Matt Nolan

The sustainability of meat

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There is an excellent post over at Offsetting Behaviour discussing the reasons why people go vegetarian, and discussing the separation of moral and allocative issues that lead to this choice.  The way I see it, there are three main reasons why a person may go vegetarian – these can be mixed and matched of course, they aren’t mutually independent.

  1. The person has an eating disorder
  2. The person gains disutility from eating a dead animal/causing the death of an animal
  3. The person gains disutility from the view that, given current institutions, the consumption of meat is unsustainable/damaging – specifically that the choice to eat meat lowers the lifetime welfare of future generations.
  4. Update:  Health, I forgot health – some people do it for health reasons.

Now I have recently gone vegetarian myself.  My reasoning was the second one.  This is strange given things I have previously said, I know –  implicitly I do believe that if the animal only lives because it is going to be consumed, and that the life it lives is a good one, then it is morally right to eat the animal.

However, I am viciously time inconsistent.  When it comes to the final stage of the animals life where it must die, I can’t handle the personal disutility I gain from the idea that the animal died to feed me.  As a result of my selfish choice not to eat meat, the animals I would have consumed never get to live those beautiful free-range lives that they deserved.  Not to worry though. See it here first.

Anyway, I haven’t come here to discuss myself, I’ve come here to discuss the sustainability issue.

Is meat consumption sustainable in our finite world?

Lets note something down here.  Prices represent scarcity, as long as the “price is right” the consumption of meat is perfectly sustainable.  As Eric says:

There’s no need for a moral imperative to reduce meat-eating. Get rid of subsidies in the agricultural sector, make sure effluent externalities are properly priced or regulated, then let relative price adjustments take care of the rest. The optimal amount of meat will be eaten, so long as we keep waving our hands about the moral questions.

However, people who do not eat meat on these grounds have exactly the same argument.  They would say:

  • Meat is subsidised.
  • Externalities are not priced, regulation is not appropriate.
  • We discount the future too strongly, relative to what we believe is morally right.

Given these sets of factors people turn around and say “what can I do”.  With the price too low, there is a relative overconsumption of meat, an overutilization of land into the production of meat, an excessive degradation of the environment.  In this context, it is completely consistent of people to say they will go vegetarian to deal with it – however, instead of complaining about the unsustainability of meat in of itself, it might be better that they say that the “price is wrong”. If you want to learn about how meat is stored for being sold and to be transported, get more information from this new blog post.

I would argue that governments should come together and ensure that the worst of these issues are fixed, namely that subsidises on agricultural production are removed.  Then these people can get back to enjoying the consumption of meat, knowing that the higher price they are paying represents truly sustainable practices.

Matt Nolan

Neuroeconomics is exciting, and scary

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Great article from Shiller on neuroeconomics.  The more justification, and more positive side, of neuroeconomics is mentioned here:

Under Samuelson’s guidance, generations of economists have based their research not on any physical structure underlying thought and behavior, but only on the assumption of rationality.

As a result, Glimcher is skeptical of prevailing economic theory, and is seeking a physical basis for it in the brain. He wants to transform “soft” utility theory into “hard” utility theory by discovering the brain mechanisms that underlie it.

This is cool.  Economists want to be reductionist, but we were unable to boil down our theory quite far enough and had to settle on some underlying assumptions of human nature – assumption that were based on “conducting experiments in our own heads”.  Neuroeconomics provides a route for us to actually push the ontological envelope and create a more objective, mechanistic, way to describe the underlying elements of human action.

However, the risk is that we allow this view to cloud our thinking on choice – no matter how far neuroeconomics evolves we will never clearly decipher whether actions are the result of determinism or free will.  By describing action in a deterministic way, we may treat human action as “too deterministic”, leading to a bias towards excessive control and meddling.

Matt Nolan

Too little economics caused the crisis/inequality

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There seems to be a suggestion that economic principles, and the worlds focus on them, is one main reasons why inequality has risen in a way that many are uncomfortable with.  Furthermore, it is common to hear that the economic principles taught to bankers were at fault for their being a financial crisis.

To me, this illustrates that people do not know what the “economic principles” are – and if they did it would become self-evident that it ignorance of these principles that drives poor policy by government and financial institutions.

Just look at the principals that come under this category.  It merely states that people face trade-offs, and make choices given the incentives they face.  How can these sorts of terms be at fault for causing the crisis, or leading society down a path where they were willing to accept higher inequality?

