When Storage Does Not Save One from Low Commodity Prices

When prices are low for a storable commodity, agents (farmers or intermediaries) can wait for higher prices to sell. Of course, there is a carrying cost to storage for many commodities, like soybeans (deterioration of stock, direct storage costs, opportunity cost of capital tied up in commodity). Hence, while storage can mitigate losses, it does not necessarily eliminate economic losses that arise from persistent tariffs.

Case in point: From “Giant shipload of soybeans circles off China, victim of trade war with US: Peak Pegasus became unlikely hit on Chinese social media as it tried to beat tariff deadline,” Guardian today:

A shipment of soybeans worth more than $20m (£15.5m) has been bobbing aimlessly in the Pacific Ocean for a month, a casualty of the escalating trade war between China and the US.

The ship, owned by JP Morgan Asset Management, was scheduled to unload about 70,000 tonnes of American soybeans in the Chinese port of Dalian on 6 July, shortly after Trump imposed a first round of tariffs on $34bn-worth of goods.

As it rushed to shore in the hope of clearing customs before Beijing imposed retaliatory tariffs, the ship – and its protein-rich cargo – became an unlikely internet sensation on the Chinese social media platform Weibo.

However, the vessel arrived just too late and has been sailing around in circles ever since while the cargo’s owners, understood to be the agricultural commodity trading house Louis Dreyfus, decide what to do.

Estimated cost/day to charter the ship (so not including other costs) are $12,500, for $400,000 incremental expenditure per day. The ship is idling off China in case the Chinese decide to subsidize imports, thereby rendering the American soybeans competitive again.

In this case, farmers do not lose out. The commodity trading house Louis Dreyfuss (according to journalistic accounts) loses out. But this would seem to be a plain dead weight loss relative to the no-trade-uncertainty case.

And for those farmers holding out for a truce in the US-China trade war, they incur a carrying cost too. If soybean prices do not recover by September-October (soybean harvest season in the northern hemisphere), then they will incur a loss relative to the counter-factual of no tariffs.

While soybean futures for September delivery have recovered somewhat, as of today, they are still 15% below where they were in early March, as Mr. Trump announced Section 232 tariffs.

65 thoughts on “When Storage Does Not Save One from Low Commodity Prices

  1. Moses Herzog

    Dalian. Great city. Some great people. Some great universities. One of the better Chinese cities to visit when all this tariff business has blown over.

    So weird how things between races seems to conjure up strong emotions in people. Anger, resentment, confusion, fear, humor. But then there’s some stories that just give us a “warm fuzzy” inside us. They are so touching and uplifting to the human spirit. Such as……..
    https://www.youtube.com/watch?v=DC7xFJaeOKc

    Are you guys like me??—>>while you watch that breakdown on Omarosa and Trump you keep hearing this song in the background of your mind??
    https://youtu.be/YYOKMUTTDdA?t=1m21s

    Reply
  2. pgl

    “while storage can mitigate losses, it does not necessarily eliminate economic losses that arise from persistent tariffs.”

    I think the CoRev Nobel Prize thesis – and we have to speculate as he is all over the map – was that these tariffs would quickly be removed. Now if CoRev had thought this through (I know, I know – fake assumption) he would have realized that the implication of his thesis would indeed be that future prices would not have declined as much as you documented. But the market evidence shows that they did. Did CoRev revisit his fake assumption? Of course not as he couldn’t lest be fired by Wilbur Ross.

    Reply
  3. pgl

    I love this line:

    “However, the vessel arrived just too late and has been sailing around in circles ever since while the cargo’s owners, understood to be the agricultural commodity trading house Louis Dreyfus, decide what to do.”

    Reminds us of how the Usual Suspects spin themselves in circles as they await the next set of talking points from their Fearless Leader!

