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.


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.

no third solution

Blogging about liberty, anarchy, economics and politics