Category Archives: Economics

A harvest of disgrace: Congress at its worst

Such was the title and subtitle of an article in the May 24th 2008 edition of The Economist.  The author lambasted the recent passage of the 2007 farm bill sent to George Bush’s desk.  “Through a complicated and overlapping system of government-sponsored insurance, counter-cyclical assistance, disater aid and legacy payments tied to nothing, the five-year, $307 billion bill lavishes cash on wealthy farm households…”

The bill also linked future subsidies to current commodity prices which are at record highs.  This means that “if and when prices dip again,” the government will be coughing up billion of dollars to farmers.

The article continues, “Most legislators probably know the farm bill is a disgrace, but they voted for it overwhelmingly anyway, revealing the cynical genius of the farm lobby.”  Thankfully, it was vetoed by George Bush, but the projection is that there are enough votes in Congress (both Democrats and Republicans alike) to override the veto.  The Economist makes note that John McCain voted against the bill; Obama did not.

Senator Obama, if this is what you mean when you say that John McCain would continue for four more years Bush’s economic policies, then I’m thankful McCain is in the running.  I suspect, however, that your assertion is not so much a precise and nuanced commentary as a vague attack that employs the current strong anti-Bush sentiment.  But that’s okay.  That’s how politics works, right?

I will grant that my perspective on economic policy is greatly influenced by the editors of The Economist.  However, at a visceral level, I agree with the atrocity of the farm bill.  Using simple logic, why should today’s record-high prices for foodstuffs be guaranteed to farmers in the future at the taxpayer’s expense?

On the political level, why are there farm subsidies anyway?  I can understand their use when farming was a small, generally family-owned venture, and small-farmers could easily be wiped out by a poor harvest.  But given the massive power and influence of today’s farmers, one would think that part of the industry of farming is learning to deal with some good years, some poor years.  Nobody forces a person to become a farmer. 

At an economic level, how can subsidies be good?  By guaranteeing future prices and subsidies to farmers, the government is in effect raising the price of food for everyone.  The common taxpayer will be supplementing the income of farmers on a bad year, whereas the farmers will make a killing on a good year.  This is akin to taxpayers’ taking on the risk when a private financial institution (like Northern Rock) collapses and is bailed out by the government.  Private investors (or farmers) benefiit when things go well, but the taxpayer BearS the burden when things sour.

Futhermore, subsidies are like throwing a handful of nuts and bolts into a well-greased machine.  What used to operate smoothly and efficiently now gets choked up and distorted.  I hate to say it, but this is the beauty of rising oil prices.  People feel the pinch, and it changes behaviors.  (See accompanying chart from The Economist showing the sales of light trucks this year compared to a year ago.  This warms my heart.)  Money is a wonderful motivator, but if the government began subsidizing oil and offered rebates for truck-buyers, this would amputate the invisible hand, so to speak.  Nobody wants a creepy, severed hand unless it grants wishes.  Even then, it’s probably not a good idea.  But I digress.

This leads to the final perspective: the moral one.  Rising food prices are obviously related to non-free-market policies endorsed by the United States government and clung to by farmers.  They are paid extra to grow corn for ethanol, which takes a lot of water to produce and distorts the price of corn.  My readers will know I’m not a bleeding heart liberal when I say that I’m frankly not as worried about poor Americans.  To cope with rising food prices, many have several options:

  1. Stop eating at McDonalds
  2. Make food at home
  3. Cancel the cable television and cell-phone subscription services
  4. Stop going to the movies; rent a video instead

In reality, I’m suggesting that we all may just have to adjust to a slightly lower standard of living.  Ouch.  But mainly I’m worried about the billion people or so who live on $1.25 per day.  A thirty percent increase in food prices doesn’t mean fewer Happy Meals and fewer “anytime minutes”; it mean more malnutrition, disease, and death.  By doing away with farm subsidies, we can save lives.

For these reasons, come November I may prefer another four years of George Bush’s economic policies to change.  I welcome comments that challenge me, or ones that help me to see the broader benefit that farm subsidies offer.

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Filed under Economics, The Economist

Prophecy fulfilled

Several years ago I told my younger cousin Peter to consider getting a Honda Civic.  His two older brothers, while in high school, had both gone with large trucks.  I thought Peter, with a bit of sage advice and a dash of foresight, might see the wisdom of this decision.  He went with a pickup truck.

This article made me once again start thinking about gasoline prices.  In fact, I’ve already addressed this issue in a previous post on the blog, but gasoline prices at $4.00 per gallon before the busy summer season once again push this issue to prominence.

Two years ago, there was concern of price gouging in the wake of Hurricane Katrina.  I think the general population has now realized that skyrocketing prices are merely the result of simple supply-and-demand economics.  More people (including that big country in the East) want a limited supply of oil, and therefore the price increases until demand matches supply.