    Reply
    1. CoRev

      Pgl, my comments have been centered upon FARMER losses. Even Menzie understand this: “In this case, farmers do not lose out. The commodity trading house Louis Dreyfuss (according to journalistic accounts) loses out. But this would seem to be a plain dead weight loss relative to the no-trade-uncertainty case. ” It is you who have zero understanding of the business, but then no one who reads your meaningless and muddled comments ever thought other wise.

      Reply
      1. baffling

        it should read “farmers do not lose out, yet”. these items are not unrelated. who do you think buys the commodity from the farmer to sell overseas? in this case, the farmer avoids the losses in round 1. but they still need to sell their harvest this fall. farmers will have less leverage than the trading houses in the fall for new sales. the ship under discussion is a bit of an anomaly, as part of its transactions occurred prior to the tariff issues. no trading houses will be making purchases without a tariff discount today.

        Reply
        1. pgl

          I bet had CoRev finished his storage modeling paper – he might have realized what you so ably said. But it seems he got lost and has abandoned that exercise.

          Reply
      2. 2slugbaits

        CoRev In this particular case the soybeans on the ship were sold by the farmer well in advance of the Chinese tariffs being announced. So obviously those particular farmers didn’t suffer a loss. For all we know the soybeans on that ship were sold last winter. But after the tariffs were announced all farmers incurred an additional cost that they had not expected or planned for when they made their planting decisions last spring.

        It is you who have zero understanding of the business

        It is you who doesn’t understand the concept of the margin. There will always be a farmer who operates at the margin, and any unexpected cost will result in a net operating loss for that marginal farmer. That marginal farmer will go out of business. Of course, by definition most farmers do not operate at the margin, so they will still show a positive operating profit; however, they will still suffer economic losses. Just because the concept of an economic loss is less intuitive and less concrete does not mean it’s in anyway less real. If you wanted to work for any business and you told your boss that economic losses were just economist mumbo-jumbo, you’d soon find yourself looking for another job.

        Reply
        1. CoRev

          2slugs, Baffled, and pgl, what an amazingly illiterate set of comments. Every farmer, every year faces potential P&L depending on those things he can control and those he can not. Most of those things he controls add costs, but the things he doesn’t control, weather and trade barriers can devastate any potential for profit.

          We already know that ~1/2 the crop is already sold. So baffled is not correct in claiming: ” but they still need to sell their harvest this fall.” Predicting even what. how much a farmer will plant next year let alone predicting a farmer’s market leverage for soybeans, if he even plants them, is being prescient about market leverage. So Baffled’s comment is dubious at best.

          2slugs, still does not know how to calculate P&L. He made one duh!! statement: “But after the tariffs were announced all farmers incurred an additional cost that they had not expected or planned for when they made their planting decisions last spring. ” After that however, his comment is clueless.

          Pgl, added no value.

          Reply
          1. 2slugbaits

            CoRev Once again, you didn’t understand a word of what I wrote. You really don’t belong at this blog. Go spend some time learning a little math and try reading a few econ textbooks. Then maybe you’ll understand what people here are saying.

          2. baffling

            2slugs, corev has no interest in understanding anything on this blog. that is why he is an idiot. he is simply here to promote an ideology, which is not even coherent.

          3. 2slugbaits

            corev has no interest in understanding anything on this blog. that is why he is an idiot.

            Etymology of the word “idiot”:
            https://en.wikipedia.org/wiki/Idiot#Etymology

            Comes from the Greek “idiotes” meaning a private (not public) person lacking professional skill.

            For the Greeks: “… its most common use was simply a private citizen or amateur as opposed to a government official, professional, or expert.”

            So yes, CoRev is an idiot.

