Britmouse has a quick and dirty response to Merv’s final Inflation Report. I’ll hopefully write something tomorrow, but for now, as usual, refer to him:
Mervyn King coined the term “inflation nutter” in 1997 to describe those who embraced stability of inflation above all else. Governor King in 2013, along with an entire generation of central bankers, will still claim “nothing is more important” than price stability. That is the legacy of King and the rest of the modern-day inflation nutters.
Wouldn’t want to make a big deal out of this, but when writing online always link to what you’re talking about. This post, for example, is discussing Mervyn King’s last Inflation Report, but nary a link can be found. The report is here. There are lots of things that make blogging better than print journalism, hyperlinks are just the first but you still have to get them right.
It isn’t often I get to write such a profane title which references Ronald Coase. Today is a good day for blogpost titles [1] and a bad day for farm workers. As with most factories with simple inputs and outputs pig farming scales very well. This means that they can get very big before they start seeing diseconomies of scale but once they do they’re pretty unique diseconomies of scale.
In a paper which makes me miss my Athens’ subscription, Alex Coads highlights that profit isn’t a very good predictor of firm growth. [3] In fact firm growth is a little random. But something which definitely prevents firm growth are diseconomies of scale.
Normally these refer to limits on staff monitoring, communication costs, duplications of effort and office politics. None of these are particularly relevant for pig farms (pigs actually don’t collude, sadly for them), so they’ve just kept getting bigger and becoming more profitable to the point where they are discovering industry specific diseconomies of scale:
The problem is menacing: As manure breaks down, it emits toxic gases like hydrogen sulfide and flammable ones like methane, and trapping these noxious fumes under a layer of foam can lead to sudden, disastrous releases and even explosions. According to a 2012 report from the University of Minnesota, by September 2011, the foam had “caused about a half-dozen explosions in the upper Midwest…one explosion destroyed a barn on a farm in northern Iowa, killing 1,500 pigs and severely burning the worker involved.”
Apparently this just did not happen before 2009. Factory farming has helped us to feed the world. Intensively farmed pigs [2] have allowed for more protein to be produced at a great cost in terms of animal suffering and at little costs in terms of money. Negative externalities where they have existed have been more diffuse, like water pollution, such severe diseconomies of scale at the farm level are relatively new.
What we are seeing is a limit to farm size. There aren’t many firms that are limited in size by the quantity of waste produced, but it appears we’ve found one. I think it is safe to say Coase couldn’t have seen this one coming in 1937.
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[1] Is this the sort of post I should be writing if I want this job? I presume so.
[2] Writing this post makes me want Mario at Brindisa to cut me some Iberico jamon. From organically farmed, acorn fed pigs, that stuff though. And very expensive: Tesco value ham is £0.41/100g while Iberico jamon is more than ten times that, those prices tell a story.
[3] Do I really have to keep writing via Chris?
Left Outside 