During the past six years, state-local government finance ranged from a situation of fiscal crisis in 1970, to a boom in 1972-73, and back to a crisis in 1974-75. This was far worse than any since the Great Depression. During the recession of 1970-71, rising state and local tax revenues and federal grants did not keep pace with increases in expenditures resulting primarily from inflation [21, p. 500]. More favorable conditions in 1972-73, though, saw researchers projecting large future surpluses for the remainder of the decade and calling for reductions in tax rates and increases in expenditures [11, pp. 364-366].

Due to changing feed price relationships for beef production, it is anticipated that linear programming (LP) will be used to develop optimal feeding strategies for cow-calf operations in the South. An important relationship between forage quality and forage intake has been ignored in previous LP analyses. Forage quality and cows' intake of it are inversely related; i.e., as forage quality decreases with maturity, a cow's or calf's consumption of a particular forage must increase to continue meeting the animal's nutritional requirements. However, as the quality of forage decreases, digestibility decreases, and the animal's maximum intake capacity of that forage decreases (Figure 1). It is hypothesized that consideration of intake restrictions will change the optimal LP forage production system, livestock grazing system or supplemental feeding strategies when forages are an important nutrient source.

Drs. White and Musser bring an important new insight: given recent and prospective variations in inflation and income growth, stability must become an important criterion for assessing alternative local and state government fiscal systems. The 1960s was an expansionary period for U.S. and world economies. Equity, growth and efficiency appeared to be appropriate and sufficient criteria for evaluating local and state tax and expenditure systems. The economic turmoil of the 70s, however, makes it obvious we were a bit over-optimistic. Stability must be added to our list.

Unfortunately, procedures are not available for handling variations induced by unquantifiable difference in location, soil, weather or management, particularly if the data source is farm survey information from relatively small samples for a single production season. Estimation problems occur regardless of whether classical, profit or trans-log approaches are used. Procedures suggested by Hoch and Hoch and Mundlak for handling these disturbances in classical production functions require a priori knowledge to devise a weighting system or observations over time to provide estimates of weights.

Profit functions as proposed by Lau and Yotopoulos require data to be of such nature that a production function can be specified either in the normal form or that the relationship between profit and input quantities can be specified and estimated. The price of the product is also required to be either a function of quality or of selling costs or that some common or average price is utilized.

This paper consists of two parts. The first is a general view of the consequences of recession, with reference to historical U.S. business downturns. The second considers more specifically the effect of rural industrialization on the sensitivity of the rural economy to general business conditions. Attempts are made to estimate effects of rural industrialization during the 1974-75 recession.

Feeder calf producers face a problem common to all owners of productive assets: how long should the asset (brood cow) be used before it is replaced? Expected productivity of a brood cow can be measured by two parameters: (1) the likelihood that she will wean a calf, and (2) its anticipated weight when weaned. Both are independent functions of the cow's age which decline annually after reaching peaks in the early years of her productive life. The calf producer who expects to maximize profits in the long run must choose an optimal rate of replacement for his brood cows.

It will probably be useful to trace the evolution of the title of this paper. Initially, the assigned purpose of the paper was “to contrast the impact of a recession on rural areas having industrial development with those that have not attracted additional industry.” The program title became “The Effect of a Recession on Employment, Population and Industrial Development in a Rural Economy.” My first review draft of the paper carried the title “Effects of General Economic Conditions on an Industrialized Rural Economy.” One week preceding the meetings, I received a revised draft of the manuscript, title “The Effect of Recession on the Rural-Farm Economy.”

Managers of business firms, large or small, farm or nonfarm, must make investment decisions under conditions of risk and uncertainty. However, in evaluating investments, the assumption of perfect knowledge has often been used to simplify the analysis. For example, an estimate of average annual net returns is frequently discounted into perpetuity to evaluate a real estate investment alternative. Capital budgeting literature suggests a number of approaches to evaluating alternative investments. However, use of concepts such as the payback period, average rate of return, internal rate of return and net present value embodies the assumption of perfect knowledge.

This paper presents empirical estimates of livestock capital formation and disposition on farms in 14 southern U.S. states during 1974. Livestock capital is defined to include dairy and beef breeding cows. Concern with measuring the formation and disposition of livestock capital stems from the demand for knowledge of its importance as farm input, output and investment and from its inconsistent treatment given it in current USDA statistical series and the subsequent impact on farm income measurement.

The objectives of this study are to present new information on dairy and beef cow capital formation and disposition via development of a cow capital flows account, and to provide a perspective on the importance of this information by incorporating it into estimates of farm income.

Adjustments in the distribution system, as rapidly and as consistently as they occur, seldom fail to elicit substantial emotional reaction. Linking the production system with the consumption system, the distribution system is extremely pervasive. Small changes have widespread effects. Thorough, objective analysis of these changes is difficult and vulnerable, especially when public hearing procedures provide little time for intensive study.

Dr. Johnson has presented a useful description of the process by which judgments are reached, with regard to impacts of transportation infrastructural changes. I will make only a few suggestions for your consideration that relate specifically to his paper, and then devote some comments to the nature of future changes in transportation likely to be most important in the South.

Public elementary and secondary education represent the largest single expenditure by units of state and local governments. Nearly 30 percent of all tax dollars raised at the state and local level is spent for funding public elementary and secondary schools. The magnitude of expenditures for public education relative to other public goods makes questions concerning resource allocation for this service extremely important. It is not surprising that a great deal of attention has been directed toward determining if the educational process can be made more efficient.

Politicians, school administrators and other decision-makers who deal with school finance problems in rural and urban areas face a key policy question concerning the educational production process: “Does the spending of additional tax dollars in local public schools necessarily insure increased scholastic achievement for all students?”

