no third solution

Blogging about liberty, anarchy, economics and politics

Congress Urged to Subsidize Shit (Seriously)

July 25th, 2007

When government starts tinkering with the price system, there are always unintended consequences – as the price disruptions follow all the tendrils of buying and selling through from the producer to the consumer. The prices of all goods never rise in tandem, some rise before or after others – and never in predictable proportions. So, Rudy, you want your energy independence? Is it worth $4 gallons of milk? Is it worth starving Mexican peasants who can no longer afford corn tortillas? What about when it impacts the price of your Starbucks Latte?

The wholesale price that companies such as Starbucks pay for milk is up nearly 70% in the 12 months through June, according to the U.S. Labor Department…U.S. milk prices have spiked for several reasons, including dairy farmers’ increased costs for livestock feed and fuel. While its difficult to calculate how much of the price increase is due to feed, dairy producers are paying substantially more, because ethanol demand has pushed up corn prices.

The price of corn is up some 40% or so, “in response to a surge in ethanol production.” A surge of course, which is heavily subsidized, and wreaking havoc on the dairy and livestock industries – corn is one of their larger input costs.

“How are we are going to respond when ethanol (producers) have a mandate to burn our food as fuel?” Asks Jesse Sevcik, of the American Meat Institute.

The problem, vis-a-vis the corn farmers vs. the livestock farmers, is that the rampant production of ethanol has very little to do with honest consumer demand. It’s all subsidized, and subsidized heavily. Livestock simply will not be able to compete in this environment, for any significant period of time. When your competition is effectively losing money on every ounce of product he churns out – yet the government steps in and guarantees him a profit (inept management notwithstanding) – there is basically nothing you can do. Most will turn to the government, the same agency responsible for their current plight, and beg for their own subsidies.

Making the issue more complicated, livestock producers aren’t advocating eliminating subsidies and tax credits for ethanol. [Which would be the sensible thing to do – DZ] …The National Milk Producers Federation, for example, says that in addition to corn-based ethanol, Congress should back energy technologies using manure.

See, I told you they want to subsidize shit.  As if this merits serious consideration – but let’s say it does.  Of course this does nothing to alleviate the pain felt by consumers of livestock and milk – who will still have to pay higher, subsidized prices.  The only people who win, as always, are those who successfully seek rents.

Don’t call it capitalism.

Comments

3 Comments

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  • KipEsquire says on: July 25, 2007 at 8:34 am

     

    As the blog Market Power has documented, the ethanol mania is also hitting beer prices, as barley farmers are switching to corn for its higher price. (Less barley = higher barley price = higher beer price.)

  • matt says on: July 25, 2007 at 9:10 am

     

    Oh god damn. Now I’m going to have to pay more for beer AND my cigars.

  • Francois Tremblay says on: July 25, 2007 at 2:36 pm

     

    Manure IS, however, a source of energy… We already use garbage-based energy, but perhaps it should be subsidized.

    *SLAP

    Phew! I was turning into a politician. Okay, yea, you’re right.

no third solution

Blogging about liberty, anarchy, economics and politics