Monday, September 30, 2013

Tea Party’s Day to Gloat

Unless I miss my guess, today will be the Tea Party’s day to gloat. The Tea Party contingent of the House looked a little too gleeful on Saturday at the prospect of shutting down the U.S. government for an extended period, and if they were cheering out loud on Saturday, they must be positively giddy today. At the risk of paraphrasing, the sentiment seems to be, “They thought we were a flash in the pan, but now we are on the verge of bringing the most powerful country in the world to its knees!” The fantasy of shutting down the government for the whole fiscal year and having ordinary citizens and military families especially (those on active duty must continue to serve during the shutdown but will not be paid) begging for mercy is still alive at this point, and as long as that fantasy is the biggest thing happening, I think it is important to give the Tea Party their day in the sun. Reality will set in soon enough.

Politically, a government shutdown cannot last for months the way Republican political strategists drew it up. With no government, there is no pork-barrel politics, and without that, House members collectively lose much of their influence and financial support. Whether the shutdown is avoided at midnight tonight or lasts for a few days or weeks, the House has already lost much of its credibility from this episode. In the end it may stand as a turning point in American politics, perhaps even, we can hope, leading to a change in the budget process. But all that will come later. Today, there is no need to tell the Tea Party any of this.

Saturday, September 28, 2013

Hard Numbers on iOS 7 Release Traffic

I saw for myself the network snarls that surrounded the iOS 7 release a week ago, and people watching the Internet say the spike in traffic was easy to measure. There are a few hard numbers in this Information Week story:

I was surprised to read that over the five-day period, Apple accounted for only about 13 percent of all Internet traffic — and of course, not all of that, only about three fourths, was for the iOS download. It is not as if traffic doubled (here and there it did, but not on a large scale). This shows that large parts of the Internet are operating much closer to the edge of failure than we would like, considering that big online events like an OS release come along about ten times a year.

Friday, September 27, 2013

This Week in Bank Failures

The board of directors at Monte dei Paschi balked at the bank’s restructuring plan, leaving the bank with no clear path forward. Possibly the bank could be nationalized and sharply reduced in size, or it could be liquidated in a series of auctions. A majority of directors considered this uncertainty preferable to the endorsement of a plan that the bank did not seem to have any prospect of delivering.

The big question in the United States is whether the country will have a national government next week. The new fiscal year starts October 1, and the House of Representatives voted twice this week to shut the government down rather than fund it for the new fiscal year. Republicans have seized on the health care issue as the excuse for the extended government shutdown they have been planning for months. From what I have heard, a plurality of House Republicans would be more than happy to shut the government down through spring, or even for the entire fiscal year. Others, though, are having second thoughts.

If the government is shut down, this will not be an ordinary shutdown because the Treasury is limited by the debt ceiling, which it projects to hit in the middle of October. The White House would be legally required to start dismantling the federal government, basically following its own path in doing so.

In theory, the Fed and FDIC keep operating as usual in a government shutdown. The OCC, the primary regulator of national banks, shuts down, but so do the SEC, FHA, and others. A government shutdown of a month or two would probably result in the delay of some bank liquidations, but at some point that could turn into a flood of bank failures as banks’ customers run out of money. By December, we could be looking at mass layoffs at Fannie Mae and Freddie Mac as they scramble to stay out of bankruptcy with a suddenly illiquid real estate market and no line of credit at the Treasury.

If the government stays shut through the fiscal year, we would see an unprecedented economic split between states, with about half of states falling into depression, the other half finding ways to keep functioning in varying degrees. None of these scenarios seem likely until I listen to the plans of Republican political strategists. They don’t blink — indeed, they seem almost gleeful — when they suggest they can keep the government shut for six months or longer.

Wednesday, September 25, 2013

Online Wish List Reminder

Do you have an online wish list or two? Maybe one you had forgotten about?

