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May 2009 Archive for Economic Sense

RSS By: Matt Bogard, AgWeb.com

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

More Regulation for Global Agriculture

May 24, 2009
According to an ACES news release entitled 'Globalized Agriculture Requires Regulation'  from the University of Illinois , freedom and liberty in the ag sector are likely to see some major restrictions in the next few years.

"We may well see increasing public control by human decision-makers over almost every detail of food production, marketing, and distribution"   according to the release.

The justification for the increased restrictions and limits on the way we farm sound eerily similar to the justifications for increased regulation and outright government takeover of other industries in the past.  Of course as always, the justification for more government intrusion into our lives is based on the public interest:

"We'll have a change of public policy relating to the actions of individuals through the entire system to a level we've never seen before,the public interest is larger than that of any individual if it is determined through democratic decisions."

Wow! Of course, thankfully (hopefully) in the United States we have a Constitutional Republic instead of just a democracy.  Democratic decisions make the public interest 'larger' than the 'individual' only if they are consistent with the limited powers specifically laid out in the constitution. Our system was set up specifically to protect the individual from the so called 'public interest' or tyranny as it was known in the days of our founders.  Of course these protections have not prevented the destruction of the banking and auto industries and takeover by government.  I don't remember an initiative by anyone to amend the constitution to make these takeovers and the regulations and interventions that destroyed these industries constitutional.

The idea that 'the public interest is larger than that of any individual' has been the central dogma of collectivist ideology and some of the most tyrannical regimes in history.  The current state of affairs and the attitudes sweeping the nation are described in Ayn Rand's Atlas Shrugged. Rand describes this 'public interest' mentality for what it really is:

"Who is the public? What does it hold as its good? ... If it is now believed that my fellow man may sacrifice me in any manner they please for the sake of whatever they deem to be their own good, if they believe that they may seize my property simply because they need it-well so does any burglar. There is only one difference: the burglar does not ask me to sanction his act."

The acts of a burglar cannot be sanctioned by any democratic process any more than the same act carried out by government.  ( which again is why our constitution limits what we can put subject to a vote)  I think however, just as happened under Roosevelt and Carter, these failed  'public interest' philosophies  will prove ineffective. No matter how great our leaders, how genuine their intentions, because government relies on the limited knowledge and preferences of a few voters, bureaucrats, or elected officials, it never has adequate information for effectively running our lives at the micro level. Whether it is health care, automobiles, or feeding the world, only markets have proven capable of producing adequate information and incentives for allocating resources to their best possible use. Public private partnerships only confuse matters more.

Hopefully, we won't have to wast a decade mired in stagnation while we rediscover the basic principles of individualism, freedom, and liberty that made this country so exceptional.

To quote from the FFA Creed:

"I believe that American agriculture can and will hold true to the best traditions of our national life."

The link for the article ( ACES News: Globalized Agriculture Requires Regulation)  can be found here.

Matt Bogard, Economic Sense

Supply, Demand, Steak, and Freedom

May 17, 2009
Lots of people are critical of modern( a.k.a. 'industrial', 'science-based' etc)  agriculture because they feel that it consumes vast amounts of resources and is harmful to the environment compared to more the antiquated and less productive methods of the past. They often fall prey to the 'eat a steak, starve an African' fallacy. It is not just because they fail to understand the science of agriculture, but it is also a lack of understanding of economics that leads them to hold such strong opinions.

One of the most fundamental tools or concepts from economics that would help clear this up is the concept of supply and demand. Many may have heard these terms in a high school economics class, in the news, or maybe in a college course.
(Click here for  supply/demand diagram)

Unfortunately, many come to believe that it is just a 'catch phrase' or a hypothetical technique for determining the hypothetical price of a good. Without a proper understanding of supply and demand, many people fail to see that these concepts provide the fundamental framework and principles upon which a free society is based.

For example, when you choose to consume steak, you choose to do so because it provides certain benefits to you. It provides nutrition and a consuming experience, and the benefit that you get as a FREE individual exercising your FREEDOM to CHOOSE beef. You pay a price that is at least equal to the value of the benefits you get from freely choosing to consume steak. These marginal benefits can be represented in essence by a downward sloping demand curve.

On the other side of the coin, in order to produce the steak, feed, labor, fossil fuels, and water among other scarce resources had to be used. These 'marginal' costs are reflected in the supply curve. These costs are reflected in the price the producers ( from pasture to plate)  receive for the beef they have produced.

