We need more stats, stat

Tabarrok: Diversified stock portfolios have earned 7% on average, but with a large standard deviation. Even if you follow a buy and hold strategy, almost 70% of the time (more than 2/3) you will get less than 7%. In fact over 30 years, nearly 10% of all portfolios will lose money. The average portfolio return includes a handful of enormously large winners, so that the median return is only 5.1%. As one comment on the post pointed out: "Have you ever heard someone says that when you are young you should invest in stocks because even though they are risky you will have time to cancel out the ups and downs? Sure, you have, even someone as smart as Burton Malkiel has made this argument. Alex’s post shows that this common argument is wrong."

Blattman - Science magazine is now requiring empirical work to pass a statistics editor fluent in your empirical methodology. He notes, and I agree wholeheartedly: "In particular, I think that a 21st century undergraduate degree in social science ought to require fluency in statistics. It’s such a fundamental part of science, medicine, social science, and even reading the newspaper."

Henderson comments on McArdle's post about the choice between a 15-year and 30-year mortgage: 

"If you expect higher inflation in the future and you expect that inflation to stay at that higher level, that argues for the 30-year mortgage over the 15-year mortgage because the 30-year mortgage leaves more principal for inflation to whittle away. Other than a handful of gold coins, I have few good inflation hedges. My fixed-interest-rate loan is one of them. The more slowly I pay it off, the longer I keep my inflation hedge."

Goldstien - Benford's Law tells us that the first digit in a lot of numbers is more likely to be a 1 than a 9. Goldstien tells us how to use that information to double-check the survey information we have gathered. A comment usefully adds: "There is also a Stata package called firstdigit that will run Benford's Law tests for you: http://ideas.repec.org/c/boc/bocode/s456842.html."

Inequality and income support

Villarreal, Francisco (2014). "Monetary Policy and Inequality in Mexico," MPRA Paper 57074.

What happens to household income inequality when there is an unexpected increase in interest rates? "Monetary policy shocks are identified using a structural model, and inequality is measured from household survey data. Then the effect of shocks on inequality is evaluated using a time–series model." Earlier work on the US finds that an unexpected increase in interest rates increases inequality. In Mexico he finds that inequality decreases because median hourly wages drop and workers don't increase labor enough to make up for it, but this effect only lasts for about two years.

Sumner argues in a lot of places that we should focus much more on consumption inequality than on income or wealth inequality; even though the three should be correlated, it's actual standards of living we should be worried about. Oddly enough, then

The correct response to economic inequality (from utilitarian perspective) is to abolish all taxes on capital income, and institute a progressive consumption tax.

Unfortunately, most of the Piketty supporters seem to think it's better to have lower tax rates on a wealthy person who devotes his wealth to riotous living, as compared to a wealthy person who is thrifty, putting the money into capital formation, charity, and/or his children's welfare. I have yet to see a persuasive justification for this bizarre policy preference.

If what we're really concerned about, then, is increasing incomes for the bottom, how do you do it? Economists are best at telling us how not to do it. One example I am likely to mention in my intro macro class next semester from Carden tries to remind people of what is not seen when we choose to pay more to buy American. The broken window fallacy as seen in socks. Meanwhile, here are some comments on a universal basic income, none of which are very satisfying to me but at least it's being discussed.

Jobs in Africa

The African Economic Outlook (here) came out this month. It predicts continued 5% growth overall, with about 7% in the west and only 3-4% in the north and south. For Nigeria, and my former students should pay attention, it points out that most of that growth is NOT in the oil sectors: agriculture, trade, and ICT growing fastest. It also advises countries to invest more in the value added industries. Given that the vast majority of my intro economics students and even the people on the street in Nigeria not only could but did tell me the same thing on multiple occasions, I'm less impressed. It's a right answer, of course, but more needs to be done to identify why it isn't happening when everyone already knows it's the right answer and to take the political economy more seriously.