Dig even further into the most subjective elements of economics – welfare economics.  This is the stuff most economists steer away from – because they are too worried about looking like they will have a firm opinion, instead of just being descriptive (at least that is my excuse).

Look at the welfare theorems – they state that, under a given set of conditions with some initial endowments, people will trade and prices will adjust to give us so that no-one can be better off without making someone else worse off.  And on top of that, the government can transfer some of the initial endowment and voluntary trade will lead us down a road where the same condition holds (pareto optimality).

Many will then criticise economists for coming up with a model that takes on unrealistic assumption – but instead think of it this way, with this result what can we ask:

  • If we can transfer resources and allow the allocation to change, which transfer gives the outcome that society values the most?
  • Under what conditions do transfers have real effects?
  • In what cases does our result break down – and in what ways does reality represent this?

Given these questions, economists set about to try and frame issues for policy makers.  With an entire frikken set of transparent assumptions, and discussions around the potential trade-offs, they aim to provide a mixed platter for society to pick from.

And what happens instead?  People prefer to run around, pretend there are no trade-offs, lie about the impact of policy, and then when they face the costs of their actions they just blame other people.  And that is why I say that if people in society accepted scarcity, and understood the basic principles of economics, we would have better policy – and a good argument for more redistrubtion if that (for the cost of some income) was what society wished.

If the teachers have failed, it isn’t because they aren’t being critical enough of the economics establishment – it is because they haven’t been able to make children understand the basic tenant of economics, which is that scarcity exists, and that economics is the study of how to describe scarcity and the allocation of scarce resources in society.

Of course, given that this is stated in the first lecture of all economics courses, I prefer the explanation that the students that walked out of Mankiw’s course were just spoiled brats trying to do something that would make them look cool – after all, I have no doubt that was the incentive they faced.

jamesz

Fiscal forecasting bias

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If you’ve read this blog much you’ll know how obsessed Matt is with independent fiscal forecasts. He has variously called for an independent body to cost parties’ election proposals — Peter Dunne’s with him on that one — and independent bodies to set tax rates and maintain medium-term fiscal balance. The two have been jointly brought to the fore by the arguments about Treasury’s PREFU economic forecasts and the ability of each major party to balance their budget. Each party has accused the other of wild optimism but I haven’t yet noticed people taking pot-shots at the PREFU forecasts themselves. But can we really trust the government’s forecasts?

A recent paper on just that topic (ht. Robin Hanson) has, conveniently for us, investigated whether governments’ economic forecasts tended to be systematically biased in any particular way. It turns out, slightly unsurprisingly, that they are almost always optimistic and more so in the medium run than the short run. That, in turn, leads to over-spending by governments and constant budget deficits relative to forecasts:

Over-optimism in predicting growth appears linked to over-optimism in predicting budget balances. On average, the upward bias in growth forecasts is 0.4 percent when looking one year ahead, 1.1 percent at the two-year horizon, and 1.8 percent at three years.

So that’s bad news for governments and bad news for Matt’s budget-balancing agency, you might think; but not so fast! Read more

jamesz

Competitive vs comparative advantage

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Some business leaders in New Zealand have decided to lay bare the reasons why we shouldn’t manage the economy like a company. They think

A successful business needs a competitive advantage. A successful country is no different.

Actually, it is very different. As the WTO says:

…it is meaningless to say a country has a comparative advantage in nothing. The term is one of the most misunderstood ideas in economics, and is often wrongly assumed to mean an absolute advantage compared with other countries.

Which is, I think, exactly the mistake that the Pure Advantage group are making.

Also, Bill Kaye-Blake appears to agree and all but suggests that the entire scheme is an elaborate way to secure government funding for their organisations. I’m not ready to join the conspiracy theory quite yet so I’ll stick to harping on about the dangers of management thinking in economics.

Matt Nolan

The top 1%: A few facts

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There have been protests about the amount of income going to the top 1%.  In of itself, I have never thought we could tell too much about what is the “right” distribution of income with a certain number – after all, we would expect the top 1% to have significantly more income in some sense.

The claim I found more disconcerting was how much it increased in the United States – from around 8% in the 1970s to near 18% now (all data from here, via Paul Krugman).  This led me to ask:

  1. How do these figures look for New Zealand?
  2. What are the drivers of this.

It turns out I discovered a little bit more than I was expecting when I ran through the numbers …

Read more