October 1 is just a few days away, and the Christmas trees will start to show up in the stores, so the time to clean up your online wish lists is now. Find your online wish lists and delete the things you now have or no longer want, before someone buys them for you. I know — who would actually go to the trouble of finding your wish list, looking through it, and buying you a gift? Yet it could happen, so just in case, go through the wish list yourself and make sure it expresses what you want it to.

Monday, September 23, 2013

Big Release Weekend

By several measures Apple had its biggest weekend ever, with the release of two new iPhone models and iOS 7. The latter is not just Apple’s fastest operating system release ever, but the largest online software release event ever. It went remarkably smoothly when you compare it to last year’s large releases. I am still not convinced that the Internet will ever handle these big events without showing the strain.

As for the large numbers of phones sold, it can’t be explained by the surprising new features of the new phone models. They are no more amazing than last year’s model was last year. Nor are the price points the breakthrough that some had predicted. It is more that Apple continues to gain credibility as a phone manufacturer. When you consider how long it can take for an equipment manufacturer to establish a reputation, I guess it makes sense that Apple’s reputation in phones is still growing six years in.

Sunday, September 22, 2013

Olive Garden Remodel Hurts Image

Sales at Olive Garden were “surprisingly bad” in the new earnings report. To read the headlines, you would think customers were bailing out, but news reports and Internet commentary exaggerated the change, as they often do. Same-store sales were down 4 percent at Olive Garden from the summer before. It was a similar decline, 5 percent, at Red Lobster, owned by the same company. This is like seeing one more empty table if you go into the restaurant — a change too small to notice, even if you are in the restaurant on a weekly basis. It continues a long-term trend, so Wall Street analysts perhaps shouldn’t have been quite so surprised as they were.

I tried to find the real trends from the Internet chatter on Olive Garden, and it isn’t encouraging for the restaurant chain. To begin with, people hate the redesign — it wasn’t supposed to be a big shift at Olive Garden, but the restaurant chain changed its look from faux Tuscan (they called it “Old World”) to something resembling Saturday morning cartoon (supposedly a “modern,” streamlined look). Regular customers feel the new look is less classy, if that’s possible, but also less serious. Among occasional customers, it is clear that the change has weakened Olive Garden’s brand promise. To put it another way, the meaning of the Olive Garden name seems to have changed from “not really Italian” to “whatever.”

Supposedly a similar redesign took place at Red Lobster, but if it did, it seems customers did not mind. There was no buzz about it. All I could find was a tweet from the restaurant itself two years ago seeming to complain that no one was noticing its new logo.

The redesign at Olive Garden may have hurt customers’ impression of the food. Olive Garden food already had a sagging reputation, but now I am seeing comments that seem to equate it to McDonald’s. I am assured that Olive Garden is buying basically the same food as last year, so perhaps it has lowered its standards for the freshness of the food it serves (i.e., is it serving unsold food from lunch at dinnertime?), or maybe it is the cartoonish new look that makes people think of Ronald McDonald.

The good news for Olive Garden and Red Lobster is that they are still places that people think of when they are hungry. It is regular customers (more so at Olive Garden) who are complaining the loudest, and that tells me that even if people think they deserve better, they will keep coming back, at least for now.

I wondered whether some of the political talk surrounding Olive Garden would affect its image. Most notably, a year ago an executive had publicly suggested firing all full-time restaurant workers to save money on benefits, and there was the predictable reaction explaining why that move would not be good for workers or customers. That layoff was never going to happen, but it is still a sore point at the company, which took pains to emphasize that its new layoffs would not affect any workers at the actual restaurants. If any of this political talk has stuck, it is in the general sense that Olive Garden is not a place you would suggest for a large or mixed group because of the risk that someone will be silently offended. That, of course, has more to do with people having eaten there before than with anything they may have read in the news.