          4. CoRev

            Baffled and 2slugs, I made an argument against your comments and you resorted to personal attack. In Baffled’s case it is understandable as he has shown so little knowledge about farming/the Ag. Industry. 2slugs, yours is just egregious double talk. You have yet to do a P&L estimate using actual timely harvest estimates versus your opportunity planting time estimates. You still do not understand the difference. Here is a list of allowable expenses for farming tax deductions. See if you can find you ropportuinty cost examples: https://taxmap.irs.gov/taxmap/pubs/p225-013.htm#TXMP3c16e0d3

          5. 2slugbaits

            CoRev As I’ve pointed out before, you don’t seem to understand the difference between economics and accounting. Your link is about accounting, not economics. Notice that this is an econ blog, not a Big Four (or whatever the number is today) accounting blog. You’ve also demonstrated that you don’t know the difference between the impact of a tax and the incidence of a tax; you don’t know the difference between marginal costs and average costs; you don’t know how a tariff works; you don’t understand trade diversion; you don’t understand econometrics and time series; you don’t understand macroeconomics; and you can’t do logarithms or first semester calculus. So what exactly do you bring to this blog? It should be to learn something and not to be the disruptive “shop kid” sitting in the back of the class.

          6. pgl

            Once again when caught with your pants down – you accuse the rest of us of being “illiterate”.

            Since you insist on making a fool out of yourself on a daily basis, all I have to say is “please proceed”.

          7. CoRev

            2slugs, I know enough to identify when you are BSing, and I caught you at it again. “You have yet to do a P&L estimate using actual timely harvest estimates versus your opportunity planting time estimates. ” I’ve showed you that in REAL LIFE tax situations your definition of LOSS does not apply. If you want to insist it only applies in economics then go for that, but understand if such a limited definition to be meaningless to the farmer.

            Relying upon a hypothetical example with little grounding in reality shows how little you actually know instead of what you THINK you know. You clearly forgot the most important step — SELL in your example. Without it, it is meaninglessly incomplete. As is your knowledge.

          8. Menzie Chinn Post author

            CoRev: And here I thought standard Econ 1 micro textbooks indicate that when firms (or farms) make negative economic profits, then over time they will exit. Time to burn those books!

            (But who am I to say anything? I just teach micro, review textbooks, and write scholarly articles. I’m not a farmer (or firm owner).)

          9. 2slugbaits

            Menzie I can promise you that CoRev has no idea of what you mean by “economic profits.” Remember, he prides himself on not having read any econ textbooks.

          10. baffling

            and when the bank calls to collect the loan used by the farmer this year, they will accept corevs response that he has not lost a dime this year, and say simply to pay it back when you make the sale as long as it is not a loss. sure. why should anybody have a margin call? after all, they are not losing any money at the time according to corev. but hey, that simply the real world at work. we should stick with corev’s hypothetical non-academic demonstration.

          11. CoRev

            What a set of amazingly illiterate and self centered comments. 2slugs, in his arrogance, wants us to believe that farmers are not rational, and don’t use their own rational experience when making decisions. Menzie, want us to believe the definition of “economic profits/losses” are more important outside the classroom and text books than actual LEGAL P&L as defined by accounting standards and tax law. Which set of texts and classes will keep the farmer out of jail?

            And in the peanut gallery we have the ignorant who just cheer to feel better without understanding their own ignorance.

            None of you have done a P&L statement for a farmer’s 2018 soybean harvest today for even the ~1/2 of the already contracted, because it can not be done. If you can actually define already contracted price, date of delivery and amounts, you can not define harvest yields. Without yields you can not define whether the farmer will fill his contracted amount from his own harvest or need to fill from other sources at different prices. Without harvest dates you can not define whether he will have harvested in time to meet the delivery date, and need to fill from other sources at different prices.

            Finally, and maybe the more important, all of you have failed to consider the impacts of the proposed ~$12B subsidy and the value of any possible insurance payout on the bottom line. But, all of you classroom leaders think your ECONOMICS experience superior to those of the farmers’ who do have to actually worry about and live with that P&L bottom line.

            Your arrogance amazes.

