The “Con” in Econometric
Posted on June 22, 2016
While American farmers and ranchers were eyeball-deep in spring planting and first-hay cutting, their commodity groups and federal government were knee-deep in narrowly-focused studies filled with meaningless numbers and unchallenged econometric puffery.
For example, the National Corn Growers Association (NCGA) and U.S. Grains Council (USGC) released a privately “commissioned” report May 24 that proclaimed the 2014 “export of corn and corn products increased the U.S. gross domestic product (GDP) by $29.8 billion over what would have occurred without such exports.”
While no one would argue that $29.8 billion isn’t real money, it is, by comparison, the proverbial drop in the ocean when measured against 2014 U.S. GDP, a staggering $17.42 trillion.
Neither that number nor that comparison, however, is included in the tidy, 28-page report prepared by Informa Economics IEG. The reason is simple: If included, corn’s almost $30 billion export kick to U.S. GDP—an unverifiable number determined only by Informa’s non-reviewed econometric model—shrinks to insignificance, or less than 0.2 of 1 percent of overall GDP that year.
But it’s more than insignificant; it’s irrelevant because no one anywhere—not in Congress, not any U.S. farm or commodity group, not one American farmer or rancher—has suggested any policy shift that might cut U.S. corn exports.
So why would your farm groups spend your money with a Beltway report-for-hire company to gin up rubbery numbers that have no bearing on current or future farm policy?
Because, Informa explains on Page 2 of its report, the numbers do have real political value as Congress looks to take up the Obama Administration’s major pending trade deal, the Trans-Pacific Partnership.
“The objective of this work,” the report notes, “is to clearly demonstrate the degree to which individual states and congressional districts benefit from exports of agricultural products that are produced within their borders” and “… this study quantifies… (that value) to selected congressional districts in those states.”
Not by chance the 52 “selected congressional districts” singled out in the report include every corn-dominant House district that, arguably, has never and will never elect an anti-ag trade member to Congress.
Included, too, are Wisconsin’s First District, home to Speaker of the House Paul Ryan, and Maryland’s Fifth District, home to both House Democratic Whip Steny Hoyer and NCGA’s current president, Chip Bowling, a farmer from Newburg, MD.
The report’s questionable, unconfirmed numbers and its overt political pandering, says C. Robert Taylor, the ALFA Eminent Scholar and professor emeritus of ag economics at Auburn University, point to just how common this type of cookbook economics has become with farm and commodity groups today.
“These so-called studies are really more about trying to influence political votes for the commodity groups’ members than contributing to farmer and rancher welfare or Congressional understanding,” says Taylor. “They are crude models well-recognized for what they do: they just follow dollars around without ever looking at all parts of the market like profit, consumer choice or government payments.”
“Of course, if you’re just looking at one side of the story, you’ll always get just one side of the story, right?”
For example, says Taylor, even a cursory look at U.S. corn exports and foreign exchange rates, a crucially important factor in any ag export market, clearly shows that the overseas value of the dollar has far more impact on our corn exports than do our trade policies.
No one in Congress, the intended audience of the report, he continues, will ever find that out reading the Informa report. Instead, they just hear that “all trade is good no matter what and that clearly isn’t the case.”
But that’s “the ‘con’ in econometric studies,” says Taylor, himself of econometrician of national reputation. “You can make econometrics show whatever you want and, if no one questions the numbers—no matter how unreasonable or irrelevant they appear—the numbers stand.”
At least until we all fall.
© 2016 ag comm