Oh, and as an aside, take a look at this graph from the AEO:

I could be wrong, but I don't think that's how gears work. The bottom two would turn just fine, but the Human Rights gear is pushing the Unequal Access gear counter-clockwise while the Exclusion gear is pushing it clockwise. From a graph standpoint, this undermines the presumed point that each of them exacerbates the others. It suggests maybe that a poor human rights record makes unequal access not as bad, or that unequal access improves human rights...

Teal argues that the increase in education supply in Africa is a good thing, but only provisionally. The question is: why is more education good? It's good from a human rights/development perspective, clearly. But whether increased education will bring people out of poverty depends in part on whether or not there are jobs available that demand the increased skills.

"Without the factories the dramatic increase in the primary educated work force will indeed see little economic gain from their education. The recent increases in the demand for education beyond the primary level certainly suggests that both students, and their parents, are aware that low levels of education have little value in the job market place. Focusing on meeting that demand rather than focusing on why that demand has arisen may well be to miss the critical problem facing educational policy in Africa."

One of the informal jobs I saw often in Nigeria is that of the porter. People, usually boys, wandered the Jimeta market with wheelbarrows, offering to carry my purchases. The Sudanese government, however, has decided that it is in the public's interest to create a monopoly on wheelbarrows in Khartoum. Porters are not allowed to own their own wheelbarrow, but must rent them at high fees, ruining what little income they were getting from a pretty thankless job.

El Alaoui, Aicha, Elhadj Ezzahid, and Jallal Eladnani (2013). "Estimating NAIRU: The Moroccan Case", MPRA Paper No 56815.
In intermediate macro we are introduced to the Non-Accelerating Inflation Rate of Unemployment (NAIRU). The idea is that if the level of unemployment is lower than NAIRU, you can expect inflation to increase, and to decrease if unemployment is higher. They estimate that the NAIRU has decreased from around 13% in 1998 to about 9% today. There is no explanation for why this happened and the policy conclusion - Morocco needs looser monetary policy based on the fact that the unemployment rate was consistently higher than NAIRU - does not capitalize on the fact that inflation has been remarkably low and sometimes negative since late 2009 or discuss the bank's mandate, goals, or governance.

Pez Romana - the value of markets

Way back in the time of the dinosaurs, my parents had a problem. My brother and I had birthdays fairly close to each other and always wanted to play with the other guy's toys. The solution they came up with was to give me a present on his birthday and him a present on my birthday. This at least reduced the sibling rivalry. We instituted this too, once Econolad was old enough to need it.

This year I was super sneaky. Econolad and I had just started watching Star Wars for the first time and he likes C3P0. I got him a Threepio Pez dispenser, recognizing that he might not like the candy (which he doesn't much).

I explained to him that  this was a useful present. His sister, you see, not only loves all things edible, but the #1 way she shows she loves someone is to share her food or ask you to share your food. I told Econolad he could offer to share one of his Pez candies if she would share a toy with him.

The best is that it works. She is willing to trade some, but not all, of her toys and has the ability to say no if his deal isn't good enough. They each feel loved from each other and are happier with the transactions than otherwise. Prices have tended to stay at one candy for renting a beloved toy for 2 hours, but she has sometimes held out for better terms of payment (now vs. later) or rental length.

The other best part is ... markets are great! As an economist I am very geekily happy every time they bargain and see that creating a market has restored peace to our home. 

Lit in Review: Nigerian Agriculture 3

(This post was started October 2011 and never finished. Let's get it out and done.)

Eze, Kwonko, Orebiyi, and Kadiri, "Land Tenure System, Farm Size, innocation, and Agricultural Productivity in South-East Nigeria"

From the abstract: "The laws of inheritance and increase in population led to the subdivision and fragmentation of existing farmland in such a manner that the sizes of farm holdings discouraged agricultural commercialization. ... It was also shown that mechanization of agriculture was impracticable under land fragmentation." They conclude that farmer cooperatives would consolidate fragmented farms, reducing time and energy waste and allowing more modern innovations and mechanization to improve efficiency and production.

