Quotes of the Day: “Government price-fixing once started, has alike no justice and no end. It is an economic folly from which this country has every right to be spared.” -- Calvin Coolidge, 30th US President Source: veto of two bills establishing federal controls over agricultural commodities

"If we didn't have $21 milk last year, we wouldn't have $9 milk this year." - John Kaneb

Subject: Milking us dry

The politicians keep making big claims about how their big plans are going to achieve big results for the economy. Those tempted to believe these claims may first want to consider how well the government does with their smaller schemes. For instance . . .

Did you know that the government sets minimum prices for milk? They claim that unregulated milk prices would fluctuate wildly, but consider these wild price fluctuations . . .

The 2008 producer's minimum price of milk approached $21 per hundredweight, about five dollars more than the cost of production. This month, it's below $9.43, falling more than $6 in two months.

How are such wild fluctuations possible given that we have government regulations designed to prevent them?

Well, reality always makes itself felt despite the best laid plans of social engineers. We're in a recession, so demand for milk is low. But prices are also down because the government's strange formula for determining the price spurred over-production last year. 

At the same time, droughts in California escalated feed prices, increasing the cost of milk production. Now, the government's formula for setting the "minimum price" of milk is far below the cost of production. As a result, dairy cattle are being sold for hamburger in record numbers - at a loss!

Today, the government's fixed price is encouraging under-production. But over-production, and high prices, have been the rule for decades. It's estimated that government price-fixing has historically kept the cost of drinking milk 20% above market value, imposing a huge tax amounting to hundreds of dollars a year on low-income families.

But the government's price-fixing applies only to Grade A milk, which must be safe enough to drink. Grade B milk is safe for manufactured foods, is cheaper to produce, and has no fixed price. So . . .

When farmers found that it was more profitable to produce Grade A milk because of the fixed price they overproduced the Grade A variety, which then supplanted Grade B for use in manufactured foods.  This made processed foods more expensive, not more safe. This is another tax we all pay, and which hurts low-income families the most.

Aren't you glad we have the government to protect us from the free market?

There are simply too many things that determine prices - factors that price-fixing boards can neither predict nor control. Their ignorance of these factors must always be vastly larger than their knowledge. This means their price fixing schemes can never work.

Sadly, the milk example only scratches the surface. For every regulation intended to help the small producer, there's another that increases their costs while benefiting big Agri-Business. The National Animal Identification System is yet another example.

Indeed, 90% of dairy farms have disappeared over the past 40 years, and this year's low prices will run more dairies out of business, creating even more unemployment during a recession.

This is the nature of price-fixing, and of regulation in general. Such schemes protect some businesses some of the time, gouge most consumers most of the time, and make the economy less productive all of the time. Everyone suffers, especially the poor.

Do you still want to trust the big claims being made about the politicians' big plans to save the economy? If they've made such a mess of the milk industry, just imagine what they're doing to the economy as a whole.

Tell Congress that you don't trust their plans. Use our quick and easy Educate the Powerful System to send a message on our Reduce Regulations campaign.

Tell Congress you want fewer regulations and price fixing schemes, not more. You can paste this Dispatch into the personal comments as back-up for your request.

Thank-you for being a DC Downsizer.

Sincerely,

James Wilson
Assistant to the President
DownsizeDC.org