The real reason I was looking up Olive Garden again was to see if the move toward smaller portions had met with any success. Unfortunately, that initiative flopped. Customers seem not to have noticed the slight price reductions, and the company in its earnings call all but disowned the smaller entrees it introduced with so much fanfare six months ago, pivoting to suggest that the “small plates” were mainly appetizers for the under-30 customers it is trying to attract. The downbeat earnings call also brought the news that the president is being forced out. Other restaurant executives who might have been thinking about tinkering with portion sizes will surely take note of that outcome.

Friday, September 20, 2013

This Week in Bank Failures

In Italy, the country’s third largest bank and the oldest operating bank in the world, Monte dei Paschi, is putting together an improbable plan to continue to operate in its current form. Its most daunting challenge, required by European regulators, is to raise €2.5 billion in new capital by next year. That is a lot to ask from a scandal-plagued bank that has already had to borrow €4.1 billion from the Italian government this year, and that no one expects to be profitable again anytime soon. The bank has been losing money from a series of bad business dealings that started in 2007, including a loss of €8 billion in the last two years. It may not be worth much more than €2 billion at this point, making a €2.5 billion stock issue somewhat far-fetched, but the bank has no choice but to attempt it. Regulators are also looking for cost-cutting and management changes.

In the U.S. and U.K., JPMorgan Chase is paying $1 billion in fines and restitution. The SEC and other regulators say the bank misled investors and regulators in connection with its disastrous swaps index trades and that it charged phantom monthly fees to credit card holders.

Thursday, September 19, 2013

Watch the Internet Strain

The iOS 7 release yesterday showed that the Internet is still not ready for major release events. There seemed to be some glitches at Apple’s servers, but most of the problems were local to the places where people were downloading the new mobile OS. At my house, when I tried to stream movies (medium-resolution video from, geographically nowhere near Apple), I found that my Internet connection was running at less than a tenth of its rated bandwidth. Other people have mentioned similar effects. This morning, things seemed to be back to normal, and I downloaded and installed iOS 7 in about 15 minutes. Staged releases help to minimize release-day bottlenecks, and when large simultaneous releases can’t be avoided, engineers can study the data traffic to find out where some of the weak links in the Internet are located.

Wednesday, September 18, 2013

The Novelty Effect

“Disco Duck” is one of the best-remembered hit songs of the 1970s. Hardly anyone remembers “Dis-Gorilla.” Why such a difference in results for two songs that were so similar, you might have trouble telling them apart? Coming along after everyone had already heard “Disco Duck,” “Dis-Gorilla” didn’t have much to add. It wasn’t very interesting. That’s the novelty effect. “Disco Duck” was viewed differently because it represented something new and different.

It’s easy to see the importance of the novelty effect in pop music but its effects are underestimated almost everywhere else in the economy. It is only after the fact that we recognize how much of a boost a product or an industry gets from the novelty effect, and we underestimate how long the effect can last.

Consider automatic teller machines. We marveled at the convenience for almost 20 years before we started to notice how much time we were wasting at the cash-dispensing machines. Or online auctions. We spent a trillion hours bidding and losing before we realized the system was rigged.

Things that shouldn’t have anything to do with the novelty effect are nevertheless dependent on it, in ways that make no rational sense. IPOs. Computer firewalls. Natural disasters. Diets. Surgery and prescription drugs. Home energy audits. Watching three to six of your friends save thousands of dollars in home energy costs doesn’t diminish the validity of doing the same thing, so why does it diminish the appeal?

Novelty is one of the persistent forces in economics, influencing decisions large and small, yet often going unrecognized by buyer and seller alike. The lack of recognition leads to excessive investments in things whose appeal is about to wear off. Five years ago it was outlet malls, SUVs, and blogs. Today equally misguided investments are being made, but it is hard to spot them because it is not so easy to realize the way our view of something is influenced by the novelty effect.

