Brad DeLong's Semi-Daily Journal (2004)

http://www.nytimes.com/2004/03/22/business/worldbusiness/22ORAN.html

In Florida Groves, Cheap Labor Means Machines
By EDUARDO PORTER

IMMOKALEE, Fla. — Chugging down a row of trees, the pair of canopy shakers in Paul Meador's orange grove here seem like a cross between a bulldozer and a hairbrush, their hungry steel bristles working through the tree crowns as if untangling colossal heads of hair.

In under 15 minutes, the machines shake loose 36,000 pounds of oranges from 100 trees, catch the fruit and drop it into a large storage car. "This would have taken four pickers all day long," Mr. Meador said.

Canopy shakers are still an unusual sight in Florida's orange groves. Most of the crop is harvested by hand, mainly by illegal Mexican immigrants. Nylon sacks slung across their backs, perched atop 16-foot ladders, they pluck oranges at a rate of 70 to 90 cents per 90-pound box, or less than $75 a day.

But as globalization creeps into the groves, it is threatening to displace the workers. Facing increased competition from Brazil and a glut of oranges on world markets, alarmed growers here have been turning to labor-saving technology as their best hope for survival.

"The Florida industry has to reduce costs to stay in business," said Everett Loukonen, agribusiness manager for the Barron Collier Company, which uses shakers to harvest about half of the 40.5 million pounds of oranges reaped annually from its 10,000 acres in southwestern Florida. "Mechanical harvesting is the only available way to do that today." ...

I would like to know more about why the "greedy middleman" question is so off-base. I agree that retail competition is vicious and it seems unlikely the end of quotas won't result in price reductions. But it is a common allegation in trade disputes, such as the current case alleging dumping by U.S. shrimp producers, that low import prices are frequently not passed on to the consumer. The sugar industry, much reviled as it may legitimately be, also makes this argument. Why, beyond the theory, is it so obviously wrong? Has it been alleged in previous cases and subsequently shown to be off base?

http://www.nytimes.com/2003/08/05/opinion/05TUE1.html?ex=1080104400&en=5ae6522601b32ce8&ei=5070

The Long Reach of King Cotton

If it weren't killing them, people in Burkina Faso might get a good laugh at America's unprofitable cotton-growing fetish. Burkinabe, after all, are known for their sense of humor. And what could be more absurd than the sight of the world's richest nation — a fiery preacher of free-trade and free-market values at that — spending $3 billion or $4 billion a year in taxpayer money to grow cotton worth less than that and selling its mounting surpluses at an ever greater loss?

But those American subsidies are killing the Burkinabe farmers, so the inclination to laugh hardens to sorrow and resentment. As in neighboring Mali and Benin, cotton has long been the sole bright spot in this country's ever-dismal economic prospects. White gold, they still call it, though now there's a hint of sarcasm to the expression. Subsidized American cotton farmers now dump so much product on the market that it has driven down world prices. So much so that it currently costs Burkina Faso's cotton industry, traditionally one of the lowest-cost producers, about a dime more than the prevailing global price to get a kilo of cotton to international markets.

American farm subsidies, like those in Europe and Japan, are intended to support a traditional way of life and save farmland from either development or abandonment. If city-dwelling Americans think of the subsidies at all, it is to complain about their cost, or to express a vague sense of satisfaction that we are protecting what seems like a wholesome part of Americana. The idea that we might be inadvertently ruining the chances of small African farmers never occurs to us. But it certainly occurs to the people in the cotton districts of Burkina Faso....

Brad's right on target. This line in particular is mystifying: "That's partly due to retailers' thirst for profit." Are we supposed to believe that retailers are less thirsty for profit now? If not, why aren't they charging ten dollars more for a pair of khakis? The pseudo-authoritative nonsense about how consumers are "conditioned" to pay a certain amount for given items is just that, nonsense. I was conditioned to pay $199 for a good DVD player until people started selling reliable, high-quality DVD players for $79 (and that's not even to mention the pretty good ones you can get for $50). I was conditioned to pay $1000 for a nice flat-panel monitor until they started selling them for $500. The idea that apparel, which is a fiercely competitive business, will be immune to competitive pressures (especially with Wal-Mart in there looking out for consumers) is silly.

