"Food is a basic necessity. Transportation is a basic need in wartime. Nothing you list is. I can listen to old school punk, use paper clicps, ignore blogs, crap in the back yard, and eat my pets all before I can go without food."
Suppose this argument was valid: In order to transport food, we need cars. So the car industry is a "basic nessesity", and it requires subsidies to prop up. But cars require rubber, steel, aluminum,...etc. Using this logic, it is easy to justify anything as a nationally vital industry. This is clearly not true, so the assumption must be false.
"While I am not entirely supportive of the agricultural subsidies, their rationale is a little better than that. By subsidizing farmers to not grow crops (but maintain the cropland), they stabilize prices. Without the subsidies, produce prices would plummet, farmers, even large scale agribusinness, would bankrupt, then food prices would skyrocket. For examples, look at the leadup to the Great Depression or current problems with unstable food and coffee export prices in Ethiopia. By maintaining surplus cropland, the subsidies can be revoked if food prices suddenly go up, such as because of crop disease or drought."
That is unbelievably simplistic. Faced with the massive price collapse, a farmer could reason that by taking out a loan to maintain his farm, he could sell his goods for a massive profit the next year because all the other farmers will be out of business. however, before he can take out a loan from a bank, he needs to establish a rational to the bank for his loan.
The Bank would look at the prices of futures contracts in the farmers crops over the next growing season, and if they were high enough to justify the cost of the maintaining the farm and generated a better return than bonds, The Bank would gladly give the loan.
Futures contract pricing is determined by the market, which would look at indicators such as bank loan volume and equipment sales in order to gauge how many farmers plan to farm next year. As more farmers apply for loans, future contract prices go down, and less farmers loans are approved. Overall, there are less farmers then we begun with, and prices will go down. However, prices will stabilize at this level, and will not 'skyrocket'.
Future markets provide a very smooth transition, a year in advance, from previous subsidy inflated production levels , to realistic market supported production. Efficient markets do a fine job at stabilizing prices.
This process requires a great deal of information and financial infrastructure, so it is not surprising that this failed to occur during the Great Depression or Ethiopia. But our nation has the best information services and financial infrastructure in the world, so I fail to see your concern.
It could still be helpful, just not for humans. If we quickly need to vaccinate every chicken in Angola against avian flu, we would tolerate a couple chickens dieing of overdose in exchange for massively cheaper cost.
Tough shit, if profits are so razor thin, get another job in a city. I have no romantic ideal of farm life, and I couldnt care less if every farmer in America left his field to rot. I especily wont subsidise their inefficient lifestyle at the expense of the very survival of millions of African farmers.
As for your foreign country argument, we live in a globalised world, if anything was cathostrophic enough to cause global destruction of crops around the world, US food production would be simularmy incapacitated.
So we need to counter stupidity with stupidity? We need to truely level the playing feild, by ending all energy subsidys.
One thing the goverment can do is regulate their own consumption. My local police force patrol in SUVs, as do army recruiters, etc. A law that forced all entitys that recieve federal government funds to get X milege would be great.
I think you misconstrue your definition of rational. Even rats have been shown to be "rational" in the economic sense, other than some trivial mis-calculations of risk.
Contracts can never perfectly be enforced; just like transport costs will never be zero and there will never be perfect information, other assumptions of the free market.
It is still a standard we should strive for, and if externalitys are accounted for, then it is the best system I can think of. Unless you care to propose a better one.
Let me clarify, insurance premiums in a free market will converge to expected cost; But it is still signifigantly different from "saving". Recall from statistics that expected value is only an average, and if the standard deviation is large(true in this case), then paying for insurance becomes economicly viable.
"Or the insurance company can "lose" your premium cheque, and cite non-payment as a reason to drop your policy. Never assume good faith on the part of insurance companies, it's a bad wager."
One of the assumptions of the free market is that contracts are perfectly enforced, and I assume any contract includes that they cannot do this. If a company fails to act in "good faith", free market economics dictates for their prosecution. This is a problem of law enforement, not economics.
"Because that is the function of insurance; to spread uneven risk over a large group. If you don't like that, don't buy into an insurance collective in the first place."
Or, he has the freedom to pick an insurance that charges more for high-risk patients, and can consequently charge much lower premiums.
The free market can still work under limited information. Life insurance is subject to the principal agent problem also, but it seems to work nicely.
Also, goverments will have the same problem as markets in distributing costs, along with a host of incentive issues. That a goverment program would do better is not obvious.
You can't really say that giving money to an inefficient company helps the economy, it might trigger inflation, or distort the market, but it does not help the economy.
This is what Ford did, and that policy can sometimes be wise. The problem is that after Ford left the company, and they no longer needed low turnover, they kept the wages up, and passed all savings on to the worker instead of the consumer.
That economically makes sense, he decided to pay more in order to get a higher quality of workers necessary for a new industry. There is very little "care" here. The problem is that after the industry matured, and he no longer needed skilled labor, the company still kept an abnormally high wage.
It works for a short amount of time, mostly because they were quickly buoyed by large government contracts. After the Korean War things began to unravel.
The problem with American car companies is that when ever they figured out how to make a car cheaper, they passed the money on to the employees, instead of the consumer or into R&D for the company.
This led to overpaid under motivated employees and uninspiring and expensive cars. The other American car companies did the same thing, so it was not a problem.
But Japanese car companies actually care about making cars, so when they were allowed in, they quickly grabbed market share.
