So you know the post about dairy prices I made a few days ago? The one about how a few online news outlets were claiming that the government’s lack of price supports was about to cause a doubling in the price of dairy?
I just now figured out what is actually going on, via HotAir.com.
Now, either I misread the articles, or they originally implied the government would stop buying milk at a price floor, which would cause the price to double. But the truth is that when you remove a government enforced price floor, prices actually drop. So claims of the prices ‘doubling’ seemed outrageous to me, with just a basic understanding of economics.
This article clears it up nicely. Come January 1st, current dairy laws expire, and the laws from 1949 will take effect, and will set a new higher government subsidized price floor at $40, instead of the current average of $18, thus effectively making the government the best customer for milk, and artificially doubling the demand for dairy.
That is to say, the government will begin spending even more on dairy, and by doing so increase the market price.
So we’re not moving from ‘government intervention’ to ‘free market’ (as some articles I previously read insidiously implied). We’re moving from ‘government subsidies’ to ‘even more government subsidies’, and the prices are set to double for it.
In fact, the original quote I found in this Politico article has already been modified to reflect the truth. I’m glad I quoted it in my first post, or I wouldn’t have evidence of the changes. (wild, huh?) Check it out. It went from this:
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.
Washington’s paralysis even extends to the kitchen table — literally. Milk prices are poised to soar because Congress hasn’t reauthorized the farm bill — an outgrowth of the fiscal cliff crisis. Other commodities could also be hit.
So the original implication was that austerity measures were about to hurt American consumers. The truth is far from it, Politico. This isn’t a budget cut; it is an upcoming government spending increase.
What’s funny, though, is that Politico’s wording is still misleading. When you think ‘fiscal cliff crisis outgrowth’, your natural conclusion would be an upcoming net decrease of government spending on dairy, not an increase of government spending. Way to almost straighten out your facts, Politico.
Honestly, this is a great example of why the free market is so widely mistrusted. It is frequently blamed for being ‘too free’, even in cases where the underlying cause is obviously government interventionism.
One final note: upon further review, unless CNN also updated their dairy article, I did misread something. In part of their article, they claim:
One of them is the dairy subsidy, which expires January 1.
They then move on to say:
the formula for calculating the price the government pays for dairy products reverts back to a 1949 statute. Under that formula, the government would be forced to buy milk at twice today’s price — driving up the cost for everyone.
So either I didn’t read that part, or they modified it after the fact. Either way, I am glad CNN is being honest about government’s interventionism causing problems.