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April 2009 Archive for Economic Sense

RSS By: Matt Bogard, AgWeb.com

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

The Invisible Green Hand

Apr 28, 2009
 

Last week there were many activities going on across the country having to do with Earth Day. Every year I cringe wondering where Agriculture will show up in the spotlight. One thing that I have noticed however, is that the more we add modern technology and science based production techniques to the equation, we get more of the scrutiny. This is despite the fact that modern agriculture is just as sustainable and in some cases may be even more ‘earth’ friendly- as in the case of biotech crops- than techniques centered on more nostalgic preferences.

Typically, those producing in local or organic markets are able to avoid a lot of the scrutiny, and often are able to find themselves in the center of attention for sustainable and environmentally friendly practices.  My opinion of that is let the market decide. Regardless of what the research says, if consumers have a need for these food systems and we have producers willing to fill it, then who is harmed?  As long as government stay s out, and we don’t get regulatory constraints that favor one form of production over another, the market will lead us to the solution most consistent with environmental sustainability.

One thing about growing up on a farm, or making a living at it,  is that you quickly understand some very basic concepts in economics, such as scarcity, tradeoffs, and opportunity costs.  These concepts are the foundation for a proper understanding of economic theory. You easily recognize that time, money, land, labor, and equipment are limited. You can only plant so many acres in a certain period of time. There are tradeoffs between planting once crop vs another, and there are opportunity costs to routine but necessary chores like scouting your wheat ( or paying someone to do it). Just as there are costs to every decision made every day of the season, there are also benefits. We weigh these benefits and costs and make the best decision we can given the limited amount of information we have (another scarce resource).   It is a very simple (to some it even comes subconsciously or instinctively- called experience) yet at the same time very complicated process.

Ultimately, acting in our own self interest, guided by prices, the market leads producers to decisions that benefit themselves as well as the environment. This may explain the massive adoption of modern day ‘green’ technologies such as herbicide resistant and insect tolerant crops all over the world.  The benefits they provide producers outweigh the extra costs, and as a side benefit, these products are also better for the environment than methods of the past. 

This scenario may best be described as ‘the invisible green hand.’  A well researched article from the Mercatus  Center at George Mason University  supports the following thesis:

 

“independent businesses and entrepreneurs, acting in their own economic self-interest within an institutional context that encourages innovation, are inherently inclined towards green practices.”

 

We’ve certainly seen this in Agriculture, and I hope that this theme finds its way into future Earth Day Celebrations.

Matt Bogard, Economic Sense

Reference:

Mercatus Policy Series Policy Primer No. 7. ‘The Invisible Green Hand.’ October 2008 Link

 

Socialism vs Capitalism

Apr 11, 2009

According to a recent Rasmussen poll, only 53% of those polled say that they believe that capitalism was better than socialism, 27% were unsure, while 20% preferred socialism. Neither capitalism nor socialism were defined. But, before very many of our leaders take this as an endorsement for increased levels of government intrusion and more bailouts, they should consider, how many of these people are actual taxpayers, and how many are likely voters. They may also want to take notice of the large number of people attending proc-capitalist, anti-socialist tea parties across the country. 

Capitalism vs. Socialism
 
But, really if truly defined, how many people would really favor socialism over capitalism? 

According to the Blackwell Encyclopedia of Political Thought, socialism 

“generally argues that economic production has an essential social element as distinct from the individual element , and that this requires public investment and justifies a public share in the distribution of rewards”

According to economist Ludwig von Mises, there are two ‘patterns’ of socialism, the Soviet pattern and the German or Nazi Pattern. 

“where Communism seeks to substitute the state for private ownership, fascism seeks to incorporate or co-opt private ownership into the state apparatus through public-private partnership” see Liberalism vs. Fascism by Roderick T Long

 Economist F.A. Hayek’s ‘The Road to Serfdom’ is essentially a treatise on the rise of socialism in the 20th century. Wikipedia gives a good review of the book: 

“Hayek’s central thesis is that all forms of collectivism lead logically and inevitably to tyranny, and he used the Soviet Union and Nazi Germany as examples of countries which had gone down “the road to serfdom” and reached tyranny.”

 We find a description of Capitalism in the Concise Encyclopedia of Economics:
 
Economic individualism’s basic premise is that the pursuit of self-interest and the right to own private property are morally defensible and legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals (alone or with others) are free to decide where to invest, what to produce or sell, and what prices to charge. There is no natural limit to the range of their efforts in terms of assets, sales, and profits
 

Given this context, the choice between socialism and capitalism can be summed up as a choice between mutually beneficial cooperation with your neighbor ( under capitalism) vs, coercion and servitude in the name of the public interest ( under socialism). 

What Has Capitalism Meant on the Farm: 

When you look around ask yourself, what system is most responsible for your current standard of living. What made the following possible: 

Your tractor, combine, planter, truck etc.   – Capitalism
Your chemicals, fertilizer, and seed choices – Capitalism

Environmentally friendly cost saving and risk management technologies like Roundup Ready and Bt – Capitalism

GPS for precision ag applications and auto-steer technologies – Capitalism

Today’s yields vs. those in the 20’s - Capitalism 

The very act of planting, harvesting, and marketing a crop is – Capitalism
 

What has Socialism Meant to the Country as a whole: 

Social Planning of Interest Rates by the Fed: Instability, uncertainty, the housing bubble, and collapse

 Public Private Partnerships via Fannie and Freddie: Perverse incentives privatized gains and socialized losses, leading to more instability in the housing market.
 
CAFÉ Standards and Overzealous Environmental Regulations: Reduced supply of fossil fuels, volatility in fuel prices, $4.00 gas, bankruptcy of the auto industry.
 

All of these were attempts at the ‘central planning’ and have resulted in loss of prosperity and instability and huge bailouts with taxpayer money. Unfortunately, in these times, it may be leading some to think that the only answer is more government intervention. That is what is so scary about the poll results.
 

Matt Bogard, Economic Sense


REFERENCES:

Rasmussen Reports: Link

Concise Encyclopedia of Economics


Liberalism vs. Fascism
Mises Daily by Roderick T. Long  Link
 
Wikipedia- Link
The Road to Serfdom, 50th anniversary edition, University of Chicago Press, 1994
 
Our SubPrime Fed. Wall Street Journal August 10, 2007

 

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