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Comment of the Day
Tuesday, December 9th, 2008A comment so wrong (and unfortunately, so common), that it deserves a main page refutation:
If there is one aspect of the economy which maybe should be tinkered with it’s farming. There is not much harm in having a perpetual oversupply of food than otherwise would have happened in a free market, but the consequences of the inevitable shortages created by a market economy are pretty grave. It’s one thing if there are too few cars made to meet the demand, but a food supply shortage is too gruesome.
This notion that there are some parts of society that are too important to be left to the market naively assumes that whatever the market’s alleged shortcomings, the government will do better.
To believe this, you have to believe that bunch of government bureaucrats and politicians are capable of orchestrating a food delivery system for 300 million people—the same bureaucrats and politicians who never meet a budget, are subject to the whims of politics and the pull of special interests (why do we subsidize corn, but not fruit? cotton, but not tomatoes?), and who are incentivized to fail (government programs that fail get more funding!).
What free markets do really, really well is distribute what people need (and want). What markets don’t always do so well is allocate what a few self-appointed experts think everyone needs.
But one thing we all unquestionably need is food. And I’d say that the last century or show indisputably shows that markets are immensely preferable to centralized planning when it comes to distributing food. The idea that a few Very Smart People can outsmart the billions of transactions carried out every day across the country when it comes to how to best allocate food resources is, if you happen to be one of those Very Smart People, the height of conceit. If you don’t happen to be one of those Very Smart People, it’s the height of naivete. A wheat seed’s transformation from a seed to a plant to a grain to a dinner roll requires thousands and thousands of people with highly specialized knowledge engaging in mutually beneficial transactions. No team of political appointees could ever begin to grasp everything that’s involved in that process.
I can’t remember who said it first, but there’s an old axiom about how the easiest way to gauge if the people of a given country are prone to food shortages is to check to see if that country has a minister or a government agency in charge of distributing food. If it does, you can count on finding long lines and shortages.
I believe you meant to say “you CAN count on finding…” not “you CAN’T count …” in that last sentence. Very different meaning the other way.
Coincidently, I came across this post this evening as well –
http://ti.org/antiplanner/?p=666#more-666
What’s so bad about the Soviet style stores? Three lines to wait in for a dozen total options to choose from? What’s not to love?
Radley,
This is a perfect time to introduce people to a commonly-read economics parable…
I, Pencil
I don’t think farm subsidies are a good idea. Sadly, the reason that they’re terrible is that they’re very effective at what they do–promoting over production of corn and soy, which then promote factory farming and processed foods. If only you were right that the government lacks the competence to promote an oversupply of food.
(Maybe the original commenter meant more than farm subsidies, but I thought that was what he was defending).
Ironic given that farm subsidies are most often associated with giving landowners (note the term, not “farmers”) money to *not* grow crops…
yea….let’s rely on Africa for our food supply! Relying on shitty third world countries for our food supply = great idea!
yea….let’s rely on Africa for our food supply! Relying on shitty third world countries for our food supply = great idea!
How can you argue with such a well reasoned and clearly elucidated point of view?
Since most US government plans for farming are designed to reduce supply in order to artificially raise prices, in most cases I wouldn’t expect removing the controls would cause shortages. Quite the opposite. It’s quite possible that the supply of some agricultural products (corn sugar anyone?) would decline, but these would be replaced by alternative products (cane sugar). The market is much better at avoiding shortages: if a shortage is foreseeable, someone will grow the crops anticipating making a killing. If the shortage is unexpected (say a freak winter kills most of California’s avocados) then it’s better to do without (or import some from Mexico) than to hope that some central plan over-produced avocados continuously just against this eventuality.
Somehow, the human race has survived for thousands of years without a central government dictating agricultural policy. That fact alone tells me government has no business messing with anyone’s food.
Besides, isn’t one of the constant mantras we hear that America faces an obesity problem? Funny how we can worry about too much food and not enough food at the same time!
Amen!!! The market, i.e. the collective wisdom of all of us, is far superior to what a few philosopher kings can imagine.
http://rightklik.blogspot.com/
Exhibit A against the the liberals here… the one, the only, Ukraine famine: the pinnacle of Soviet agrarian politics at their finest!
It is my considered opinion that most people who are deeply in love with the notion of being an organic local farmer, don’t know much about farming.
