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.