If inferences from research are to be correct, economists, research workers and extension specialists should distinguish between adjustment recommendations for an individual farmer with his unique set of values as opposed to recommendations for a hypothetical group of farmers. Too often, economic analyses are based on the implied assumption that all individuals fit a general definition of the economic man whose one objective is to maximize profits. A single goal, such as profit maximization, is often used to derive the “otpimum” plan because the planning model is operational and is assumed to provide an analytical approximation of firm behavior. Other goals may be relevant to the firm's decision-maker, and economists generally recognize that multiple goals are important in making business decisions. Consequently, single goal models are not always a realistic approach to the decision process and may not provide the farmer with an acceptable solution.

In recent years, increased attention has been focused on understanding graduate education in agricultural economics. The profession's interest in this area has been demonstrated through sponsorship of workshops on curriculum development, improvement of undergraduate instruction and teaching programs in agribusiness. Creation of an AAEA Distinguished Undergraduate Teacher Award, establishment of sections of the annual meetings devoted to teaching and curricula, and opening of the contributed papers section competition to undergraduate students all represent increased recognition of undergraduate education.

Substantial variations in equity and income of cattle producers and feeders in highly leveraged operations have occurred during the early 1970s as the result of wide variations in prices of cattle and purchased feed. Moreover, severe losses in many commercial feedlots have resulted in greater forage inputs in beef production, with feeder cattle placed in feedlots at heavier weights and for shorter periods of time. The large price uncertainty, together with possible changes in the livestock production system, make cattle producers' search for effective methods of risk management more urgent.

The search is hampered, however, by a limited scope of choices in risk management. Forward price commitments in cattle production have received limited use at the producer level. Public programs of price support and supply management have never been available. Insurance choices are few, as are alternatives for diversifying use of grazing lands and other resources specialized to cattle production. Often, producers' primary methods of risk-bearing are reliance on financial reserves, including unused borrowing capacity, emergency loans provided by public programs and outside sources of income. However, effective opportunities for reduction of income variability may be offered by vertical integration expressed as retention of calf ownership through finishing stages either on pasture or by custom feeding in commercial feedlots.

This paper is another of many that looks into a hazy future. The overall purpose is to identify some possible departmental strategies for the agricultural economics profession. These strategies follow from a discussion of the status of higher education, a review of findings from the Carnegie Commission reports, and from a study on alternative organizational structures—particularly institutes and centers.

Strategies for the next decade relate to a serious set of issues particularly crucial to social science departments within universities. The issues seem related to clarifying the role of agricultural economics, to increased linkage of professional and political decision types, to greater balance of theory and empiricism on complex societal problems, and to increased concern for indirect effects of scientific and technological developments.

Professor Coutu is to be commended for synthesizing in a brief paper a great many insights bearing on the management of teaching, research and extension in the next decade. As a discussant, I feel much as a blind man trying to describe the Taj Mahal—I can only reach so high. The future is as yet unknown and any predictions are at best pretty wild guesses. But there are insights gleaned from the past that can guide us in anticipating the future.

In developing his anticipations, Professor Coutu drew upon several important sources of information, including his personal observations on the status of the university, his recent research on organizational structures used by the University of North Carolina system to manage research, and the Carnegie Commission report on higher education.

Spatial linear programming studies in agriculture require establishment of a land resource base so representative enterprise budgets can be constructed to reflect productivity and limitations of each region's agricultural land. To relate the land base to budgeting procedures requires an economic classification of agricultural soils. Ideally, this classification would group together those soils requiring similar cultural practices and having the same yield capabilities. Costs and returns can then be computed for selected agricultural enterprises within each classification. Technical information on agronomically based soil classifications is available through agricultural experiment station reports and the Soil Conservation Service. These reports give an abundance of detailed physical and chemical soil data on a county basis.

Because technical data are extensive, a problem exists in translating this information into economic groupings suitable for use in constructing budgets. Economic classification of soils for a spatial study should be pragmatic but detailed enough to ensure a meaningful linkage of enterprise budgets to the soil.

Increased competition and conflict among users of water have caused eastern states to investigate alternatives to their common law doctrines dealing with water use, and the legislative trend is toward greater state administration in water management. As a part of this trend, Florida has enacted an administrative water law (Florida Water Resource Act of 1972) based upon a model water code suggested for eastern states. The economic efficiency implications of the allocation processes allowed by the code and the Florida act are examined herein to indicate how more effective use of basic economic principles could increase efficiency of water allocation under an administrative system. Since the present body-of-water law has evolved over time and any modifications must be consistent with this body of law, eastern surface and groundwater law is reviewed first. Then, water allocation under administrative water law, with a focus on the code and the Florida water act, is discussed. Alternative approaches to water allocation which have potential for improving economic efficiency are discussed last.

As a result of the recent world food situation, particularly the problem of repeated production shortfalls, the precipitous drawdown in grain stocks and the rapid increase in grain prices, widespread concern has developed over instability in food supplies and prices. Government officials and heads of international organizations have given considerable attention to stabilization measures, particularly grain reserves, as a means of offsetting fluctuating supplies and unstable prices of basic foodstuffs.

For the United States, the problem of fluctuations in grain prices and unstable markets is not one of domestic origin. At recent levels of production, grain supplies have always exceeded domestic needs in the past two decades. Wheat is a good example. U.S. exports of wheat as a share of domestic production went from about 40 percent in 1970-71 to about 70 percent in 1972-73. In recent years, U.S. overseas markets have been the main source of instability in grain prices. Instead of reducing grain consumption or relying on their own grain reserves, many foreign countries experiencing shortfalls in grain production used the world and U.S. markets to purchase needed supplies.