In a FREE society, the price you pay for the steak balances the benefits you get from consuming the steak with the cost imposed on society to produce that steak. In this way, prices play a very important role in social coordination. As a result, individuals acting in their own self interest produce a 'spontaneous order' that benefits society as a whole. In a FREE society, with every choice we make, the price system ensures that we consider the impact our choices may have on others. In other words, in a FREE society you can have your steak and eat it too, without developing Orthorexia ( see this link to a great post by Mr. Steve Cornett on AgWeb and an update here) .

However, in order for this to work, people must be FREE to CHOOSE. This freedom must not be impeded by overzealous environmental regulations or excessive taxation. We've witnessed this first hand with regard to the auto industry and the housing and financial crisis.  I fear that we will see a more direct impact in agriculture if the discussions we are hearing about climate change legislation result in more restricted freedoms on the farm and the dinner plate.

Matt Bogard, Economic Sense

Beyond Getting from Point A to Point B

May 05, 2009
I keep going back to this because I fear for the future of the agriculture industry, the same fate that the auto industry has suffered at the hand of collectivism and government intervention. Who would have thought that something as strong, independent, and  'American' as the auto industry would be in the state that is today? Who today would think that sometime in the future Americans would no longer be able to produce the food necessary to feed themselves, affordably? As we have seen with the auto industry, and as we have seen everywhere else in the world, when industry becomes overburdened with regulation and control by government, when markets no longer dictate production, chaos ensues.

Given what has happened to the auto industry, we should not be naive to think that it couldn't happen in agriculture as well.  What's wrong with Detroit? One thing we keep hearing over and over is that they built a lot of cars that Americans didn't want. I wonder if will they someday say of Agriculture that in our focus on 'biotech' we produced foods that Americans didn't want?

Regardless of how we got here, the relevant question is how do we restore profitability to the auto industry. What made SUVs so popular? Oddly enough, this reminds me of a quote from the popular movie 'Pirates of the Carribean'.

'Wherever we want to go, we go. That's what a ship is, you know. It's not just a keel and a hull and sails; that's what a ship needs. Not what a ship is. What the Black Pearl really is, is freedom.'

The same holds for the SUV. The SUV is more than just a box with wheels that gets you from point A to point B. The SUV represents the American Dream, it represents individuality and independence.  Freedom. For this reason, Americans were willing to make huge payments and pay huge prices, sometimes taking out home equity loans to get these things. Even if your old car was mechanically sound, the appeal of the SUV was such that you were willing to go out and buy one anyway. It is this behavior by Americans that kept Detroit profitable and kept union workers on the job. They built these things because we wanted them. 

The SUV was antithetic to those with a collectivist worldview. We would often hear that 'Americans need to end the love affair with the automobile.' Well, the collectivists seem to have forced this upon us, and destroyed the auto industry in the process. No matter how many bailouts, if they reduce the automobile to simply a 'box with wheels' like the Prius, Smart Car or something made by Fiat, Americans won't be rushing to buy like they were with the SUV. If getting from point A to B is all that matters, I'd say we'll keep our jalopes on the road as long as possible before we buy something that looks like a go-cart. Until the industry is once again allowed to build cars according to the preferences revealed by the consumer, and we have an energy policy that is complimentary to the profitability of trucks and SUVs, it will never be the same again.

Instead, it seems that congress is doing everything it can not to revive auto sales. Instead of relaxing CAFE standards, they have made them stronger. On the table now is a cap and trade / carbon tax scheme that will increase fuel costs even more. More of the same failed policies. 

What if the same collectivists (progressives?) started saying somehting like: 'Americans need to end their love affair with Beef or Corn or Milk or Pork' etc. The truth is, just as driving an SUV represents more than just getting from point A to point B, eating beef is more than meeting our vitamin and protein requirements. Food is  more than sustenance. Just as freedom dicatates that we are able to choose the cars we want to drive and go where we want to go, it also dictates that we choose the crops we grow and the foods we eat. This liberty we take in our personal lives is also antithetic to the collectivist view, and I look for it to come under more and more scrutiny in the future as this philosophy grips the nation. Once we let our guard down in one industry, all are vulnerable.
Matt Bogard, Economic Sense
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