Sunday, June 15, 2008

Food Prices & Congress: A Really Bad Mix, Part II

It would appear that most people are not that interested in the economics of food prices (or anything else, I guess), but since it is such an important issue, I will complete this series of articles. I really don't think a lot of folks understand how the actions of government affect our everyday lives. This is just one way.

Because of technology, effective transportation, and many other factors we enjoy the most varied, freshest, and nutritious food in the world. We should count our blessings every day for this. Obviously, I love food.

However, because of government intervention we also pay a lot more for it than we should. By paying farmer's not to grow crops, subsidizing inefficient production, and massive regulation, we pay on an average of probably twice market, and as prices increase, temporarily, this is becoming even more of a hardship on our general populace.

Maybe if I illustrate this in a different commodity, it will be clearer, Until the late sixties we were one of the largest producers of steel in the world. Pittsburgh, Baltimore, and some other towns thrived because of steel. Now, most of these areas look like scenes from an apocalyptic movie. Why did this happen? What should we have done?

First, while the rest of the world modernized their factories we rested on our laurels and did nothing to improve production. There were at least a couple reasons, other than inertia. Because steel was so vital for so long, unions were able to demand more money (lots of money) and they discouraged plant investment knowing with that fewer workers could do the same jobs more efficiently. Also, because of the pay rates, companies did not have the extra cash to invest. Therefore, they basically priced themselves out of work.

What was the governments answer to this? Tariffs. Taxing imported steel to the level of costs in effect at the time. Sounds good, but it doesn't work. The jobs were lost anyway and steel was kept at an artificial level costing the public on both ends, taxes and steel costs (and any products made from steel.)

It would seem to me that the correct way of handling this would have been to buy up every ton of cheap steel (countries were subsidizing and dumping it below cost to gain market share, and it worked). Take that steel and make more affordable products which would have made jobs for the displaced steel workers. They didn't do that and everyone lost. Higher prices and fewer jobs.

This same model is at work today in several foods. For instance, sugar is about 10 cents a pound on the world market (not long ago it was 6 to 7 cents), but it is controlled and subsidized at about the 40 to 50 cent level.

Even though, it is not a healthy choice in life, it is used in almost everything; therefore you are paying more and getting less.

BTW: if they really want to make ethanol for cars, make it out of sugar instead of corn, and stop the subsidies and tariffs (and stop taking a staple food out of people's mouths). Brazil runs their vehicles 100% on sugar based ethanol and produces so much, it could export it.

The reason for tariffs are to bring prices in line with what producers want (lobbyist's job) not what the market can do, costing all of us, no matter what the commodity. Other countries do this too, and it doesn't work for them either.

Let the market work; it is best for everyone. If a company or farm (one in the same now), can not produce a product for the existing price level, let them go out of business. Someone will buy it and do the job.

For example, Bethlehem steel was just bought by a Russian steel maker because of the weak dollar. He obviously can't count on it staying weak, so the first thing he is going to do is put $500,000,000 in modernization (which means work for a lot of people during and after construction).

A side example, AMTRAK which is a government subsidized company, is always losing money under its current structure. Let the darn thing go bankrupt. someone will buy it and run it correctly.

You can not keep jobs by taxing and subsidizing. You can not keep food prices (or any others) down doing the same or trying to regulate everything. All of this costs the public money.

Remember the government has no money of its own. It only has what it can steal from you.

Good luck.

Be aware and prepared,

The Hammer

Copyright Crickard Publishing 2008. All rights Reserved


Post a Comment

<< Home

Blogarama - The Blogs Directory EatonWeb Blog Directory