I ran across the following article a few weeks ago and decided to save it for later. It turns out that the Recovery and Reinvestment Act, otherwise known as the stimulus, contains money to pay farmers for killing dairy cows to reduce the supply of milk and cause an increase in the price of milk at the grocery store. How paying farmers to kill dairy cows is an “investment” in infrastructure or creates jobs isn’t clear to me. It would probably take a United States Senator with a law degree who never had a job outside of “public service” to explain the process.
Meanwhile, I’ve been reading, “The Forgotten Man” a new history of the Great Depression by Amity Shales. The title, appropriated by FDR, comes from an essay by William Graham Sumner some 60 years or so before the Great Depression. The opening line of Sumner’s essay is;
“The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the Forgotten Man.”
Interestingly enough, killing farm animals to increase prices is not a new idea. In 1933, while one in five Americans were out of work and people went hungry, the Federal government slaughtered 6,000,000 pigs for the expressed purpose of increasing the price of pork.
This is known as “demand side” economic theory. The idea is that by reducing supply, demand increases and increased demand supports prices. Of course, demand side theory doesn’t explain how people without jobs can afford to buy anything. Demand side theory also fails to recognize that nothing can be bought or consumed until something is produced. Capital fuels innovation and business formation. Businesses create jobs. Government is overhead.
We are in the aftermath of a worldwide, government created, credit bubble. The only way economic growth will be restored is by deleveraging and re-capitalizing. Average Americans and businesses are doing that. They are reducing spending, paying off credit cards and saving. Government is determined, as in the 1930’s to prolong our agony by going on an historic spending binge using borrowed money. Borrowing on the scale that the government is considering must result in hyperinflation and at some time in the near future, sharply increased taxes to pay the debt.
The period known as “The Great Depression” in America was known simply as “The Depression” in Europe. The Europeans didn’t receive the benefits of the New Deal so their downturn didn’t last a decade as ours did. The Europeans didn’t declare a trade war either. Except for retaliation against America for the Smoot-Hawley Tariff, Europeans continued to trade. By the way, did I mention the “Buy American” provisions of the stimulus bill?
So, it would seem that under the watchful eye of Barack Obama, Nancy Pelosi (A) and David Obey (B) have decided that you (C) should pay more for milk to help dairy farmer (D). You may soon be unable to afford a gallon of milk but at least now you know who you are; “The Forgotten Man”.
Stimulus may bolster dairy industry
FALLING MILK PRICES: Initial effort to pay farmers to retire cows fizzles
By MARC HELLER
TIMES WASHINGTON CORRESPONDENT
THURSDAY, JANUARY 15, 2009