rational thinking. The reason arguments for and against raising the minimum wage can both sound convincing is because there are many factors to consider. By focusing on a subset of those factors, it is easy to choose one side or another. Only the actual data can incorporate all the competing theoretical factors and provide a tabulation of the net effect. Fortunately, many US states have voluntarily increased their minimum wage in recent years, providing many natural experiments. To get an initial glance, (and this is really only scratching the surface), I looked at state unemployment versus minimum wage.
Unsurprisingly, there was no correlation whatsoever. Many factors affect unemployment rate, and raising the minimum wage may have adverse affects beyond simply raising unemployment. At the very least, these data suggest that if we raise the minimum wage the world will not collapse beneath our feet, but I wouldn't anything else into it.