Michael – second generation removed from Oklahoma dirt farming -
Radley, either you misunderstood my comment or you just didn’t address the main point. I’m not suggesting a government controlled farming industry, we all know how poorly that works. However, gaurantees of a minimum price for a commodity which is above the market value will help create an oversupply. In a free market, when an oversupply occurs, the price of the commodity collapses and causes some suppliers to quit, which then usually leads to a period of scarcity. Are you ok with occasional periods of scarce food or do you not believe that would happen?
To illustrate the point, I know you agree that a price control creates a shortage. If the goverment passes a law which says the most you can charge for a gallon of milk is $1, there will be a major shortage of milk. On the flipside, subsidizing milk production will create an oversupply.
The price is set by supply and demand. The government currently buys capacity in order to keep crops off the market. Therefore the prices (with the exception of sugar) are probably close to the market clearing prices. Get rid of the subsidy and people who are getting their land mortgages paid by the government will put those lands into production to generate income to replace what they were previously getting from the government. This will reduce the price of land rents which is a key input into profitability of a farm. Some inefficient producers may stop producing because they were unable to produce. If this results in a supply drop then the price will go up. The combination of a drop in land rent and an increase in the the price of the crop will increase the profitability of producing the crop, encouraging more farmers to produce that crop. Net net, the price and supply should stay relatively the same. Everyone will have enough food and more money to buy it with. If you really want to see something screwed up, look into the sugar price support system.
Lets all turn our eyes to the latest success story in government- managed agriculture policy, Zimbabwe. Not only do you get massive famine but, as a free bonus, massive hyperinflation. For a limited time you also get cholera.
“To believe this, you have to believe that bunch of government bureaucrats and politicians are capable of orchestrating a food delivery system for 300 million people—”
Fallacious argument, since that is not what was being claimed in the comment you are replying to.
#8,
Right on. More often than not, the government restricts supply to manipulate price rather than over produce. There are exceptions with corn, wheat, and few other staples, but the goal of ag policy is to keep prices high so farmers will make more money. Its great that 99% of us pay higher prices for the sake of 1% of the population.
guarantees of a minimum price for a commodity which is above the market value will help create an oversupply.
Well, that’s true. And the government will have to store (or destroy) the oversupply, as it does (did?) with vast amounts of surplus cheese.
I think one issue here is that we don’t know what potential shortfall scenario you believe you’re addressing. Some things I can think of:
- there might be a disaster that destroys so much of the food supply that government reserves (cheese or whatever else is being stored) will be directly needed to feed people.
- left to its own devices, the food market is prone to boom and bust cycles (cf. coffee prices), and smoothing this out via subsidies will make life less difficult for poor people
- these boom and bust cycles are actually severe enough to threaten (some) people with malnutrition or starvation
The first case would require an unprecedented (but not inconceivable) disaster, like a meteor strike or nuclear war. The second case is surely true, and in that context well-designed price supports can function as a form of progressive taxation. The third case does not seem plausible to me in modern times – look up some stats on the percentage of household budget spent on food, over time, for the US.
I don’t have any objection (in principle) to a certain amount of disaster readiness on the part of the US government, but food stockpiles should only be a minor part of this. As for the safety net, I believe that just giving money to the poor is more efficient than keeping food prices artificially low.
One particular objection I have to food price supports is that they discourage the development of premium quality foods. This is of course an objection of someone who has enough money to spend on food, but it should be a reminder that price supports have costs beyond just the dollar cost of the government buying the food.
Will Rogers said, “If you want to eliminate traffic, have the government build the cars and private companies build the roads.”
The relevant corollary to this post would be, “If you want to eliminate human beings, have government distribute the food.” No need for private companies at all.
I saw this last night while drinking Irish beer, eating salsa made of fresh summber vegetables and herbs, and watching The Biggest Loser. This morning I noticed that I have enough cans of green beans and creamed corn and Wolf Brand Chili in the back of my pantry to survive a nuclear war, and I have no idea where these came from.
It occurred to me that malnutrition is pretty low on the list of potential problems in this country.
What’s up with the time stamp. Is Radley living in Bermuda now? If so, nicely done.
