Thursday, July 12, 2012

Economics of the Dust Bowl

The Dust Bowl refers to a pattern in which severe droughts of the 1930s in the American Plains states led to a loss of ground cover, which then led to devastating erosion of more than 75% of the topsoil in many areas.  Richard Hornbeck discusses "The Enduring Impact of the American Dust Bowl:
Short- and Long-Run Adjustments to Environmental Catastrophe," in the June 2012 issue of the American Economic Review. (The AER isn't freely available on-line, but many readers will have access through library or personal subscriptions.)  Hornbeck offers a reminder of the severity of the Dust Bowl (footnotes and citations omitted):

"Dust storms in the 1930s blew enwormous quantities of topsoil off Plains farmland; on “Black Sunday” in 1935, one such storm blanketed East Coast cities in a haze. The dust storms were unexpected and some feared that the region would become the once-imagined “American Desert”. The Dust Bowl period continued through 1938 and ended with the return of wetter weather and increased ground cover. In the aftermath of the Dust Bowl, much farmland was left severely eroded. ..."

"The Dust Bowl is estimated to have imposed substantial relative long-run agricultural costs in more-eroded counties. From 1930 to 1940, more-eroded counties experienced large and permanent relative declines in agricultural land values: the per acre value of farmland declined by 30 percent in high-erosion counties and declined by 17 percent in medium-erosion counties, relative to changes in low-erosion counties. Agricultural revenues declined substantially and immediately in more-eroded counties relative to less-eroded counties, and these revenue declines mostly persisted over time."
There are three possible adjustments for an area faced with this kind of negative shock: people can change their production methods--in this case, their farming practices--in response to the shock; people can leave the area; or people can keep doing pretty much what they were doing before, but be less productive and receive less income.  While Hornbeck is focused on the Dust Bowl, his analysis of the choice between changing, leaving, and plowing ahead as one did before is broadly applicable to many situations of a severe negative shock, like what would potentially happen if the predictions of climate change come to pass.

Hornbeck writes: "The main margin of economic adjustment was large relative population declines in more-eroded counties. From 1930 to 1940, populations declined by 12 percent in high-erosion counties and declined by 9 percent in medium-erosion counties, relative to changes in low-erosion counties. ... The Great Depression may have limited outside employment opportunities and, by 1940, population adjustment remained incomplete: unemployment was higher, a proxy for wages was lower, and the labor-capital ratio in agriculture was higher. These indicators recovered as large relative population declines continued through the 1950s. "

A number of potential methods of adjusting farm production were encouraged by farm bureaus at the time, including a shift toward hay (rather than wheat) and livestock (compared to crops). But such changes were not especially common. "Relative adjustments in agricultural land use were slow and limited, despite the availability of productive land-use adjustments recommended by contemporary
state agricultural experiment stations and extension services." The main reason that Hornbeck can provide evidence for is that shifts required credit, which wasn't easily available to struggling farmers in the 1930s. Other possible explanations are that the adjustments required larger-sized farms, and that tenant-farmers had little motivation to make such changes. Hornbeck summarizes: "Estimated relative changes in land values and revenues imply that agricultural adjustments recovered less than 25 percent of the initial relative cost in more-eroded counties."

Behind Hornbeck's estimates seems to me a deeper pattern of human behavior. When confronted with difficulties, leaving to try somewhere else is hard, but do-able. Staying and continuing with the same behavior is unpleasant, but do-able. But staying and dramatically altering one's behavior seems somehow hardest of all.

Aficionados of this blog may recognize that I have an interest in applications of economics to history, especially U.S. history. Here are some examples from the last 8-9 months: