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September 2009 Archive for Economic Sense

RSS By: Matt Bogard, AgWeb.com

Matt's primary interest is in the biotech industry and ag policy.

Constitution Day

Sep 17, 2009

By Matt Bogard

It is Constitution Day, and considering the massive amount of spending we have seen in Washington, the confiscation of private enterprises, as well as the increasing amount of regulation and loss of personal liberty that seems to be on the horizon (including our freedom to produce and consume the foods we want  using the practices we find to be most effective under the security of our property rights) we should consider the role and the importance of the Constitution.

Democracy is a very arbitrary form of government ( see The Public Choice Revolution- from the Cato Magazine Regulation  for more on this) , and is the perfect vehicle for tyranny and collectivism. That is why our founders rejected such a flawed form of government and proposed a Constitutional Republic,  ‘if we can keep it.’

In Judicial Activism Reconsidered, Economist Thomas Sowell describes our Constitution:

“The federal Constitution is "the supreme law of the land," not because it is more moral than state constitutions or state or federal legislative enactments, but because it represents a larger and more enduring majority. Minorities receive their constitutional rights from that enduring majority to which transient majorities bow, not from whatever abstract moral rights are imagined to exist as a brooding omnipresence in the sky.”

Once we start making heroic ‘modern’ interpretations of words in the constitution like ‘general welfare’ or ‘regulate commerce,’ the constitution is weakened, and minorities are forced to give up their liberties to whatever transient majority takes power. The short term gain from being able to bypass the amendment process ( which requires obtaining the consent of the governed) in order to expand the power of the federal government in order to pass some much needed legislation to help some worthy cause comes at a long term cost to our liberty and national well being. With every step we take away from the limited role of government defined by the specifically enumerated powers of the Constitution, we concentrate more power and wealth in our central government. This increases the incentives for large corporations and special interests to influence our lawmakers, and provides the means for ever more concentration of power and the entrenchment of elites. As stated in the public choice article I have linked to above:

“The entire federal budget,” writes Mueller, “can be viewed as a gigantic rent up for grabs for those who can exert the most political muscle.”

As a result, problems of an overbearing government ( which results in the much maligned concentration of wealth and power) are mistakenly attributed to free markets and capitalism. What is seen is businesses lobbying for special regulatory protections (like bailouts, cap and trade or the minimum wage) but what is not seen or often overlooked is the role of an intrusive, expansive, unconstitutional government.

What did our founders have to say about the role of government and the constitution?

An interesting thing I found just today, comes from Federalist # 10. Madison states:

“In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government.”

What are these diseases? Again from #10:

“A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project”

Wow! Even in the late 1700’s our founders had the foresight to set up constitutional protections against an overbearing democracy and the chaos that it can bring. Think about the connection between paper money and the current financial crisis ( also blamed on capitalism), the abolition of debts and the bailouts, the equal division of property and our housing ( Fannie and Freddie) and our tax policies. Virtually all of the problems we are experiencing in today’s economy are related to our departure from constitutional principles.

More quotes from our founders:

“We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money.” – Davy Crockett

"I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on the objects of benevolence, the money of their constituents." – James Madison

"With respect to the two words "general welfare," I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators." - letter to James Robertson from James Madison

Also by Madison in Federalist # 41:

"Nothing is more natural nor common than first to use a general phrase ( like common welfare) and then to explain it and qualify it by a recital of particulars."

In Federalist # 45:

"The powers delegated by the proposed constitution to the federal government are few and defined. Those which are to remain in the state governments are numerous and indefinite."

Thomas Jefferson also was an advocate of this position as he states in a letter to Albert Gallatin in 1817:

"Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated."

“in questions of power then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the constitution”
—Thomas Jefferson

To paraphrase Constitutional Scholar Walter Burns, Instead of trying to reinterpret the Constitution to keep it in tune with modern times, the goal should be to keep our society in tune with the Constitution!  

Happy Constitution Day!

Pollan's Big Ideas about Big Food

Sep 10, 2009
By Matt Bogard

I checked the AgWeb blog posts this morning and noticed Mr. Cornett's AgWeb Out to Pasture Blog post about the piece by Michael Pollan in today's New York Times.   In short Pollan claims that farm 'subsidies' are leading to obesity, and in the face of health care reform insurance companies will form a new political force opposed to farm programs.

Pollan, in a lot of his writings tries to make connection between corn syrup and obesity and 'subsidies.'  I would like to know exactly which 'subsidies' he is talking about. I'm not sure that countercyclical payment or loan deficiency payment type programs at the farm gate level really have an impact at the retail level great enough to create super savings and increased consumption of these 'bad' foods.

Research related to the claim of a connection between obesity and farm policy can be found here( from UC Davis).

"Given that consumers generally show limited responses to retail food price changes, eliminating the corn subsidy would reduce corn-based food consumption by at most 0.2 percent."

Pollan also proposes a food tax to curb consumption. Again, research ( from the Mercatus Center at George Mason University) indicates that the taxes required to have any real affect on obesity would be in the 1200 percent range, and even if taxes eliminated ( in this case soda) consumption, the impact on obesity would be very small. The study concludes that "the sensitivity of individuals to changes in relative food prices is not sufficient to make “fat taxes” a viable tool to lower obesity."

To coin a phrase 'what's obesity got to do with the price of corn in Iowa'?- Not much.

The Mystery of Capital ( and the Clean Water Restoration Act)

Sep 06, 2009

By Matt Bogard

Back in 2002 Economist Walter Williams wrote a review (link) of a book entitled 'The Mystery of Capital.

The following is an excerpt from that review:

"It takes 168 steps and 13 to 25 years to gain a formal title to urban property in the Philippines; 77 steps and 6 to 14 years to do the same in the desert lands in Egypt; and 111 steps and 19 years in Haiti. If you wanted to open a one-worker garment shop legally in Lima, Peru, it would take you 289 days, working 6 hours a day, to obtain the business license."

The main point of the book 'The Mystery of Capital' by Hernando de Soto is that one reason many countries have not prospered from capitalism is not because they were exploited by Europeans, or because they are currently being exploited by multinational Western corporations. The reasons have more to do with institutional arrangements that fail to recognize or protect property rights and a burdensome regulatory environment.

Compare this to some information reported in a recent AgWeb News post entitled 'Producers Testify on Burdensome Implications of Clean Water Restoration Act':

"The federal government is already struggling to handle a backlog of 15,000 to 20,000 existing section 404 permit requests. According to the U.S. Supreme Court, the average applicant for an individual Clean Water Act permit spends 788 days and $271,596 in complying with the current process, and the average applicant for a nationwide permit currently spends 313 days and $28,915 - not counting the substantial costs of mitigation or design changes (Rapanos, 447 U.S. at 719, plurality opinion). Considering U.S. farmers and ranchers own and manage approximately 666.4 million acres of the 1.938 billion acres of the contiguous U.S. land mass, the massive new permitting requirements under this Act would be an unmanageable burden for the government, and could literally bring farming operations to a standstill."

"Chilton shared from personal experience about a time his family ranch had to apply for a 404 permit to construct a road across a dry wash on their private property. The regulatory approval process took over a year and cost his family nearly $40,000."

In past posts I have expressed a lot of concern about the effects of the regulatory environment on stifling innovation and production in agriculture. This is just another illustration of the impact of government controls on individuals and specifically the agriculture industry. Often the results could lead to worse environmental consequences than those the regulations intend to prevent, and also could lead to producer losses. We don't want our industry to end up like the financial or auto industry, and worse, we don't want to operate in a regulatory environment edging closer and closer to the standards of developing countries. Unfortunately many policy makers have more to gain from special interests and ideological victories than sound policies.

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