The Price of Subsidies
How much do subsidies actually cost? What is the intrinsic, inherent, implicit, etc...value of having them around? A while back I hit on a subject which has always fascinated me.
Cotton markets are both hugely important and hugely ignored in our agricultural market cornucopia. In spite of the rightful attention to gold, silver, wheat and sugar price spikes in recent months. It is cotton that has made me think hardest.
The following story is a must read for anyone interested in the true inner workings of markets. A peek behind the stage curtain, if you will...
This is for everyone, but especially for the Keynesian.
Unbeknown to most, back in 2004 Brazil won a WTO dispute against the U.S. It seems as though the "Capitalist Americans" were manipulating cotton markets via heavy subsidies of American farmers. Naturally, since the WTO does not and cannot enforce its rulings, the U.S. changed nothing in its approach to market manipulation.
The one thing that the winner of such a dispute has the option of; retaliation via taxation. This punitive tariff can extend across a vast array of industries and create dire side effects.
Brazil chose this option with a great deal of success. Some very powerful American interests stood to lose more than mere pocket change.
Via the magic of our "free-market system" a simple solution was found.
The U.S. would write an annual $147,000,000 check to Brazilian farmers.
Brazil would lay off taxing incoming U.S. goods.
The subsidies of American farmers, would continue.
Business as usual.
As I have written here before, I absolutely love Brazil. Yes, it is for the reasons one might suspect of a gluttonous hedonist...but there is also another side to the coin.
Due to its agricultural and energetic wealth Brazil is uniquely capable of competing with the U.S and (hopefully) of motivating us. The incessant bouts of inflation and hyperinflation have resulted in a far more disciplined and production based approach to fiscal policy. Naturally, the country has a long way to go. But I have seen, heard and felt the drive that once made America great...on my visits to Brazil.
While most of us spend all day talking about China, there's some serious competition brewing in our back yard. Keep your eyes open.
In the words of Pedro Camargo, the former Brazilian trade official and cattle farmer:
We want to compete farmer against farmer
What a novel concept?
Free markets?
The US government interferes with agricultural prices and policy. The US government interferes with energy prices and policy. The US government interferes with healthcare prices and policy. The US government interferes with defense prices and policy (can't blame them on this one). The US government interferes with housing prices and policy. The US government interferes with telecommunications healthcare and policy. The US government interferes with utility prices and policy. The US government interferes with money prices and policy.
Free markets? Think twice.
Maybe its time to build lobbyistoasis.com
I like the public choice economics approach to understanding subsidies (not saying it's 100% correct, but I think it does provide some insights in understanding the politics/economics of it). As a professor of mine once said, "In a democracy, if 10 people want one thing, and 100 want something else, then 10 will often get their way. That's public choice theory." A more concise/convincing way to say this, is that you'll often see "goodies" given out to a small, united group of people, at the expense of the broader, unconnected majority.
This is the golden part of your post; or should I say the cotton part?
When I talk economics with peers of mine, they sometimes heckle my support for a more globalized approach to US competition and my favorable feelings for countries who can possibly gain advantage against the states in trade and growth. To them, it's un-American or... anti-American to think that way, because the US (according to some) is entitled to be the worlds dominant force in every trade sector, nook and cranny. My disagreeing with that opinion (the entitlement) apparently makes me a proponent of anti-capitalist ideology or one who simply does not want to see American success; that's hardly the truth.
My thought resonates with your above quote. BRIC nations (etc.) who can do battle with the US economy would seem to be a good thing (by all standards of what defines capitalism) because it gets Americans and the American economy to adapt to new forecasts. Thus, America stays competitive (or possibly in the #1 spot) because an outside economy is "motivating" business (or farmers) to be "competitive." All of this taken within context, of course.
LOL. Gold. Cotton. What's the difference, James? Just two more bubbling soap derivatives that will be useless in between two slices of bread when push comes to shove...in the bread lines, I mean. Bottom line is we have become fat, lazy and soft. The law of the jungle still applies no matter how far we try and remove ourselves from our animal nature. An organism overly satiated and unchallenged loses it's ability to evolve...adapt...and ultimately...survive. Brazil just happens to be our nearest potential predator.
Love how they have had two full fledged communist presidents in a row and are showing us they way in terms of free-market behavior and idealism. If it wasn't so funny, it really would be sad.
I think your last point illustrates your first perfectly. These two communist presidents are willing to sacrifice what needs sacrificing to keep their nation competitive meanwhile the US wants to make sure every citizen gets an equal pat on the rear and lollipop regardless of what they actually contribute. The willingness of our leaders to cow to the lowest common denominator will be our undoing. I'm just waiting for the day that people can use food stamps to buy tobacco because not allowing them to smoke wouldn't be 'fair and equal' meanwhile the rest of the working population pays for their fucking chemo...
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