My family is from a nation where there are large tariffs on nearly everything (Israel). There is significant smuggling, it is actually what provides their mafia with most of their funds.
Besides, your argument "it worked in the past" falls short, because there is a reason jobs moved overseas now and not earlier. New technologies have made transport costs plummet. Because of this, the price gap between two goods of the same quality from different countries is extremely large.
You want an example of an extremely profitable high margin product that ends up on American streets despite billions of dollars of preventative measures and a worldwide crackdown? Cocaine.
There is a lot of that, but it is similar to Mexican workers in Houston. Basic market forces keep wages to an acceptable level, otherwise the workers move back.
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What disturbs me about that, is that I can't imagine what he flubbed up. He really meant to say that.
"Food is a basic necessity. Transportation is a basic need in wartime. Nothing you list is. I can listen to old school punk, use paper clicps, ignore blogs, crap in the back yard, and eat my pets all before I can go without food." Suppose this argument was valid: In order to transport food, we need cars. So the car industry is a "basic nessesity", and it requires subsidies to prop up. But cars require rubber, steel, aluminum, ...etc. Using this logic, it is easy to justify anything as a nationally vital industry. This is clearly not true, so the assumption must be false.
The Bank would look at the prices of futures contracts in the farmers crops over the next growing season, and if they were high enough to justify the cost of the maintaining the farm and generated a better return than bonds, The Bank would gladly give the loan.
Futures contract pricing is determined by the market, which would look at indicators such as bank loan volume and equipment sales in order to gauge how many farmers plan to farm next year. As more farmers apply for loans, future contract prices go down, and less farmers loans are approved. Overall, there are less farmers then we begun with, and prices will go down. However, prices will stabilize at this level, and will not 'skyrocket'.
Future markets provide a very smooth transition, a year in advance, from previous subsidy inflated production levels , to realistic market supported production. Efficient markets do a fine job at stabilizing prices.
This process requires a great deal of information and financial infrastructure, so it is not surprising that this failed to occur during the Great Depression or Ethiopia. But our nation has the best information services and financial infrastructure in the world, so I fail to see your concern.
It could still be helpful, just not for humans. If we quickly need to vaccinate every chicken in Angola against avian flu, we would tolerate a couple chickens dieing of overdose in exchange for massively cheaper cost.
Vaccine doses need to be tightly regulated. What if someone is bit twice?
As for your foreign country argument, we live in a globalised world, if anything was cathostrophic enough to cause global destruction of crops around the world, US food production would be simularmy incapacitated.
Wouldnt it be cheaper to just stockpile grain in a strategic reserve, like we do with oil?
I'm visiting in France right now, and the coke I buy here has corn syrup.
One thing the goverment can do is regulate their own consumption. My local police force patrol in SUVs, as do army recruiters, etc. A law that forced all entitys that recieve federal government funds to get X milege would be great.
Last estimate I saw was 400 billion
Explain that one
Contracts can never perfectly be enforced; just like transport costs will never be zero and there will never be perfect information, other assumptions of the free market.
It is still a standard we should strive for, and if externalitys are accounted for, then it is the best system I can think of. Unless you care to propose a better one.
Good point, sorry if my language was inflamitory.
Let me clarify, insurance premiums in a free market will converge to expected cost; But it is still signifigantly different from "saving". Recall from statistics that expected value is only an average, and if the standard deviation is large(true in this case), then paying for insurance becomes economicly viable.
One of the assumptions of the free market is that contracts are perfectly enforced, and I assume any contract includes that they cannot do this. If a company fails to act in "good faith", free market economics dictates for their prosecution. This is a problem of law enforement, not economics.
"Because that is the function of insurance; to spread uneven risk over a large group. If you don't like that, don't buy into an insurance collective in the first place."
Or, he has the freedom to pick an insurance that charges more for high-risk patients, and can consequently charge much lower premiums.
Do you buy any good in such a way? The costs of your trea tment do not effect your consumption, and this is why costs spiral.
Also, goverments will have the same problem as markets in distributing costs, along with a host of incentive issues. That a goverment program would do better is not obvious.
You can't really say that giving money to an inefficient company helps the economy, it might trigger inflation, or distort the market, but it does not help the economy.
Or the Employees could um... quit there jobs and work somewhere else.
This is what Ford did, and that policy can sometimes be wise. The problem is that after Ford left the company, and they no longer needed low turnover, they kept the wages up, and passed all savings on to the worker instead of the consumer.
That economically makes sense, he decided to pay more in order to get a higher quality of workers necessary for a new industry. There is very little "care" here. The problem is that after the industry matured, and he no longer needed skilled labor, the company still kept an abnormally high wage.
The problem with American car companies is that when ever they figured out how to make a car cheaper, they passed the money on to the employees, instead of the consumer or into R&D for the company.
This led to overpaid under motivated employees and uninspiring and expensive cars. The other American car companies did the same thing, so it was not a problem.
But Japanese car companies actually care about making cars, so when they were allowed in, they quickly grabbed market share.
Besides, your argument "it worked in the past" falls short, because there is a reason jobs moved overseas now and not earlier. New technologies have made transport costs plummet. Because of this, the price gap between two goods of the same quality from different countries is extremely large.
You want an example of an extremely profitable high margin product that ends up on American streets despite billions of dollars of preventative measures and a worldwide crackdown? Cocaine.
There is a lot of that, but it is similar to Mexican workers in Houston. Basic market forces keep wages to an acceptable level, otherwise the workers move back.
Then you have a very screwed up sense of morality.