What I learned from reading the Marginal Revolution magazine

(This post was written April 2013 and I'm not sure why it wasn't posted then)

I've been interested by the occasional posts by people who read a magazine cover to cover, then report on what they learned. These couple next posts are based loosely on that idea. I've been thoroughly busy and stressed this semester without much time for semi-curricular reading, which means the posts have been piling up in my reader.

While our NUC accreditors were at AUN, though, I needed to be on-call to answer questions. Completely unable to concentrate on research writing, I did a lot of reading. Below are a few of the things I learned reading every post from a few weeks' worth of Marginal Revolution:

Lit in Review: Money in India, Africa, and helicopters

Gupta, Abhijit and Rajeswari Sengupta. 2014. "Is India Ready for Flexible Inflation Targeting?" , Indira Gandhi Institute of Development Research Working Paper, June 2014.

The standard intermediate macro take has been to encourage some form of flexible inflation targeting or Taylor rule approach. In developing countries, however, financial systems are less well-developed which makes the lags between data, policy, and outcomes more troubling and, because food prices form a much larger portion of the price basket, if most central banks had responded to the recent food price spikes by sharply tightening the money supply the results would have been dire. India has followed a "multiple indicator approach" since 1998 that focuses more on stable interest rates and exchange rates, but also uses money, credit, output, trade, capital flows, government debt, and the inflation rate. The lack of a single policy rate reduced the clarity of signals sent to the market and introduced (predictable) variance in other variables, however, so in 2011 the RBI officially focused on the weighted average overnight call money rate.

Gupta and Sengupta estimate a Taylor rule for India using 90-98, 98-04, and 04-13 data. Inflation matters less and less for policy making, particularly in the last period that includes the food price spike - albeit the Wholesale price index (WPI) matters more than the CPI. They also estimate exchange rate stability, monetary independence, and capital account openness over time (the impossible trinity) and show that exchange rate stability has much less weight today than it did even as recently as 2000 when it was the primary goal. The increased monetary independence this bought indicates it would be more possible than in the past for India to follow some kind of Taylor rule.

Buiter, Willem. 2014. "The Simple Analytics of Helicopter Money: Why it Works - Always" Economics, Discussion Paper 2014-24.

Milton Friedman called a permanent increase in the money supply a "helicopter drop." It turns out that Quantitative Easing (QE) fits that description so long as people believe the Fed is not likely to sell off its assets. Buiter cites other research that says helicopter drops might successfully increase aggregate demand, but they also might fail. He then demonstrates that there are three conditions for this to always boost aggregate demand: 1) people want cash for reasons other than earning more money (ie - people value cash even when there is modest inflation because we use it as a medium of exchange); 2) the price of money is positive; 3) cash is irredemable (ie - it's not a liability for the government and not backed by gold). He claims it was failure to consider this last condition that led to the erroneous idea that helicopter drops would not increase AD. (PS - that picture is really not fair to our former Chairman, but it's entertaining.)

Asongu, Simplice. 2013. ''A note on the long-run neutrality of monetary policy: new empirics", MPRA Paper 56796 and AGDI Working Paper WP/13/032, posted 23 June 2014.

Money is neutral in the long-run in Africa too.

As it should be.

Why markets don't work in Africa - ILRI

I am hoping this gives me an easier time showing it in class.

Five thoughts on Government reading over your shoulder right now

Sumner:

PPS.  I’m just kidding folks.  Honest people have nothing to fear.  Senator Feinstein assures us that it will only be used against terrorists, and also people that someday might become a terrorist:  

... She said on Thursday that the authorities need this information in case someone might become a terrorist in the future.

And since I don't ever plan on becoming a terrorist, I figure I have nothing to fear. Yes, I do publish one post after another calling for the IRS to be abolished, but I'm confident that IRS agents have too much professionalism to single me out for special treatment.