  4. pgl

    Dani Rodrik’s “No to Academic Normalization of Trump” is likely to cause a twitter war from the Trump cheerleaders:

    https://www.project-syndicate.org/commentary/no-academic-normalization-of-trump-by-dani-rodrik-2018-08

    Those who have served the current US president are necessarily tainted by the experience. While they should not be barred from speaking at universities, they should be accorded none of the trappings of institutional esteem such as fellowships, named lectures, and keynote speeches…The Trump administration confronts universities with a serious dilemma. On one hand, universities must be open to diverse viewpoints, including those that conflict with mainstream opinion or may seem threatening to specific groups. Students and faculty who share Trump’s viewpoint should be free to speak without censorship. Universities must remain fora for free inquiry and debate. Moreover, schools and institutes of public affairs must offer student and faculty opportunities to engage with the policymakers of the day. On the other hand, there is the danger of normalizing and legitimizing what can only be described as an odious presidency. Trump violates on a daily basis the norms on which liberal democracy rests. He undermines freedom of the media and independence of the judiciary, upholds racism and sectarianism, and promotes prejudice. He blithely utters one falsehood after another. Those who serve with him are necessarily tainted by the experience. Trump’s close associates and political appointees are his enablers – regardless of their personal merits and how much they try to disassociate themselves from Trump’s utterances.

    Reply
    1. baffling

      if his former employees are legitimate experts in their field, they should be afforded opportunities. gary cohn would be an example. karry ludlow would not. but i would not offer up a red carpet welcoming for those who do obtain an academic position in the future. let them go to aei or some other joint if they want to be coddled.

      Reply
      1. pgl

        Speaking of “legitimate experts in their field”, I’ve noticed conservative economists such as Greg Mankiw and John Cochrane was critiquing the insanity on economics from this White House even more than Menzie has. Something tells me that the experts are refusing to serve the Clown in Chief.

        Reply
        1. baffling

          any of those folks with an iota of ethics who first entered the administration got bamboozled. look at what cohn and tillerson gave up in the private sector in order to hold a “temp” position. they are still well to do, but future career prospects are done. and their cushy c-suite jobs have disappeared. the only ones who don’t really lose out are those like wilbur ross, who have no ethics, and continue to use their position to influence their investments. talk about crony capitalism, trump and ross have lead the charge. this is how you get the kudlows of the world in the administration-only rift-raft are willing to take jobs in rounds 2-10 of the revolving door.

          Reply
    2. Moses Herzog

      This is a superb comment by pgl. I agree 100%. It’s interesting to note, when Steven “Sensitive Stevie” Mnuchin gave a short Q&A type lecture (more like an interview) at UCLA, he then had the video and audio blocked from public release when the UCLA students didn’t worship him like he assumed they would. I think Universities should make it a prerequisite hardline rule “If you want to speak at our University, you agree ALL of the event and occurrences happening related thereto can be released by audio, video, and or transcript later (any/all of those) or forfeit your right to a formal event held anywhere inside the campus”

      Rodrik is consistently a great read. And if you are Turkish or have people in Turkey you care for he will usually keep you up-to-date on that picture as well. I assume Rodrik is ethnically Turkish as he focuses on that area strongly.

      Reply
  5. Julian Silk

    Dear Menzie,

    My only statement will be that this seems quite accurate, but there may be interest charges involved as well.

    J.

    Reply
  6. CoRev

    Menzie, I agree with your example, the traders have been the one group hurt the most with the soybean tariffs. I believe I mentioned this more than once.

    Reply
    1. Menzie Chinn Post author

      PeakTrader: CoRev: Not disagreeing on this particular case, but it is (to me) a DwL to the economy, and loss at least to the firm (workers, shareholders).

      Reply
          1. Moses Herzog

            When CoRev starts publishing seminal research papers at Cato, Hoover, and Heritage Foundation, and then offered his emeritus professorship at the Mercatus Center of George Mason University, you’ll be sorry you made this egregious error in personal identification Menzie.

