It’s an interesting read concerning Obama/Congress’ stalling on reaching a bargain for the fiscal cliff, but one part of the article really irked me:
And with milk prices set to spike to $6 to $8 a gallon come January, Saint Nick may see the average family’s budget cuts affecting his favorite milk-and-cookie spread.
It works like this: In order to keep dairy farmers in businesses, the government agrees to buy milk and other products if the price gets too low. The current agriculture bill has a formula that means the government steps in if the price of milk were to drop by roughly half from its current national average of about $3.65 a gallon.
This is called a price support. When the support is removed, depending on the variety, prices will either fall, the government will save money, or a bit of both.
But, with price floors, consumers pay more for food than they would otherwise, and governments spend heavily to finance the programs. With the target price approach, consumers pay less, but government financing of the program continues. U.S. federal spending for agriculture averaged well over $22 billion per year between 2003 and 2007, roughly $70 per person.
Even if you assume the government is completely efficient in its price supports, so that the cost is passed directly from taxpayer to consumer, $70/12 is… just over $5 a month, or $20 a month per family.
Hardly a catastrophic turn of events. And in return, we’d have a free market in farming subsidies, and less wasteful government spending.
Additionally, this bill doesn’t just involve government paying farmers more to farm land. They’re also getting paid more to not farm land. (maybe I need to get in on this profession?) More via the economics book:
For farmers to receive these payments, they had to agree to remove acres from production and to comply with certain conservation provisions. These restrictions sought to reduce the size of the surplus generated by the target price, which acted as a kind of price floor.
So I have something to say to CNN, CBS, et al: Please stop being alarmist about the expiration of statist market interventions.
It might just be that prices will go down without government payments, and restrictions to prevent surpluses.
Either way, you’re paying more now than you would after the price supports are removed. With price supports, you pay for government intervention, regulation, and paperwork in addition to the cost of the product. Without price supports, you pay for the cost of the product. (and the least efficient farmers get weeded out by competition)
* Milk + government subsidies + hidden paperwork costs
I’ll take my milk straight… thanks anyway!
And if you are interested, I recommend checking out Stossel’s video on the subject. Embedded video below.
Check out my new post with clarifications, as well as an examination of Politico’s modifications to its own article.