Kling:

2. I also claim that a must-read is my own article, The Constitution of Surveillance, written nine years ago. [DW - Quite good]
3. I hope people are putting the NSA program in context with the Boston Marathon bombing. Here you go to all this effort to use Big Data to find terrorists, and when you are handed hard, actionable intelligence from the Russians you muff it.
4. I bet you will not find politicians putting the NSA program in context with Chinese cyber-spying, and explaining why ours is good and their is bad. I don’t think politicians are capable of doing the hair-splitting, so I think what they are left with is “What we do is good because we are good, and what they do is bad because they are bad.”

Cato:

Fournier then runs through how the various Obama scandals show:

Government is intrusive … Orwellian … incompetent … corrupt … complicated … heartless … secretive … [and] can’t be trusted.

And that’s when the good guys are running the show!

Wallace (hat tip: The .Plan):
Are some things still worth dying for? Is the American idea one such thing? Are you up for a thought experiment? What if we chose to regard the 2,973 innocents killed in the atrocities of 9/11 not as victims but as democratic martyrs, “sacrifices on the altar of freedom”?* In other words, what if we decided that a certain baseline vulnerability to terrorism is part of the price of the American idea? 

...Is this thought experiment monstrous? Would it be monstrous to refer to the 40,000-plus domestic highway deaths we accept each year because the mobility and autonomy of the car are evidently worth that high price? Is monstrousness why no serious public figure now will speak of the delusory trade-off of liberty for safety that Ben Franklin warned about more than 200 years ago? What exactly has changed between Franklin’s time and ours? Why now can we not have a serious national conversation about sacrifice, the inevitability of sacrifice—either of (a) some portion of safety or (b) some portion of the rights and protections that make the American idea so incalculably precious? I recognize my own biases are showing pretty heavily here. On the other hand, The Economist publishes this that is tempering my thinking:

3. And now the key question: is it okay for Google to use knowledge it gains from searching your e-mails to sell advertising to Williams Sonoma, but not to pass it on to the government when it asks for matches between pressure cookers and beheading videos?

 We need to think coherently about what we find scary here. The problem isn't so much that we haven't set up a legal architecture to preserve our online privacy from the government; it's that we haven't set up a legal architecture to preserve our online privacy from anyone at all. If we don't have laws and regulations that create meaningful zones of online privacy from corporations, the attempt to create online privacy from the government will be an absurdity.

The Economist: a menace?

The Economist this week posted a study from Evolv, showing certain correlations between unusual worker choices and their talent. Among other factoids, it was argued that workers who had switched from their default browser (Internet Explorer or Safari) to another (Firefox or Chrome) were more likely to stay with the company and perform well - 15% more in fact. The browser is assumed to be a pure signal of initiative, rather than actually raising employee performance.

So far so good. However, the article concludes by encouraging all wannabe workers to change their browsers. This may be a good thing for some, but the advice will also definitely make some people worse off and will probably make society as a whole worse off. Let's take a look at who and how.

Amnesty and the Median Voter

As I prepare to introduce my ECO 303 students to the Median Voter Theorem today, I've been thinking about Republicans' worries that allowing more migration from Mexico or amnesty or Puerto Rico into the US will increase the number of Democrats. More of them, fewer of us, we lose elections. The Median Voter Theorem tells me that that isn't the real point to worry about.

Fact checking Common Core: Fair and Balanced

A friend pointed out an article on the Obama administration's current set of Common Core (CC) standards in education. The article, by Burke of the Heritage Foundation appearing on Fox News, casts the standards in a fully distopian light, closing with the beautiful zinger:

But if states stay on the Common Core bandwagon, say goodbye to “1984,” “Animal Farm” and “Brave New World.” No need for kids to be reading those books, anyway. They’ll be living them.