What is even more amusing was that during the Great Depression Roosevelt, in an attempt to tinker with agriculture prices, slaughtered farm animals, burned crops, and so forth all to try and reverse deflation (nevermind that the obvious solution to deflation is to print more money).
Today’s market is not like the markets back 100 or more years ago. Nowadays we have futures markets, firms that are large enough to risk neutral, and are smart enough to be forward looking and take into account other market participants behavior. Hence the old “cobweb” models of over supply and under supply are not really all that accurate or helpful. If we took away farm subsidies will agro-corporations suddenly base their planting decisions on just last years prices? Will they ignore what their competitors are going to be planting? Will they not look at the futures market? If the answer is No, no and no, then there is little reason to be concerned about agricultural production oscillating between booms and busts.
This is why Z’s fears are unreasonable.
I’ll also not that it is fear that motivates growing government. Robert Higgs has amply described and detailed this phenomenon. So grow some balls and stop being so damn wimpy.
Bbartlog,
You get an ‘F’ in economics along with Z for that post.
Goodgrain,
Maybe that is part of Africa’s problem. They can’t farm because of the subsidies here in the U.S. that promote intensive farming, higher use of pesticides, and greater soil depletion hence higher usage of fertilizers, irrigation, and so forth (as well as higher domestic prices). And at the same time a country that could supply said products at a lower price now can’t and potentially significant part of its labor force is now looking for work in areas that the local economy has a hard time absorbing. Lets face it, places like Chad aren’t known for their manufacturing industry, their high tech industries, or their medical industry. They might have some industry in supplying raw materials, but also allowing them to do the farming would be good for their economy, good for our enivironment and economy (remember those higher prices), and maybe…maybe help to turn Africa around.
And lets not forget that food prices have gone by a huge amount. Why? Biofuels. As such barriers to trade really are hurting both American consumers, our trading partners, and enriching a few giant agricultural firms. Its actually pretty amazing when you consider all the caterwauling on the Left and even the Right about Big Oil and their profits all the while ADM and companies are seeing similar growth in revenues and profits.
Mercantilism sucks. Something that most people who have even a whiff of economic understanding figured out about 150 years ago or so.
This is it in a nutshell:
Assertion 1: A Free market, while the best economic system, are still imperfect(for a lot of reasons) and result in boom and bust cycles.
Assertion 2: Therefore, if you want to smooth out the busts, some perversion must be undertaken.
Assertion 3: This perversion will likely result in suboptimal allocation of resources(too much food, lower efficiency, higher cost). In certain cases, that might be preferable to enduring the bust cycle(too little food).
“Are you ok with occasional periods of scarce food or do you not believe that would happen?”
I am. For all comodities. Stabilization IS chaos (spend some time with Mises). If there happens to ever be any scarcity of food (or any good/service), the free market (via demand) is the quickest way to mobilize food to an effected area. Of course you’d have to believe food is prone to such shortages and this isn’t just the latest (in a long line) of statist attempts to further subsidize a few politically connected with the politics of fear/paranoia.
The Free Market does not guarantee all things for everyone at all times. For example it doesn’t guarantee that you will get a Ferrari for $5,000 in powder blue–even though you REALLY want it and believe you morally are entitled to it. It does guarantee to be the most efficient allocator of resources; and, ALL resources are scarce and should be allocated efficiently.
But maybe I’m wrong. Let’s put the next Illinois governor in charge and see what happens. The last one was very popular until this week.
#26 Z
Assertion 1: A Free market, while the best economic system, are still imperfect(for a lot of reasons) and result in boom and bust cycles.
======================================
Please, do tell how a boom or bust is “imperfect”? By all means feel free to use “a lot of reasons”.
I think you need to clarify your terminology a bit here. If by boom and bust you mean a recession that is fine. But under supply over supply in a specific market is a micro economic concept and not a macroeconomic one like recession. In other wrods, one thing is not like another.
F-, for you .
It is such a simple fact that the market knows best. The best proof of that is the former Soviet Union. We are heading in that direction a little bit I fear.
Les: Ok, I’ll take food grown/subsidized in the States. You can rely on food grown in the ever so democratically stable Congo and the libertarian utopia of Somalia! Deal?
too many economists, not enough farmers…market fail.
You get an F- in economics too, Goodgrain.