Tuesday, September 17, 2013

Polypropylene Bank Notes

Polypropylene is being used for bank notes for the same reason that is used to make dishwashers — it won’t be damaged by the washing process. Already a dozen countries have money printed on polypropylene, most notably Australia, where all bank notes are printed on polypropylene. The plastic bank notes are hard to counterfeit and cost less to produce, mainly because they last more than twice as long as paper bank notes, which cannot easily be washed. Now the United Kingdom is getting ready to give polypropylene bank notes a try, starting with a £5 note in 2016. The BBC News story:

Bank notes are just one of the newer uses of an increasing popular polymer. Forty years ago polypropylene was used mainly for nautical rope. Unlike any other common material of similar strength, it resisted water and would float. At that time, the high price of polypropylene ruled out most other uses, but now polypropylene has become the predominant plastic for food containers and a wide range of other uses.

Bankers warn of one unexpected quality of polypropylene when used to print money: it will shrink if exposed to heat, for example, in a clothes dryer. So even though polypropylene notes won’t be damaged in the washing machine, it is probably best to keep them out of the dryer.

Monday, September 16, 2013

After Summers, a New Willingness to Change at the White House?

The White House was ready to nominate Larry Summers for the top Fed position in spite of political opposition from all sides, so the withdrawal of his name may signal a change in approach. Four years ago, Summers was in charge of economic policy at the White House, and the policy then was continuity at all costs. This kept Wall Street standing but left the broader economy in a minor depression. There is little doubt that President Obama is still a big fan of continuity as a root policy, but the withdrawal of Summers’ name may indicate that Obama is now willing to weigh the costs of continuity, and might perhaps permit changes where they are most needed.

Some people this morning are expressing puzzlement at the opposition to Summers from Wall Street — after all, he is, at heart, one of their own. It makes sense if you consider the effect of the Bush-era policies Summers championed when he worked in the White House. Those policies that Summers insisted could not give way were the same policies that had brought Wall Street to the edge of collapse. So if Wall Street is experiencing nightmare flashbacks at the mention of Summers’ name, it is for a good reason.

Friday, September 13, 2013

This Week in Bank Failures

To avoid potential confusion about what deposits are covered by deposit insurance, the FDIC adopted new rules about deposits in foreign branches of U.S.-based banks, such as the London offices of Wall Street banks. These foreign branch deposits have never been subject to U.S. deposit insurance, and the new rules are meant to make sure that they will not become subject to U.S. deposit insurance even if banks adjust the way the deposits are payable. The FDIC specifically emphasizes that deposits in a U.K. branch of a U.S.-based bank, dually payable in the U.K. and the U.S., still would not be covered by the FDIC. Depositors can, of course, get FDIC deposit insurance by moving their deposits to a U.S. branch of the same bank.

A medium-large bank failed tonight. The O.C.C. closed Edinburg, Texas-based First National Bank, a $3 billion bank that had 51 branches, including two doing business under the name The National Bank of El Paso.

Dallas-based PlainsCapital Bank is taking over the deposits and purchasing most of the assets. In a statement PlainsCapital Bank said the acquisition enabled it to expand its presence in south, southwest, and west parts of Texas.

The failed bank had one of the highest CD interest rates in the state. When a bank pays unusually high interest rates on deposits it can sometimes be a sign that it has lost the confidence of its customers.

There was one other bank failure tonight. State regulators closed The Community’s Bank in Bridgeport, Connecticut. The bank had $26 million in deposits and a similar amount in assets. The FDIC will mail checks to the bank’s 1,000 depositors for their insured deposits and will hold on to the failed bank’s assets for now. It is the first bank failure in Connecticut in 11 years.

Thursday, September 12, 2013

The Business iPhone

Two of the new iPhone announcements that probably puzzled most people make sense when you put them together. The new iPhone 5s home button has a thumbprint detector built in. And, Apple is including free productivity apps. Apple did not mention the connection, but the thumbprint detector is squarely aimed at security managers, who may shortly decide that certain classes of sensitive data can’t be put on a mobile device at all unless it is protected by something like a thumbprint. As long as businesses will be considering the high-end iPhone for those situations, Apple might as well underscore their phone’s business savvy by including desktop-compatible spreadsheet, presentation, and word processing applications. It is still a tough sell to persuade business buyers that a phone could replace a locked briefcase, but Apple has at least positioned itself to try to make that case.