As for the J.C. Penney guy's quote, that's a classic attempt at signaling, telling his competitors that as long as they don't cut prices, neither will Penney. Good luck.

With regard to Anne's first post, the mechanization of the orange fields strikes me as an unqualified good. We know migrant laborers are the victims of some of the worst labor practices in the U.S., and this is work that should be done by machines, not people. It's about time the growers started investing some capital in their operations instead of relying on cheap labor.

http://www.nytimes.com/2003/07/22/opinion/22TUE1.html?ex=1080104400&en=ba6743d9d71ceb53&ei=5070

The Great Catfish War

For Tran Vu Long, who lives atop his floating catfish trap on the Mekong River near the border with Cambodia, the recent biannual harvest day was not the joyous payday it usually is. Mr. Long, a 35-year-old Vietnamese catfish farmer, sold his flapping fish — 40 tons' worth, all painstakingly weighed and carried in bamboo buckets onto the trading company's launch — at a loss of some $2,000, a small fortune here.

Mr. Long, who stood sullenly to the side as his hired hands scooped out seemingly endless gaggles of fish from underneath the space that doubles as his living room, has Washington politicians to blame. "The United States preaches free trade, but as soon as we start benefiting from it, they change their tune," he said.

His misfortunes are just another part of the tale of how wealthy countries that preach the gospel of free trade when it comes to finding markets for their manufactured goods can become wildly protectionist when their farmers face competition. The fate of Vietnam's catfish offers a warning to poorer nations short on leverage in the world trading system: beware of what may happen if you actually succeed at playing by the big boys' rules.

After embracing decidedly un-Marxist reforms, Vietnam became one of globalization's brightest stories in the 1990's. The nation, a onetime rice importer, transformed itself into the world's second largest rice exporter and a player in the global coffee trade. The rural poverty rate was slashed to 30 percent from 70 percent.

The normalization of ties between Hanoi and Washington brought American trade missions bent on expanding Vietnamese free enterprise. One of these delegations saw in the Mekong Delta's catfish a golden export opportunity, with the region's natural conditions and cheap labor affording Vietnam a competitive advantage. Sure enough, within a few years, an estimated half-million Vietnamese were living off a catfish trade nurtured by private entrepreneurs. Vietnam captured 20 percent of the frozen catfish-fillet market in the United States, driving down prices....

So the WSJ is suggesting that there is collusion in the garment trade? Wouldn't this be a violation of antitrust laws?

Um...anyone buy a CD lately? You know them - shiny disks, lots of music, pennies to produce, replaced $9.99 vinyl about 15 years ago? If I'm not mistaken, the margin on them remains about 50% higher than it was on vinyl, although I'd be hard pressed to quantify a reason. Even almighty Wal-Mart has not made it cheaper (in constant dollars) to buy Abbey Road (or even Peter Frampton Comes Alive) than it was at every point before 1990.

Look, I know there are huge differences in the markets - 5 major record comapnies versus hundreds of major clothing distributors - but it's this kind of simplistic text bookism that has made Neoliberalism so widely doubted. Of course lower production costs tend to lead to lower consumer costs. But to claim that it's an unassailable fact is, simply false. And anyone who has bought a CD knows it.

Agreed on the pricing issue, though the phase-out of the MFA could have some other negative consequences worth considering. Business Week had a very interesting article on this in December. The main point is that the textile tariffs prop up producers not just in the US but in several other countries one wouldn't suspect. "From the Dominican Republic to Bangladesh, some 30 million workers in dozens of developing countries could see their jobs suddenly evaporate." 30 million! That's one hell of a global dislocation to deal with as China comes to dominate the world market, which is the expectation.

In the CPI apparel price have fallen every year over the past decade but one.

I was involved in the establishment of the first Textile agreements in the 1960s and the main point of the early agreement was to give the Japanese the protection they needed to manage the decline of their textile industry so they could shift people to other industries because they knew they could no longer compete against other producers if we allowed free market access to the US market.

There is already significant excess textile capacity world wide. I can think of no reason the end of the quota system would not lead to lower prices except a massive plunge in the dollar against the Asian currencies.. Moreover, tne current admin has been using the quota to give political favors to countries that support them and hurt those that are against them.

It is a legitimate question.

In the meat industry, the prices farmers have gotten for beef (inflation adjusted) have fallen, but the consumer price has stayed flat.

It should be noted that in the above case, the number of meat packing companies have gone from dozens (hundreds?) to less than 5, which is a likely contributor to the middlman getting more.

There is less competition in that part of the market.

The Business Week URL:

http://www.businessweek.com/magazine/content/03_50/b3862007.htm

To follow up:

To be sure, legal and illegal downloading have provided consumers with cheaper alternatives. What's telling is that fact that even this massive pressure could not bring CD prices down to where vinyl was 15 years ago (when, if you'll recall, back catalogue stuff by established acts usually sold for $7.99).

For another example, it was about 8 years ago that weather conditions resulted in a huge leap in dairy prices. Butter went from $2.49/lb to $3.49 almost literally overnight, after years of stability. And even at that inflated cost, dairies were getting killed. A year or two later, production had recovered, and wholesale prices returned to their previous levels. Anyone pay less than $3 for a pound of butter lately? Middlemen held onto every dime of that cost increase once production returned to normal levels, and retailers and consumers rolled with it.

Now, I know that dairy is a heavily regulated market, and elasticity is low. But if the facts were what Prof. DeLong asserts they are, the situation I describe could not persist. Simply couldn't. And yet, as I grimace every time I buy butter, it has. Either Prof. DeLong is overstating his case, or my experience of reality for the past 8 years is wrong (I suppose those who disagree with me will happily choose the latter, but I hope they run to the dairy case before doing so).

Please, I like markets free. But don't waste everyone's time pretending they work flawlessly, and that anyone who questions the Holy Market is pushing some dishonest agenda.

Prices will not fall much, because the actual manufacturing of textiles isn't where the cost is - it is in design and styling, and merchandising and advertising. Just as with CDs - the actual object itself is rather much a small part of the equation. Textile quotas going away is a good thing - however, retailers are going to defend their price points as long as possible by every means possible. That will likely include some form of collusion.

One retailer lowering prices won't be enough - simply because one retailer cannot possibly soak up the demand. And the retailers who could make a difference would do better to undercut each other by small amounts, to avoid creating a deflationary perception.

However, at some point there will be a price war, and the extra profits will go away. But they are being held onto, not by "middle men" who do nothing, but by the people who give cloths much of their value by creating a wave of fashion. If you want to pay less for cloths, buy last years fashions, they can be had for a third the price.

There is a Milk Stabilization Board that operates in a number of states and significantly effects the prices for dairy products. This does not seem a proper exception, nor does the recording industry example. Try to find a deal of music in England or Brazil, though in Brazil you can buy fine bootlegs on every corner of every city.

http://www.nytimes.com/2003/08/10/opinion/10SUN3.html?ex=1080104400&en=364711f10d5406b5&ei=5070

Who Said Anything About Rice? Free Trade Is About Cars and PlayStations
By ANDRÉS MARTINEZ

SUKIDATE, Japan

All of the 250 or so members of the 1971 class at Kurihara Agricultural High School in Miyagi prefecture — three hours north of Tokyo by bullet train — went into farming upon graduating, but by now, fewer than a dozen are still doing it full time.

"Early on, I was so excited to be producing rice for all those people in Tokyo and other cities. And they in turn felt a connection to the land, because people's roots, no matter where they lived, were out here," said Koushi Seiwa, one of the few remaining full-time farmers from his class, in a recent chat in the cafe his wife runs. He pointed emphatically out the window as he spoke, toward the tidy, perfectly irrigated rice paddies.

Farmers here are determined to remind anyone who will listen that the sense of order in the Japanese countryside isn't Mother Nature's doing. "Time was when people felt a responsibility to care for the land you received from your parents and they from their parents, and this was central to Japanese culture," added Hiko Hisamitsu, a friend and Kurihara High classmate of Mr. Seiwa.

This equating of agriculture with land stewardship lies at the heart of Japanese and European reluctance to meet developing countries' demands that they lower their barriers to farm imports. Japan's exorbitant rice tariffs, hovering near 500 percent, are Exhibit A of such reluctance. Yet farmers like Mr. Seiwa worry about the incessant international pressure, combined with younger generations' lack of interest in agriculture....