Burke's primary concern is that for most of students' learning experiences, fully half of what they read is supposed to come from so-called "informational texts," which she typifies with the following list:

The Federal Reserve Bank’s “FedViews,” “The Evolution of the Grocery Bag,” and “Health Care Costs in McAllen, Texas.” And, roll over “For Whom the Bell Tolls” it’s time to make way for that GSA classic: “Executive Order 13423: Strengthening Federal Environmental, Energy, and Transportation Management.”

Notably missing from the CC are many of the greatest authors of all time:

Jane Austen, Charles Dickens, J.D. Salinger, Washington Irving, Edith Wharton, James Joyce, Sinclair Lewis – all achieved that complex goal. And all are absent from the Common Core list

From her article, I was quite sympathetic to her concluding line. It turns out, however, there is an important element she missed from reading the standards themselves and their intents, and I was relieved to see that these nuggets are not representative of the writing students are expected to have mastered. (However, I was much less reassured by the CC explanation that teachers were to be free to use whatever methods they wanted, as long as Big Brother gets to control the messages.

Lit in Review: Climate Change and Investment in Vietnam

Dang, Anh Duc (2012) "Cooperation makes beliefs: Weather variation and sources of social trust in Vietnam" ANU Working Papers in Economics and Econometrics #596.

Dang - a PhD candidate at ANU - begins with Durante's (2009) finding that large weather variation in medieval times led to more collective action in Europe and hence to more social trust. Applying a similar methodology to Vietnam's 1927-1995 regional rainfall variation (both monthly and maximal), Dang shows that regions that had higher weather variability also have higher social trust. Social trust is measured by surveys asking if respondents feel they can trust their community and if there is someone outside their household to whom they could turn for help in hard times. Oddly, while recognizing that migrants are part of an interesting dynamic with social trust, Dang excludes them completely, focusing only on households where at least one adult has lived in that community their entire life. I also find it odd that he is worried about unobserved non-geographic factors that would determine both rainfall and social trust among people who haven't migrated.

Among the implications of this work is that climate change is likely to impact individual adaptive behavior through changing levels of trust and social cooperation. This will tend to mitigate some of its negative effects on individuals.

Chinowsky, Paul, Amy Schweikert, Niko Strzepek, and Kenneth Strzepek (2012) "Road Infrastructure and Climate Change in Vietnam," UNU-WIDER Working Paper 2012/80.

They consider the tradeoff between expanding road access to more areas today and upgrading and maintaining existing roads to prepare for and respond to climate change. Even while assuming sea levels rise by one meter, they show that the large majority of cases involve costs in the lower end of the distribution. Despite that, it is cheaper in terms of foregone roads to adapt to future climate change than to await its eventual impact and rebuild roads once the uncertainty is resolved. In the minimum impact scenario, Vietnam would be no worse off for making adaptive investments.

Changes in monetary tectonics

At home:
Ball: "or the first time, the Fed clearly says it will be more dovish in the future than the pre-crisis Taylor Rule dicates [sic]."

O'Brian:  The Fed still thinks it’s first rate hike will come in 2015-ish, and it’s still buying $85 billion of bonds a month. This is a true fact. But it undersells the intellectual shift at the Fed. It’s gone from mostly thinking about inflation to creating a framework to guide its thinking about inflation and unemployment. And it’s done that in just a year.

Woodford:

Today’s statement provides important additional clarification of the conditions under which it will be appropriate to begin raising short-term interest rates, relative to the FOMC’s statements in September and October. Such clarification is particularly likely to help stimulate the economy when, as in this case, it indicates that the conditions required for policy tightening will not be reached as early as some might have expected on the basis of past Fed behavior.
The explicit thresholds mentioned today are not ones that will be reached as soon as a federal funds rate above 25 basis points would be dictated by a reaction function estimated on the basis of the FOMC’s pre-crisis decisions, and in that respect the announcement should change the forecasts of future Fed policy of at least some market participants.

Yglesias: This is huge. With today’s policy announcement, the Federal Reserve’s Open Market Committee has stopped screwing around and started doing real expectations-based monetary easing.