Monday, September 9, 2013

In World War III, Smaller Is Better

The phrase “World War III” is trending, and the exaggeration involved is so flagrant one might be tempted to laugh it off. It is a very long way indeed from the poisoning death of one suburban neighborhood to the kind of all-out destruction that puts half of the people in the world at risk. But in a deeper sense, the point people are making by talking about World War III is correct: even what seems like a small war is better avoided if possible. War is so horrible that one looks for a way to make it stop. Yet the horrors of war are precisely why it is better not to add one’s own stamp to the conflict.

Recent history tells us that the damage done by war never quite heals, at least not while any person touched by the war or their immediate family members remain alive. We know this personally in America, where in 2013 millions of people are still fighting the American Civil War, where even TV celebrities may have to have someone explain to them that the war is over. In half of the world, the local memory of war is more fresh than this, and this memory is the main reason war breaks out again. A tyrant in Syria could not have gone out to blow up one of his villages in response to an isolated incident of graffiti, but for his own memories of wars past. War cannot fade away until we stop going to war, and that is a puzzle for our age.

This is not to say that remaining passive in the face of war is a viable option. Up to a point it may be, but in a matter of weeks the fading Syrian regime could lose its road to the sea, and if nothing is done, this may open up the possibility of a pirate port on the Mediterranean, a base for pirates who hijack oil tankers and cruise ships and invade tourist beaches from Egypt to Italy to kidnap tourists for ransom. At some point, international action will be required, and when that moment comes, the need may not be so obvious.

Sunday, September 8, 2013

With Clouds, Arctic Sea Ice Survives the Summer

We’ve reached the point where the rapidly diminishing Arctic sea ice will set new records every year. This year, though, it is not so easy to find records after last year’s blowout melt-out.

The most reliable measure, NSIDC Arctic sea ice extent, is right along the long-term trend line, about 5.25 million square kilometers at the last reading. That’s about 50 percent above last September’s all-time record low, but it is still lower than any year before 2006, and it reinforces the thought of a declining trend. There are other reasons not to lean too heavily on the extent measure. The extent is so much higher this year partly because the sea ice is more dispersed than we have ever seen before. I am not calling dispersion a record because it can’t really be measured precisely enough, but it probably would be a record if we had a good way to measure it. Dispersion doesn’t mean there is more ice, just that the ice is spread out over a wider area of water, with more open water between pieces of ice.

But there is more ice, for two main reasons, both hopeful signs: outflow and cloud cover. Outflow is simply the flow of ice out of the main body of the Arctic Ocean into the Atlantic Ocean and the Canadian islands. There, ice inevitably melts away within a couple of years. Outflow may historically be as important as melt in removing ice from the Arctic Ocean, but we expect less and less outflow in the future as ice area declines. This summer, outflow came to a stop from May through August. Ice-watchers tell me it wasn’t a complete stop, but it was slow enough that I couldn’t see any outflow on the satellite maps. Here, there are records to watch for: I think the current ice in the North Atlantic Ocean is probably the lowest ever seen by several measures, including extent. The Greenland shoreline too is probably more melted out than we have ever seen before.

Cloud cover is the story of this summer, though. An unprecedented pattern of summer storms kept the Arctic Ocean mostly covered with clouds from June to early August. From what I have heard, it is the highest summer Arctic cloud cover in the satellite record. This too is a hopeful sign. With a warmer ocean, we expected more clouds (even if we were surprised to see this many). It was barely five years ago that scientists recognized the key importance of clouds in protecting sea ice from solar melting, but this year’s experience tells me that cloud cover, especially in June and July, is more important than we previously realized.

