Monday, September 28, 2009

Cuba discovers profit

In a move over sixty years too late, the Cuban government has announced plans to allow farmers to cultivate unused land and sell as much as they can produce. The interesting thing is that it took so long and so much denial of history for the Cuban government to realize reducing output for agricultural goods makes them less profitable to sell when coupled with state-mandated price controls at or below costs. The same policies have been tried in Venezuela, the former USSR, and assorted other failed states. In the Soviet Union the agricultural policy killed nearly a million Ukrainians and led to the worst starvation in the history of Europe. Why would anyone continue such failed policies?

Perhaps the mindset from a third-world nation is such that they see that as more and more people are, sometimes forcibly, placed on formerly vacant land that the output will rise even if the price is set near cost. In the short term this might happen, but in the long term a decline happens because the productivity of farming decreases since the lack of a profit motive means that no investment is made to make the land more fertile. Add into this outright fraudulent agrarian scientific work and you end up with an unsustainable agricultural system.

Well what about the United States you ask? WE are on the other end of the spectrum in that this nation subsidizes food production to the point where a crop like corn is used in everything becuase it is so cheap to produce. In the US system of farm subsidies, over production becomes a bigger problem because the subsidies drop down the cost of production to a point below the completely competitive equilibrium, which results in overproduction of some crops and underproduction of others. To see an example of this phenomenon, look at all of the products containing corn bbyproducts. From sodas to batteries to plastics, this single grain exists in every consumer good at some point in the production process. Why? Because it is cheap and the subsidies that already existed for decades were supplemented by further subsidies for ethanol so corn was produced in even larger amounts.

In short, this is a simple economics lesson. Ceteri parabus, the more you subsidize a behavior or item, the more of it you get. The more you tax an item the less of it you get. This is true for most things, however in some instances the societal cost of reducing a tax may outweigh the benefit. These shall be discussed later.

Thursday, September 17, 2009

The joy of walking

On a completely different tnagent than this blog is normally on, I wish to convey the joy of walking. I never realized how great longs walks in the evening were until living in a hilly area with good weather. It really gives one time to relax and think at the end of each day. I highly recommend it

Wednesday, September 16, 2009

A great mystery of sorts

As I prepare in the coming weeks to get my first paycheck in about five years subject to a state income tax, I ask myself where the money goes. The state I am now living and working in is now bankrupt and the roads are terrible. I ask myself how a state of over thirty million people can have roads that are in the same shape as the least meaintained roads back home, where there is no income tax. What does the money go towards?

I wonder this question when I drive to the beach and it is ten dollars jsut to drive in and wlak around, far more than in other areas I passed through to get there. If this state does not pay to maintain its roads and charges so much for parks, where is the money going? This state has proposed to close up to a hundred state parks, which would save something on the orders of 0.01% of the amount needed to close the deficit, while it has an unholy amount of taxes and fees. I do not object to the taxes, I want to know what return the taxpayer is getting on their money. It is disgraceful that a state with a GDP in the top 8 in the world, cannot maintain their roads and are contemplating releasing prisoners to put some stop to the fiscal bleeding. The schools are poorly rated year in and year out, so where is the money going? All I know is that it is not going to basic needs for the state.

Sunday, September 13, 2009

RIP Norman Borlaug

Since I have been out of contact with the world for stretches being the netless nomad, I did not get a chance to comment on the passing of one of the more influential and unknown human beings of the 20th Century, Norman Borlaug. The 1970 Nobel Prize winner for his work on creating high yield wheat, his work allowed billions to live and reduced the amount of land required to be cultivated to support the world's food supply. His work angered the usual elitist environmental groups who decried the use of chemicals to increase crop yields, to which he reponded :

“Some of the environmental lobbyists of the Western nations are the salt of the
earth, but many of them are elitists. They’ve never experienced the physical
sensation of hunger. They do their lobbying from comfortable office suites in
Washington or Brussels. If they lived just one month amid the misery of the
developing world, as I have for fifty years, they’d be crying out for tractors
and fertilizer and irrigation canals and be outraged that fashionable elitists
back home were trying to deny them these things.”

Anyone who would call out the hypocrites in the so called "green movement" who live in mansions while complaining about high yield crops gets praise from me. RIP to the great humanitarian, Norman Borlaug.

Wednesday, September 9, 2009

Wal Mart seeks to expand and crush the last bit of competition in retail

Wal Mart, otherwise known as 'retail cancer' has metastasized by over a thousand percent in the last decade, and keeps growing. It is now publically announcing its intention to destroy what remains of retail in this country through a new expansion campaign called "Project Impact." By creating a more efficient layout and targetting pharmacy and crafts, Wal Mart believes it will take out more businesses and continuing its massive expansion. What to make of a company which is already the largest retailer in the US seeking to expand further?

First, a firm like Wal Mart uses economies of scale to knock out competitors since they use their larger size to cover fixed costs over more and more stores. By doing so, they can expand and sell at a loss to take out competitors by selling at a loss at newly opened stores then making up the cost in other profitable stores elsewhere. The net benefit in terms of lower prices soon become a burden as the loss of jobs caused by smaller competitors closing drains on the local tax base. According to Iowa State University economic research, for each gain in sales from a Wal Mart there is a corresponding loss in sales from competitors. Now, that does not seem so bad, right? People just spend all of their money at one store instead of ten, right?

In theory that would be correct, but in practice no such thing will happen. Let's suppose there are ten local competitors employing 10 people each prior to the opening of the big box store. Those 100 workers all pay taxes to the local area, purchase goods from the other stores, etc. The local box store opens and employs 75 people because they consolidate their staff to be able to cover multiple areas so this one massive store is 25% more efficient than the ten small stores combined (in terms of labor efficiency). Suddenly the same area has 25 people without work and 9 fewer employers. Since there is a correpsonding loss of sales in surrounding areas due to the big box stores, they find it harder to relocate to work, and suddenly are drawing on the welfare state. These 25 workers went from paying taxes to draining tax revenue, so the city becomes worse off on a whole. However, you can save 25 cents on a toaster, so it all works out, right?