In England:
Carney [up and coming BoE head]: If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting.

ECO 303: Clarification on our need for imports

I have a suspicion my example in Development today was less than crystal clear, so please let me try again.

I posed the question why it was a mistake to think that shutting off all imports was a key to growth based on the claim that Y=C+I+G+EX-IM, so *obviously* lowering imports is good.

If you missed the quiz, take a moment to think about the answer before looking below the fold.

ECO 302: Big Bag of Market Monetarism

We're doing market monetarism in my intermediate macro class tomorrow morning. Here are the handout notes, minus some explanatory material. These are just a few of the things written in the last 45 days on the subject - making the class CURRENT, baby! - without themselves being an attempt to define and explain everything about market monetarism. The main topic is why current inflation rate and interest rate targeting is ineffective, supporting the MM view that we should target the forecast of nGDP growth.

Goldilocks and the Median Voter Theorem

Since two of my vertebrae are now kissing that have no business kissing, I'm going to be teaching from a seated position a lot more, and that means relying a lot more on PowerPoint and other such abominations to teach class. Since the power goes out a lot, it would be useful to have a backup. So I'm going to finally resurrect this blog to put up some notes for my classes that they can turn to during class on their smartphones if the power goes out. This post is for ECO 303 - development - and is an easy introduction to the Median Voter Theorem for our political economy section.

Political economics is the study of how governments make decisions using economic tools. One of the earlier and easier examples is the Median Voter Theorem.

To understand what the Median Voter Theorem is, remember the story of Goldilocks and the Three Bears. In the original story, every bear could have porridge, chair, and bed ideally suited to his or her preferences. This is one of the good things about the market system: everyone can have exactly what they want. With government making decisions, that may not be the case at all. We are much more likely to get one-policy-fits-all. But which policy will we get?

Suppose the three bears' government will only supply one type of porridge, one type of chair, one type of bed. What will the temperature of their porridge be? How hard will their chairs and beds be?

If the three bears decide things democratically, the Median Voter Theorem tells us the answer: it's whatever Baby Bear wants!

Lit in Review: Child Undernutrition and Labor

Harttgen, Klasen, and Vollmer, "Economic Growth and Child Undernutrition in Africa," GlobalFood Discussion Paper.

They add to the short but slowly growing literature on the impact of economic growth on child undernutrition that I based my dissertation work on. They add Klasen (08), Friedman and Schady (09), and Subramanyam et al (11) to the ones I knew about.

They identify a micro-macro paradox: increasing household income reduces undernutrition significantly but increasing average incomes doesn't make nearly the same difference. It is rather disturbing to me to see for how many SSA countries there has been significant improvement in GDP/capita, but a worsening of child hunger. Among the things they find that matter more than GDP/capita, household asset rank matters, suggesting that inequality may be an important part of the story.

Bhagowalia, Menon, Quisumbing, and Soundararajan, "What Dimensions of Women's Empowerment  Matter Most for Child Nutrition?' IFPRI Discussion Paper 01192

Women's empowerment can be a fairly vague (their preferred word: complex) term, so it is nice to see the authors breaking various dimensions of it down to see which are correlated with better outcomes. From the abstract: "Results from logit models indicate that both a greater degree of women’s empowerment and greater maternal endowments [read: height and education] are associated with better long-term nutritional status of children [in Bangladesh]. Attitudes toward domestic violence have an effect on child stunting and mobility; participation in decisionmaking is an important influence on dietary diversity. Consistent with previous studies, maternal height and maternal schooling decrease the probability of stunting, and maternal schooling is positively associated with dietary diversity. While these are not immediate measures of empowerment, they are positively associated with child nutritional outcomes and reflect prior investments in women and girls." However, they have almost no control variables in the regressions, so it is uncertain how much is due to these factors directly, and how much is the fact they signal correlation with socio-economic status or other factors.

De Paoli and Mendola, "Does International Migration Increase Child Labor?" Centro Studi Luca d'Agliano Development Studies Working Paper 339.

