no third solution

Blogging about liberty, anarchy, economics and politics

The Return to Depression Era Economics

August 12th, 2009

First it was the broken-window debacle known formally as CARS, or colloquially as “Cash For Clunkers”: by Government edict, thousands of functioning vehicles were destroyed with sodium silicate. Adding insult to injury, the vehicles (parts of which were ostensibly salvageable) will be scrapped. Thanks to CARS, the replacement driver-side door that you neede for your 1995 whatchamacallit is going to be a little bit harder to find. The market for used cars, and the market for replacement/salvage parts just got a little bit thinner, so prices go up a little bit more.

And then there is agriculture, which has been silently (but openly) engaging in what can only be described as price-fixing. It’s been said elsewhere, but I’ll repeat it: if any other industry openly flaunted it’s price-fixing policies (Big Oil, anyone?) it would quickly draw the ire of politicians, bloggers, and Joe Six-Packs everywhere. Everyone would be in an uproar over “price gouging”.  But I’ve heard nary a whisper about this:

U.S. dairies will remove 86,710 cows from their herds to be sold to slaughterhouses as part of an industry-funded program intended to boost milk prices by curbing output.

The buyout is the third such cull in nine months, the Arlington, Virginia-based National Milk Producers Federation said today in a statement. The most recent buyout completed last month involved 101,000 cows, the most ever for the groups so- called Cooperatives Working Together program, which began in 2003.

AZCentral

It makes no difference whether these attempts at price-fixing are done at government’s behest, or by cooperatives or cartels trying to bolster their own bottom lines. Attempts to maintain these prices are as sure to fail in the medium- to long-run as water is sure to find its level. In the 1930s, during the height of the Great Depression, farmers were urged to cull their herds, slaughter baby pigs, plow under their fields, etc., all with the goal of keeping prices high. Employers were urged to keep wages high (although many cut working hours to save on expenses) based on the fraudulent notion that production depends on consumption, when in fact it is exactly the opposite.

[I]t is of paramount importance to recognize that such an abundance of goods and services can only arise through production at some historical time, or in other words, that in order to consume, production must first occur. — Say’s Law of Markets: The Case For Doing Nothing

Given the frequency with which people fail to comprehend Say’s Law, you’d think it is a novelty. Unfortunately, it’s not. During a depression/recession, the problem is not that prices have fallen, on the contrary, the problem manifests itself because prices were too high in the first place, and indeed are still too high.

The Great Depression was awful. And it’s frightening to witness the “endarkenment” happening right before our eyes. These same policies have all been tried before, and they’ve never done anyone a damn bit of good. This time won’t be any different.

Via CoyoteBlog by way of Beck.

Comments

6 Comments

RSS
  • sharonsj says on: August 13, 2009 at 1:33 pm

     

    Cash for Clunkers is not a failure. It was so successful that it ran out of money quickly. In fact, it is the only thing that pushed up economic numbers because consumer spending is dead in the water.

    The reason farmers are getting rid of cows has nothing to do with price fixing. In fact the price of milk is falling and dairy farmers cannot earn enough to cover expenses–so it doesn't pay them to keep milking those cows. There is a disconnect between what a farmer gets and what consumers pay because of all the middlemen in between. It's another reason why people should buy locally.

    • nothirdsolution says on: August 13, 2009 at 2:26 pm

       

      Cash for clunkers simply effected a time-shift in demand. People bought cars now that they would've otherwise bought in 2010 or 2011. Now, they will not be buying those cars in the future (since they have them now). Furthermore, if you measure "success" by how quickly an initiative can run out of money, then yes, in an Orwellian newspeak sort of way, CARS was a spectacular success. However, $4500 per clunker was too big a subsidy… you could achieve the same effects with a much smaller amount.

      As for the cows… It is a coordinated effort to cull a massive amount of cattle with the stated purpose of driving up the price of milk. When OPEC does this, we call it "price fixing". It's no different just because some Corporate-Welfare-Sucking-Factory-Farm is making the decisions.

      • ZJS says on: August 13, 2009 at 5:48 pm

         

        No kidding on the subsidy. Basically anyone not in a financial position to purchase a new car paid $4,500 in taxes for someone else to buy a new car. Wow…I'm so nice! I gave someone $4,500 bucks! Same thing with the housing credit. $8,000 of my tax money b/c I'm not in a financial position to buy a house. I wonder why? Cause I had to pay $8,000 in taxes.

        • nothirdsolution says on: August 13, 2009 at 5:59 pm

           

          The worst parts of the CARS subsidy are twofold:

          1. It is naked corporate welfare at its worst.
          2. It provides indirect subsidy primarily to upper-middle class, i.e., those with enough money/credit to buy a brand new car, and with an old clunker laying around to spare.

no third solution

Blogging about liberty, anarchy, economics and politics