On the domestic front, I get the sense that we’ve reached a tipping point at which people begin to modify their behavior in light of the economic consequences.  More families might consider getting by with the smallest car feasible rather than the largest SUV they can afford.  The business commuter might make a larger effort to carpool or *gasp* ride public transportation.  The shopper might plan his outing more carefully and consolidate several errands into one trip.  City planners and homeowners may begin to revisit the idea of a walkable community, where kids can walk to school and the grocery store is only a ten-minute walk from home.

The problem, I recently read, is not high gas prices.  The problem is that we’ve grown accustomed to very low gasoline prices compared to the rest of the world, and we’ve become so entrenched in the resulting behaviors that it’s difficult to adapt when prices begin to equalize.  This is nothing that a summer gas-tax holiday can fix, Hillary.  Rather, perhaps we should let the rising prices fix us.

I should probably end this post on that nice rhetorical flourish, but one more thought crossed my mind.  With the constant news of bankrupt airlines and the recent decision of American Airlines to begin charging $15 for the first piece of checked luggage, should we worry about the state of air travel in this country?

No, we should worry about ourselves that we’ve grown accustomed to the idea of cheap air travel.  In the 1950s and 1960s, air travel was the privilege of  the few, not the masses.  I suppose it was the prosperity (and the relatively cheap oil) of the 80s and 90s that extended the ability to fly to nearly everyone in this country.    But we now recognize that burning jet fuel not only is extremely polluting; it also takes a lot of oil.  I believe what we are seeing is simply a righting of distorted economics.  Prices must increase.  Fewer people will fly.  Airlines will cut back their schedules.  And the most efficient airlines will be able to offer the most competitive prices and be rewarded with staying afloat, while those flying older fleets or who have inefficient operations will go out of business.

All of this is not a bad thing.  It’s the world we live in, and we will simply have to adapt to a realistic perspective on it.

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Filed under Economics, Musings

Thank you, Ganden Thurman

Not too long ago, I was read with interest this letter to the editor of the free daily amNew York:

U.S. deserves better health care
Our health care system and the health of the general population of our country are a disgrace–plain and simple. It’s high time the government lived up to its constitutional duty to tend to “the welfare of the people” they are supposed to represent. Please grow up and tend to the issues at hand directly rather than blithering about such gross pseudo concepts such as globalization, privatization and capitalism. None of these abstractions has anything to do with our jobs, our country and its potential to become a more perfect union.

Ganden Thurman, Manhattan

Goodness, where to begin?

  • I would argue that it is not axiomatic that the United States’ health care system is a disgrace. By many measures we have a very effective and cutting edge medical system. (Anyone care to get an elective gallbladder done in Canada or Britain? That’s right…you’ll have to wait. A long time. That is, unless you have money to go the private route, I’d assume.) Yes, one might argue that the richest nation in the world should provide health insurance or coverage to every citizen. This is not, however, an inalienable right granted by our constitution, and I think its time we stop treating it as such. In other words, discussions about universal health coverage should begin, “Since we’ve progressed to where we are as a nation, let us consider as a society the advantages and disadvantages of providing universal health insurance to all citizens,” not, “Our health care system is a disgrace.”
  • I might agree with you that the health of the general population is a disgrace. The difference, however, is to whom to assign blame. You clearly blame the government. I, from my humble 6 years in the field of medicine, blame the population. People who make bad choices and then expect the government to fix the problem are dead weight on society. If every American ate appropriately, exercised 30 minutes a day 4 to 5 days per week, stopped smoking, did not abuse drugs, drank alcohol in moderation, and followed his doctor’s recommendations, I suspect that the Medicare coffers would burst at the seams. So perhaps that righteous indignation, sir, should be focused not on the government but on our societal sloth and excesses.
  • “Welfare of the people.” Constitutionally, this includes life, liberty, the pursuit of happiness, universal health insurance, cable television, and fewer dropped calls.
  • “It’s high time the government [took care of the people] they are supposed to represent.” If you’re going to write a letter to the editor, please proofread it, or at least ask a friend to edit it. A sixth grader should know that the proper pronoun for “government” is “it,” not “they.” (Sorry, I’m getting tacky here.)
  • This is where it gets fun. The government is instructed to “grow up.” Fair enough.
  • “…[stop] blithering about such pseudo concepts such as globalization, privatization and capitalism. None of these abstractions has anything to do with our jobs, our country…” This makes me smile every time I read it. There’s a story about an economist who visits China during Chairman Mao’s regime. There he sees one hundred men digging a pit, while a backhoe sits unused. On asking why they don’t simply use the backhoe to dig the pit much more quickly, the Chairman explains that then the men would be out of work. The economist replies, “Oh, well then if its work you’re looking for, why not have the men dig with spoons?” The anecdote illustrates the difference between work and productivity, abstractions that have everything to do with our jobs and why our country is even at the place where we can talk about universal health insurance. People that don’t grasp the difference between work and productivity, or between income and wealth, are the same people who think raising minimum wage helps poor people, that outsourcing hurts our economy, and that Wal-Mart has made people poorer, not wealthier. These are mindsets that, sadly, I cannot deconstruct in one post. But yes, Ganden Thurman, globalization and capitalism have everything to do with our jobs and our country.

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Filed under Economics, Health care