            Now, the rumor is, once CoRev’s master plan of getting broad name recognition through the academic publishing of papers on international soybean demand comes to fruition, CoRev is going to help Jim Bakker sell magical buckets (which can also be used as porta potties) which can keep soybeans fresh for up to 20 years and/or the apocalypse, whichever comes first. Here’s some preview of the marketing style
            https://www.youtube.com/watch?v=WnaSvvSqY-8

            https://youtu.be/q222J0PmGy4?t=35s

            Links to these great products may or may not be offered on “Princeton”Kopits blog. I really have no idea.

  7. pgl

    “The ship, owned by JP Morgan Asset Management, was scheduled to unload about 70,000 tonnes of American soya beans in the Chinese port of Dalian on 6 July” which the article said was worth more than $20 million.

    Pricing of soybeans can be a bit confusing given it is something quoted in bushels and sometimes quote in metric tons. One metric ton is just over 2200 pounds but what does a bushel represent since we are seeing the Chinese pay over $10 a bushel for soybeans. As I understand it – a bushel of beans is 60 pounds.

    And I thought many years ago – we would start doing all of this with the metric system!

    Reply
  8. CoRev

    BTW, even MSNBC had to admit that China may be forced into buying US soybeans this Fall. The S. American harvest is pretty much all sold out, and if there is any remaining China need this Fall, there will be only one major market for fulfilling that need. I’ll give pgl one guess where that market may be.

    Reply
    1. Menzie Chinn Post author

      CoRev: I think the markets are indicating through futures that there will be some purchases of US soybeans; I don’t think anybody said all demand could be satisfied by Argentine and Brazilian soybeans. However, the price decline in US soybean prices is measurably reduced, and so expected profits for US farmers commensurately reduced.

      Reply
      1. pgl

        Ah but CoRev seems to think speculators will somehow bear all of these losses. How this is supposed to work out – I guess we will see in Santa Cruz when CoRev finally presents his paper!

        Reply
      2. baffling

        if the soybean purchase price cannot reach the pre-tariff level, then trump will have lost the battle since the tariff can be recycled internally. so far those prices are still down 15%. unless we get a full recovery, the winner will be china who will still obtain their soybeans and will have done so by paying the us less money for the commodity. china will still need to buy some of the commodity, but they are not required to buy the full commodity. my guess is the prices cannot reach pre-tariff levels, although they will be close enough that neither side can claim an absolute victory.

        Reply
        1. pgl

          China purchased $12 billion worth of U.S. soybeans in 2017. CoRev seems to think if they purchase even $1 billion at depressed prices – that is a Trump victory. And he lectures us on not understanding business????

          Reply
          1. CoRev

            Pgl, why do you lie so much? “CoRev seems to think if they purchase even $1 billion at depressed prices – that is a Trump victory. ” please show us where I ever even implied that. Did it ever sink in past your anger that ~1/2 the 2018 soybean crop was already contracted at pre-tariff prices? Pgl, even you noted that May & June soybean exports to China were up substantially, and can you guess what crop year made up those exports. Or has that also been blocked by your anger?

          2. pgl

            Ah yes – CoRev flies off the handle. I do wonder if he even remembers the vast array of BS that he pollutes the comment section with. So much incoherent babbling, so little time!

    2. 2slugbaits

      CoRev Do you understand the difference between a tariff and an embargo? No one ever said that Trump was embargoing Chinese imports and no one ever said that the Chinese were embargoing US soybeans. A tariff means that the import price will be higher, so quantity demanded will be less. US companies will still import EU steel products, but they won’t import as much because it will cost more. Same with China and US soybeans. China is still going to import US soybeans, just not as much. How much less? The estimates I’ve seen suggest that the Chinese price elasticity of demand for soybeans is on the order of -0.75 (give or take). Do you understand what that means? If you’re a soybean farmer who planted soybeans expecting $10/bushel, then you’re going to suffer an economic loss. If you’re a marginal soybean farmer planting marginally productive land, then you’re also going to suffer a net operating loss.

      Reply
    1. Moses Herzog

      Omarosa passes what I refer to as “The Palin hotness test” (specifically circa 2008 Palin). As a human being she nauseates me, I wouldn’t vote for her, I wouldn’t buy her book, I pretty much detest her, but [edited for content -MDC]

      There, I said it.