The actual wager is:
1. You get your mercantilist economy.
2. Les gets an open economy and can, if necessary, buy grain from anywhere he wants, not some countries you cherry pick.
No, do you favor such a deal?
z said:
“There is not much harm in having a perpetual oversupply of food than otherwise would have happened in a free market, but the consequences of the inevitable shortages created by a market economy are pretty grave. It’s one thing if there are too few cars made to meet the demand, but a food supply shortage is too gruesome.
“In a free market, when an oversupply occurs, the price of the commodity collapses and causes some suppliers to quit, which then usually leads to a period of scarcity. Are you ok with occasional periods of scarce food or do you not believe that would happen?”
I’m definitely NOT okay with it. My entire family starved to death in the Great Illinois Famine of 1995-97, and it burns me up inside to know that if only the government had directed more taxpayer dollars to giant rent-seeking agribusiness interests, they would still be alive today.
I’m definitely NOT okay with it. My entire family starved to death in the Great Illinois Famine of 1995-97, and it burns me up inside to know that if only the government had directed more taxpayer dollars to giant rent-seeking agribusiness interests, they would still be alive today.
If only 1995-97 had been a period of no government “agribusiness” subsidies you would have had a well made point. Try again.
I think you need to clarify your terminology a bit here. If by boom and bust you mean a recession that is fine. But under supply over supply in a specific market is a micro economic concept and not a macroeconomic one like recession. In other wrods, one thing is not like another.
F– for you
I agree that governments are extremely inefficient at allocating resources. I also agree that free markets are extremely efficient at this same task. In fact, I find myself agreeing with many (but not all) of the positions expressed or implied by Radley Balko on this fine website. It is safe to say that I am frequent reader and fan or Mr. Balko. But I am troubled by the near-religious faith that Mr. Balko, some of the commentors here and others place in “free” markets.
In microeconomics, the market is theoretical, in that all participants are permitted without any barriers to entry, such participants act rationally based on complete transparency and perfect information, and no externalities are ignored, because these are factored into the buying and selling decisions. In fact, this theoretical market is designed and conceived to be perfectly efficient.
I hope that Mr. Balko, commentors and the rest of us would recognize that no such market exists in reality. There are barriers to entry. Participants act irrationally and/or based on imperfect information. Externalities, such as environmental or social impacts, are not priced into many commodities. More importantly, no such “perfect” market can or will ever exist. To believe otherwise is to simply ignore reality.
For example, how can you defeat barriers to entry created by market participants without some body to regulate the market? How could you possibly force participants to act rationally, rather than emotionally?
Because of these obvious imperfections in the real market, inefficient government regulation becomes a necessary evil. This is where the libertarian argument falls apart. And I admit this as a libertarian myself. Unfortunately, our problems cannot be solved by relying on a theoretical model that can never be implemented. Let’s try and be realistic and pragmatic, and leave the dogma at the door.
“In a free market, when an oversupply occurs, the price of the commodity collapses and causes some suppliers to quit, which then usually leads to a period of scarcity. Are you ok with occasional periods of scarce food or do you not believe that would happen?”
Of course it won’t happen. Can you identify any consumer commodities in a free market that illustrate this “boom-and-bust cycle” you imagine? Is there ever a scarcity of toothpaste? Computers? Non-subsidized crops (hint: most agricultural products are not part of the farm subsidy program)? Cordless screwdrivers? Cell phones? Sports Illustrateds? Bottled water?
[...] this commenter at Radley Balko’s blag, who hasn’t gone to any effort to, y’know, actually learn anything about economics or [...]
Ooh, ooh! Credit is busting! How about housing in many parts of the country? Tulips, a few centuries back? It isn’t hard…and it isn’t necessarily bad!
Food can be considered an exception, though. You don’t want people going hungry for a few months, and as a society, we don’t really think letting people starve is tolerable (if you do, no worries, but its more or less an indefensible policy position). No matter which way you cut it, if prices rise (for any reason) enough to exclude ANY portion of the population, it’s likely government intervention will step in to feed them.
This isn’t wholly bad. Non-hungry people is something that we can generally agree is good. You COULD say that the government should let the market do it’s thing and then swing into action when there is a real need, but as you’ve all agreed…they suck at that! What they ARE good at is distorting the market to create cheaper food for its citizens.
[...] The Free Market and Food [...]