It is too soon to celebrate. If cloud cover extends into fall it will delay re-freezing, and the usual pattern of outflow along the east coast of Greenland appears to have resumed in the final days of August. Regardless of weather, in the long run, a warming ocean will melt all the ice. But if the Arctic can have more summers like this one, the melt-out will not occur on September 9, 2016 (as I famously predicted), put possibly as much as a decade later.

Friday, September 6, 2013

This Week in Bank Failures

Is the rapid expansion of student loans, now over $1 trillion in the United States, a bubble? This question came to the fore again today after JPMorgan Chase announced it was winding down its student loan business. The bubble question is one that can be debated endlessly, since bubble is not a precisely defined term of art in economics. The way I think of a bubble, though, it occurs when a wide range of people are making excessive purchases in a related class of assets because they have an exaggerated idea of what the assets are worth. Further, a bubble carries with it the risk of a sudden adjustment in values in the future as people come to realize that the previous consensus of value was mistaken.

In one sense, student loans could not be a bubble because it is impossible to have any kind of rapid exchange of the underlying asset, the college degree. It takes years to purchase a college degree, and once acquired, it is not able to be resold. Perhaps you could argue that accredited institutions of higher learning are essentially reselling the education their employees have previously received, but even if you see it that way, it is a limited and slow process.

You could quibble, too, about whether education can really be seen as an asset. Yet for more than a lifetime people have bought into the idea of investing in a formal education, so it is at least very much like an asset.

Setting these two objections aside, it is hard to point to any operational difference between the current student loan situation and a bubble.

Are a wide range of people buying assets with an exaggerated idea of their value? In the case of student loans, it would seem so. We see students pursuing a formal education with the assumption that it will boost their lifetime earnings, when the statistics of the last ten years show that this is often not the case. Parents, lenders, fund managers who buy the resulting securities, and government bodies who issue and guarantee loans may make the same mistake about the student’s future earning potential. It is the classic mistake of a bubble, of viewing the asset being purchased as being more valuable than it actually is. And just like in a classic bubble, public opinion plays a key role in reinforcing this misperception. Employers, for their part, often pay an excessive premium for degree-holding workers — a premium not fully justified by the greater productive power of workers holding degrees.

There are signs now that this whole system could come, if not crashing down, then at least drooping down. One change already taking place this year is banks’ new reluctance to make car, home, or business loans to applicants who have unpaid student loan debts. If you may now have to pay off all student loans to prove you are creditworthy, it reflects the opinion of banks that the student loans and accompanying higher education do not, in combination, give college graduates any extra financial capacity. Meanwhile, many employers have become much less strict about the requirement of a college degree for a wide range of jobs. They’re happy to consider equivalent study or experience instead. This is potentially a game-changer in an era where it is suddenly no trouble at all to piece together the equivalent of a college education, or a more focused education in a specific field, online at minimal expense. Of course, the fewer jobs there are that require a specific degree, the less financially valuable the formal course of study that leads to a degree becomes. At the same time, there is growing political pressure to change the student loan system so that the financial arrangements for a college education do not have such a strong resemblance to a financial death sentence. Put this all together and extrapolate by five or ten years, and it’s easy to imagine a decline in value of all of the assets that cluster around student loans.

So is student lending a bubble? That is, at least, the right way to think of it. Could it lead to a new round of trouble for the financial system? Possibly. If a Wall Street bank is willing to come out and say that student lending is a little too risky for their taste, it ought to tell you something.

Thursday, September 5, 2013

Consumer Confidence Anticipates Job Market Conditions

I couldn’t let this story pass by: a component of consumer confidence is one of the best predictors of the job market.