      OK, Menzie, heads up, this is “borderline” link. Just don’t ground me, ok??
      https://www.youtube.com/watch?v=Xz8WE9tHKNI

      Reply
  9. 2slugbaits

    A number of pro-Trump supporters argue that demand for soybeans is highly inelastic and that farmers have mitigating strategies that allow them to shift future production to corn or hay if soybean prices are low; i.e., relatively elastic supply curves. However, I suspect that those same pro-Trump supporters probably haven’t heard of the “cobweb” model, which tells us that if next year’s supply depends upon this year’s prices, then the market is inherently unstable if the elasticity of demand is steeper than the elasticity of supply. In normal times the “cobweb” model is little more than an interesting textbook exercise in first order differential equations because rational expectations will likely trump naïve adaptive expectations. But in the world of Trump, the usual rational expectations trump might not hold. And farmers will be screwed.

    https://en.wikipedia.org/wiki/Cobweb_model

    Reply
    1. pgl

      To be fair to CoRev – I suspect he had in mind some really naive version of this cobweb model. Or maybe he just has cobwebs clogging his brain.

      Reply
      1. 2slugbaits

        I have no idea what CoRev might have in mind because I’m quite sure the mechanics of the cobweb model are beyond his skill set. Remember, he can’t do math so solving difference equations are out of his league. But my point was that if we accept some of the assumptions that CoRev and Ed Hanson and PeakTrader have been making (either explicitly or implicitly), then those assumptions have some unpleasant news for farmers. Specifically, if soybean demand curves are as inelastic as they claim, and if soybean supply curves are as elastic as they claim, then the only way prices and output converge to a stable equilibrium is if farmers use some version of rational expectations to set next year’s planting acreage. And that’s a problem in Trump World because it’s not at all obvious whether farmers should assume the tariffs will still be in place next year or not. If farmers follow a naïve adaptive expectations approach and assume next year’s price will be this year’s price, then output and prices diverge from an equilibrium given the relative slopes of the demand and supply curves. As I said before, ordinarily this kind of thing is just an academic exercise (literally), but in Trump World all bets are off and this could become a real world problem for farmers.

        Reply
        1. pgl

          “I have no idea what CoRev might have in mind”

          No worries – CoRev has no idea what he has in mind either. He just babbles incoherent gibberish 24/7.

          Reply
        2. CoRev

          2slugs, what an amazingly naive comment: “As I said before, ordinarily this kind of thing is just an academic exercise (literally), but in Trump World all bets are off and this could become a real world problem for farmers…. then the only way prices and output converge to a stable equilibrium is if farmers use some version of rational expectations to set next year’s planting acreage.”

          Naive? Because even you in your incomplete hypothetical identified the step in planting decisions: “…farmers use some version of rational expectations to set next year’s planting acreage.” Even you sub-categorized it to deciding whether to plant high and low yield acreage, while forgetting farmers also decide which and how much of each crop to plant. That’s all part of the normal planting analysis. /sarc Aren’t you amazed at farmer’s abilities? They are so rational. /sarc

          Your arrogance amazes me.

          Reply
          1. 2slugbaits

            CoRev Rational expectations and naïve adaptive expectations are technical terms. They don’t mean what you seem to think they mean. If you’re a farmer, how would you estimate next year’s price?

          2. pgl

            Let me get this straight. You can write on the one hand:

            “while forgetting farmers also decide which and how much of each crop to plant. That’s all part of the normal planting analysis.”

            And on the other hand object to the term “rational expectations”.

            Good Lord man – you have no clue what any of these terms even mean. Then again you refuse to read Fama (1970) or even a basic microeconomic textbook. Go figure!

          3. pgl

            “CoRev Rational expectations and naïve adaptive expectations are technical terms. They don’t mean what you seem to think they mean. If you’re a farmer, how would you estimate next year’s price?”