The real conditioning is the stunning low level of quality in clothing. It's almost amusing the way "cheap" is strewn through this article concerning price. The cheapness of quality is just a given.

Excellent point about CDs, JRoth! I have been wondering about that whole scam for years. Ever since they first came on the market, when the excuse was that it was a new technology, but just as soon as it began to be mass produced, the price would come down. Of course it hasn't. Anne is right, though, CDs in Brazil are VERY cheap, and not just the bootlegged types either. Regular CDs for popular new bands go for R$16 or so, which is only US$6, and bargains on older music and compilations can be had for R$10 or R$6 brand new from the label. On the other hand, I walked into a record store in Zurich once and CDs were going for US$25 or so. They really don't benefit from the "power of the free market".

Not sure how this fits in, but perhaps someone else will explain--anyway, back in my law practice days I represented CBS records in a bankruptcy. There I learned that the manufacturer shipped all that plastic to the retailer on consignment -- that is, the retailer could return it at any time, for any reason, or no reason. Apparently the makers were so eager to get the product on the shelves, they were willing to accept this very one-sided imbalance. "We shipped platinum!" was the joke. "We returned gold, but we shipped platinum!" The flip side (!) was that the plastic itself was not a big issue, more a problem of shipping and storage than anything else. The real value was in the IP. Why does Bill Gates get $50 every time someone sells a computer? Same principle, yes?

That's because CDs are copyrighted and therefore bands have a monopoly on their product. Compare the price of a Beatles CD to a good recording of one of Beethoven's symphonies. The symphony cost more to record in all likelihood but chances are it'll be cheaper than the Beatles. That's because George Szell doesn't have a monopoly on Beethoven but the Beatles have one on themselves. That's why nobody makes any money on classical recordings.

All this stuff about conditioning is sociobabble for "we don't understand supply and demand and we're proud of it." Supply comes from profit maximization or something like it, folks. Of course if we drop barriers to trade the price of clothing will go down to somewhere near the world price. Otherwise there'd be opportunities for arbitrage.

"Otherwise there'd be opportunities for arbitrage." arbitrage -- arbitrage?

This calls for a Theeeeorem!

Let $\Omega$ be a finite probability space and $\mathbf{X}_1, \ldots, \mathbf{X}_n$ be real random variables on $\Omega$. Then there is no arbitrage for $\mathbf{X}_1, \ldots, \mathbf{X}_n$ iff there is a strictly positive measure $\opr{Q}$ on $\Omega$ such that
%
\begin{equation}
%
\operatorname{E}_{\operatorname{Q}} \mathbf{X}_k = 0 \quad \mbox{for $k=1, \ldots,
n$.}
%
\end{equation}
The proof involves the convexity separation theorem,

Hell Walmart doesn't care about theorems! I'm sure Saks isn't going to undersell walmart. This pesky little retailer will continue to ruthlessly exploit labor regardless of what any theoretician says. Hey I'm not planning on retiring on my rapidly decreasing retirement. I'm going to be a greeter for Walmart.

Good evening sir, welcome to Walmart!

Stirling Newberry beats me to the punch.

Clothing is not entirely rationally priced. A lot of the purchase price is burned up in advertising/"fashion" premiums/and other arbitrary stuff.

There are some clothing items which I think would be much more effected by competition - work uniforms or bulk items where you have an institutional purchaser, for example. Or stuff nobody looks at or particularly cares about (besides price), like men's underwear and socks.

Although I think if we want to make the world a better place, getting rid of farm subsidies has got to be much higher on the list than textile quotas.

And besides, for most items, my experience is, if you wait six months, it'll be on clearance for 70 percent off.

That's usually how I shop;I'm a nerd.

There isn't any other item I can think of where something of reasonable quality depreciates in value so quickly, or so arbitrarily. That's why I strongly suspect that there *really* is a problem with straight supply and demand with clothing items.

Why is this controversial? Brad is not arguing that clothing retailers will lower prices out of a sense of compassion and civic duty. Even a profit-maximizing perfect monopolist would generally lower prices and expand output in response to lower prices.

Ain't no disgrace to be poor - but might as well be.

enter the dragon cave and win

I dont know what to say, but i likeed it.