It is specifically the Present Situation Index that seems to do well at anticipating changes in the job market by about four months, according to a New York Fed paper. Pedro da Costa tells all about it:

Say it with confidence: Consumer surveys as a leading indicator of jobs

Considering how hard it is to predict the job market, the consumer confidence measure does remarkably well over the past thirty years — see the charts and statistics at the above link. It makes sense when you consider that the staffing decisions that shape the job market are fundamentally a consequence of business mood (and financial measures of business that are closely tied to mood). Perhaps the consumer questions and answers that make up the Present Situation Index tap into the mood of business in a way that consumers on average are in a position to observe it.

Wednesday, September 4, 2013

Cashing Out of Mobile

Microsoft and Verizon may be betting on boom times in mobile, but the counterparties in their recent deals obviously were not. The board of directors at Nokia is said to have been eager to finalize their deal with Microsoft before the rumored (now confirmed) Apple event of September 10. What might Nokia know or suspect about Apple’s plans that could diminish the value of mobile assets? One obvious answer, something Apple is known to be working on, is improved cloud integration. If users can easily transfer files from point to point, they are less tied to their personal devices. They can use their phones as bit players in a larger drama if they choose. As mobile data becomes more fungible so that people can work anywhere and tie it all together later, any device and any network will do. Manufacturers and networks lose most of their leverage. And of course, this is just one possibility. One way or another, something will interrupt the trends of the past ten years. The power of mobile providers will not just continue to increase indefinitely.

Tuesday, September 3, 2013

Betting On Boom Times in Mobile

Two corporate buyouts have two separate companies betting that boom times are just around the corner in mobile communications. Microsoft is buying Nokia’s smart-phone division, a $7 billion deal that provides a platform for its next generation of phone software experiments. Separately, Verizon is buying out Verizon Wireless. That wouldn’t be a big deal except for the $61 billion in debt Verizon is taking on to finance the deal. If mobile communications turns out to be a passing fad, unlikely but certainly possible, that is a financial arrangement that could cause hurt all around. Microsoft’s bet is not as large, but it is a high-risk bet from a company that in more than a decade has never put together a winning streak in its phone business. Both buyouts could pay off if there is a sudden surge of interest in mobile phones, and Verizon and Microsoft aren’t the kind of businesses to take billion-dollar gambles lightly. They must have some reason to believe that boom times are coming soon.

Monday, September 2, 2013

Return of Mid-Continent Drought

After four months of heavy rain and flooding, it would be hard to imagine a drought in the central United States. It seemed that 2013 would be an exception to the dry summer pattern that has set in since 2010 in the North American mid-continent. Yet the rain all but stopped after the summer solstice, and more than half of the mid-continent region has seen drought conditions since then. Half of the contiguous United States is in moderate to severe drought at the latest report. Drought conditions extend from Texas to California in addition to the mid-continent, and on the drought map, almost the entire area west of Chicago and the Mississippi River is affected. There are many places where it almost didn’t rain in August.

The corn crop should come out fine in fields that were planted on time. Corn doesn’t depend on steady rain in late summer, though it may not grow much after a few weeks without rain. Unfortunately, many fields were planted late because of the spring mud, and those fields depend on the return of rain in September. Recent experience says that’s likely enough, but as a farmer, you hate to count on it.

It looks like this year’s U.S. corn crop will be similar to last year’s. There won’t be a shortage, but high prices for corn will keep prices for meat and milk — that’s where most of the corn crop goes — high into next year. Corn ethanol factories won’t have much corn to work with, and those that closed because of high corn prices last year won’t be able to reopen this season. This takes away about 1 percent of the U.S. gasoline supply and translates to prices elevated by roughly 10¢ per gallon nationally for the next year.

The mid-continent summer “drought” pattern may be a permanent effect of a warmer Arctic region. That’s a prediction of some global climate models, as there is no longer a source for the cold air masses that trigger most mid-latitude mid-continent summer storms. The same models predict more flooding events in mid-continent, with a diminished jet stream. Aside from arriving years earlier than expected, the summer weather pattern shift in the North American mid-continent is generally consistent with what was predicted.