            He has you there! Hint, hint – the best inside information available comes in the form a Trump tweet!

          4. CoRev

            2slugs, rational expectations is exactly as I understand it. It was you who thought/implied it extraordinary instead of the norm for farmers, and I understood your meaning for naïve adaptive expectations. Your own naivete and arrogance are evident in assuming farmers don’t use the former, and that any would use the latter. You give them no credit while reserving it for yourself.

            It’s why I only commented on one citing your own hypothetical for clarification. Your arrogance and ignorance is amazing.

            Pgl doesn’t need to show his ignorance. It has been on display for years along with his anger.

    1. Moses Herzog

      @ noneconomist
      “Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner”

      https://youtu.be/LUy2Wx_r0_w?t=1m46s

      https://www.youtube.com/watch?v=9gOXNCd6L6c

      Even though this movie is probably considered to be a “macho” film, there were multiple parts of this film I thought were very emotional and actually I would get a “lump” in my throat watching some scenes, and in fact the females’ importance in each of these guys’ lives is much heavier than (I think) most women would “get” watching it. And the ending is a “master stroke”. Why?? Because in most films we know that the “big star” is not going to be the one who dies, the “big star” will be alive at the end. But what do we have here?? Two of the greatest American actors of all time facing each other—and therefor no idea who will win the match-up. Not to mention superb music not only at the end of this scene, but throughout the film, which 19 out of 20 “great films” will always have a great score.

      Reply
  10. Moses Herzog

    This could be interesting for our man the Wilburburry
    https://www.politico.com/story/2018/08/09/tariffs-ron-johnson-wilbur-ross-letter-770365

    When you have a committee chairman of your own party sniffing around, could get interesting. Are these decisions “random”. Only people like PeakIgnorance and Kopits are dumb enough to believe those moves are “random”. Then it gets down to if there’s anyway to document who met with who and said what.

    Reply
    1. pgl

      This story is really rich!

      ‘Senator Ron Johnson is demanding that Commerce Secretary Wilbur Ross explain the administration’s thinking on how companies can be excluded from the administration’s tariffs, claiming that his state’s businesses find it “arbitrary” and it has cost just one Wisconsin business millions of dollars…Johnson also requested that Ross supply his committee with numbers showing how many exclusion requests have been made and denied and how many domestic steel producers have objected to them. He also asked the government to explain how it decides whether to shield a business from the tariff costs. The Wisconsin Republican has been among the most pointed GOP critics of the Trump administration’s tariff regime, blasting the plan of imposing tariffs and then bailing out affected farmers as a “Soviet-style” economy.’

      PeakStupidity is supporting Soviet-style economics – gotta love it. But Senator Johnson should be smart enough to know how a company can be excluded from a tariff. Just pay a big enough bribe to Team Trump under the table and exclusion granted!

      Reply
  11. 2slugbaits

    CoRev You still haven’t told us how you understand “rational expectations” as used in the economic literature. Here’s a hint, it’s not what you seem to think it is. I believe you’re the one who is demonstrating arrogance by just assuming you know what a term means when you clearly don’t. Arrogance is not informed people saying informed things; it’s ignorant people thinking they know something without having to be bothered with actually learning the subject.

    Reply
    1. CoRev

      Why 2slugs, I looked up the definition and was totally unsurprised that it completely fit my conception in your context. I did the same for your more arrogant term naïve adaptive expectations, and confirmed you evaluation of arrogance.

      Menzie, you’re going to have take my word that I looked up the terms. Now what?

      Reply
      1. Menzie Chinn Post author

        CoRev: My students read the textbook, but don’t always understand what a given concept means. Let me see what your answer to this question is:

        Suppose the Fed changes its operating procedure, and everybody knows the regime has changed. Will the market’s expectation of the Fed funds rate tomorrow necessarily equal the actually realized (ex post) Fed funds rate, up to some random error (a true innovation, in the technical sense), if agents use rational expectations?

        Reply

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