Wednesday, November 14, 2007

The source of inflation

these days is government distortions of markets. What is true for subsidized healthcare and education is also true for food:
Milk now costs $3 a gallon in many states. Eggs, oranges, peas, tomatoes and rice are selling at or near all-time highs. The biggest winners have been corn producers, as corn prices have doubled in two years -- thanks in part to new mandates for ethanol.

All of this is translating into the best gains in farm wealth in decades. Total farm income is expected to leap by 44% to $73 billion this year, according to the USDA. The average income of full-time farmers hit $81,420 last year, with large corporate farms earning in the millions of dollars. Meanwhile, farmland prices in the past five years have increased by $200 billion a year, or an average asset gain of $100,000 per year per full-time farmer.

And yet Congress is writing another five-year farm bill as if this were 1936 and the Okies roamed the plains. The House has already passed a $286 billion bill, and the $291 billion version now moving through the Senate may be the largest feast of subsidies ever served up by Congress. The bill's estimated $25 billion in direct crop payments, and another $10 billion in "emergency assistance" and insurance subsidies, are stacked as high as an Iowa silo.

In other industries, we celebrate the impact of trade and technology in reducing prices. But U.S. farm programs are expressly designed to make food prices higher for consumers. Economists estimate that Americans pay about $12 billion more a year for food as a consequence -- on top of the higher taxes to sustain the direct handouts.
UPDATE: Arnold Kling questions the faith in government of some economists:
For all of the emphasis on pragmatism and humility, there is lurking within most of them an inner elitist who thinks in terms of solving dynamic programming problems and believes that "the requisite organizational arrangements can be designed."

Why are we assuming that the best way for an economist to help an underdeveloped country is to give policy advice to the government? What about giving advice to ordinary citizens?

Why would not our best contribution to an underdeveloped country be to start a business in that country? If we think that we are not competent to start businesses, then why do we think we are competent to initiate policies?

UPDATE: Tyler Cowen demonstrates how keeping congressional paws off of money saves lives:

The NIH works as well as it does because the money is mostly protected from Congress. It is not a success which can easily be replicated. The more money is at stake, the more Congress wants to influence allocation. We should guard this feature of the system jealously and try to learn from it. If we can.

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