Finally, an Explanation

by Dave Schuler on December 31, 2012

James Bovard, writing in the Wall Street Journal, is mau-mauing over the impending lapse of the existing price support system for milk. Here’s how the stupid system that has prevailed for 80 years works:

Current farm programs—which consist of massive subsides, price supports and various marketing restrictions—were enacted in 2008 and expire on Dec. 31. That should be cause for rejoicing, except that the system is rigged against consumers and taxpayers.

But here’s the problem:

Instead of Americans enjoying a bounty after the clock runs out, federal farm policy will automatically revert to a farm bill drawn up in 1949. That will compel the Department of Agriculture to roughly double the price supports for dairy and other farm products thanks to a mystical doctrine called “parity.”

The doctrine was concocted by Department of Agriculture economists in the 1920s to “prove” that farmers were entitled to higher prices than the market provided. The official parity calculation was based on the ratio of farm prices to nonfarm prices between 1910 and 1914, the most prosperous non-wartime years for farmers in American history.

If the market price of milk, for example, fell below parity, the Department of Agriculture intervened in markets in various ways to provide a price floor to benefit dairy producers. This mechanism has been in place for generations, gouging taxpayers and consumers, long after full-time farmers became far wealthier than average Americans.

Okay, now I understand what they’re worried about. I’m not as confident that “the price of milk and other dairy products will soar”. As to the concern of Ag Sec Tom Vilsack, formerly governor of Iowa where dairy farming comprises a hefty proportion of the economy, I think that one should keep in mind that the Department of Agriculture has schizophrenia. On the one hand, it’s supposed to have the consumers’ best interests at heart. That’s the reason for all those USDA stickers on meat and poultry.

On the other hand, the department is supposed to promote the interests of farmers and the agriculture industry. It has been alleged that the department suffers from regulatory capture, i.e. while paying lip service to the interests of consumers it actually promotes the interests of producers.

The story of the last several decades is fewer and fewer dairy farmers producing more and more milk. Large concerns (and high land prices) have driven small dairy farms out of business. Today dairy prices are falling and surpluses are growing. I’d really like to know which voice of the Department of Agriculture is speaking in these warnings. Is it the side that wants to keep prices low for the consumer or the side that wants to continue the subsidies for the producers?

I’ve got a wacky solution to the problem: get rid of the 1949 law that would kick in if the subsidies weren’t restored. Crazy, I know.

{ 1 comment… read it below or add one }

Steve Verdon December 31, 2012 at 12:15 pm

Why do we even have a Department of Agriculture? Seriously, just put a stake through its heart, stuff its mouth with garlic and rejoice.

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