An interesting data combination allows them to look out how out-migration of workers from different skills impact local labor markets, and how those impacts affect some 200,000 children studied in 38 different countries. They find that allowing low-skilled workers to emigrate increases local wages for the parents, reducing child labor. It might have also been the case that it raised the wage for child labor, which would increase child labor, but this does not seem to be a significant factor. They also see that female emigration reduces child labor by more than male emigration. "According to our estimates, a 10% increase in the migration rate decreases the probability of child labor by 1.2 percentage points (p.p.) and the total time of weekly work by 7.3 hours." I count 209 reported regressions and, at first glance at least, the vast majority tell the same overall story.

Lit in Review: Poverty and Livestock in Eastern Africa

Tsehay and Bauer, "Poverty Dynamics and Vulnerability: Empirical Evidence from Smallholders in Northern Highlands of Ethiopia," presented at the IAAE August 2012.

They study Yetmen and Shumsheha in rural Ethiopia. Between 1994 and 2010, the percent of households owning oxen increased from 5% to 75% and 46% and livestock assets more than tripled in value. Literacy has gone down, but school enrollments are up significantly.

The poverty dynamics are quite interesting. Half of the households are worse off, moving down from subjacent or medial poor to ultra poor (<$0.50/day) and 1/4 moved up - not out-of-poverty up, but up to slightly-less-poor. The worsening happened between 2004 and 2010, while 1994-2004 had seen significant improvement.

Table 5 shows the number of times out of 4 rounds that a household was poor:

          Yetmen             Shumsheha
0          9.8                   6.93
1         27.45                31.68
2         35.29                30.69
3         19.61                24.75
4          7.84                 5.94

Wainaina, Okello, and Nzuma, "Impact of Contract Farming on Smallholder Poultry Farmers' Income in Kenya," presented at the IAAE August 2012.

Their study of 180 smallholder farmers in Nakuru county finds that farmers contracting with Kims Poultry Care Center received roughly 27 percent more revenue per bird than independent farmers. They used matching propensities.

I'm uncertain whether they mean that "KPCC is the only large poultry farm that works with smallholder farmers in Kenya..." or the only one that works with smallholders in a contract that also provides inputs and interlinked credit. Markets for inputs and outputs tend to be quite thin, so partnering with KPCC improves market access significantly. So these results may not be typical of contract farming overall. Oddly enough, independent farmers have statistically larger birds than contract farmers, so the revenue per kg difference is slightly larger. Extension agents and higher education make farmers less likely to sign a contract, so they aren't explaining the difference.

Smallscale farmers have 100-500 birds, medium scale is 500-1000. The county has 40-45% poverty. It sells processed chicken and eggs to local tourist hotels and throughout East Africa.

They regularly reference Nyaga, 2007; poultry sector country review, FAO

Gelan, Engida, Caria, and Karugia, "The Role of Livestock in the Ethiopian Economy: Policy Analysis using a computable general equilibrium model for Ethiopia," also IAAE August 2012.

From the abstract: "We extend an existing dynamic recursive general equilibrium model for the
Ethiopian economy which better models the livestock sector. A separate herd dynamics
module enables us to specify stock-flow relationship, distinguishing between the capital role
of livestock and the flow of livestock products. We also improve the underlying system of
economic accounts, to better capture draft power and breeding stocks." What they look at is growth in total factor productivity (TFP) - how efficient or productive the sector is - comparing a positive shock to TFP growth in livestock, cereals, or cash crops. So imagine you wanted to invest in agricultural productivity in Ethiopia and ask which of those three you should invest in.

They find that an increase in livestock TFP growth from 0.5% to 3.1% would do as much to increase total agricultural GDP as an increase in cereal TFP growth from 2.2% to 4.3%. Livestock TFP growth would also improve export value more than cereal or cash crop TFP growth. Even though domestic prices for livestock decrease, labor income goes up fastest with livestock TFP growth, so the poor benefit the most from livestock TFP growth. Cereal TFP growth improves their caloric consumption by the most.

Babies in Nigeria

The Times decided it had been a good few months since it last sounded a Malthusian warning against population growth in Africa. So they said, let's pick on Nigeria! That's always fun. When I read the good Dr. Blattman asking for additional opinions, I knew it was time for me to break radio silence again.

Nigeria defies a lot of the overpopulation stories. I spend a lecture with my development students on Malthus and overpopulation, and I've got to say, I find the evidence very non-Malthusian.

Nigeria as a whole is less densely populated than New York State (or 6 other US states). Actually, NYS is a very good comparison: there's a large mass of population in one teeny corner, and the rest of the state is vast tracts of underpopulated farmland with a couple rust-belt cities "not living up to their potential," as we recite in far too many student papers over here. In the last governor's election, the top debate topics were the brain drain out of NYS and corruption. They had to put the capitol city outside of NYC to keep it away from the big city politicking, crime, and corruption, just like Abuja. But I digress:

Check out the map for Nigeria's population density. The density in Lagos is 2000/square mile - 1/5 the density of Washington DC; 1/9 the density of Singapore. A couple other states in the south are also fairly well packed. Altogether, 15% of the population lives in high-density states. The vast majority of the country is in the 40-150 per square mile category. If anything, that is underpopulated. By comparison, NY city is up around 5000 per square mile, there are few pockets of high population (Buffalo, Rochester, Syracuse, Albany, from west to east) and everything else is in the 1-250 range. At 250/square mile in Ithaca, deer ate all my garden vegetables and raccoons regularly sacked garbage cans without locks on them.

Then we have the difficulty that the overpopulation is higher in areas that have higher GDP/capita. Lagos and Port Harcourt are not the poverty-stricken areas, but the wealthy ones. It's the underpopulated north that has the higher poverty rate.

Because really, the Times (and family) only discover there are actual cities in Africa when it wants to trot out its tired Malthusian stuff. Notice they only talk about fertility rates (6 kids per woman!), not population growth rates (2% last year, because 2 of those kids died before age 5 and the life expectancy is still under 50). Notice they don't mention that food production has kept up with population growth for over 50 years. Notice they don't mention that birth rates have been falling for 30 years, right in line with standard population transition models.

You could make a reasonable story out of all this based on the Harris-Todaro model: the way to solve the overcrowding in Lagos is to provide a little more development in the rural areas. But then the problem isn't too many people, but not enough development shared unequally.

Among my favorite comments on the subject, however, are still Fengler's and Dickens':

Fengler: Many think this is a big problem. ... I am less certain that the rapid population growth in Africa, especially in Kenya, is the fundamental development challenge: ... despite Africa’s rapid population growth and Europe’s stagnation (even decline in few countries) the old continent remains much more densely populated than Africa. If we look at Western Europe – where I come from – there are on average 170 people living on each square km. In Sub-Saharan Africa there are only 70 today. This gap will narrow in the next decades but even by 2050, Western Europe is expected to be more densely populated than Africa. I am following the population debates in Europe, especially in my (densely populated) home country Germany. I have never heard anyone argue that there are too many people in Europe.

Ever and again, I hear the immortal words:

``If these shadows remain unaltered by the Future, none other of my race,'' returned the Ghost, ``will find him here. What then? If he be like to die, he had better do it, and decrease the surplus population.''
Scrooge hung his head to hear his own words quoted by the Spirit, and was overcome with penitence and grief.
``Man,'' said the Ghost, ``if man you be in heart, not adamant, forbear that wicked cant until you have discovered What the surplus is, and Where it is. Will you decide what men shall live, what men shall die? It may be, that in the sight of Heaven, you are more worthless and less fit to live than millions like this poor man's child. Oh God! to hear the Insect on the leaf pronouncing on the too much life among his hungry brothers in the dust!''