Tag Archives: Economics

They Didn’t Teach that in History!

Imagine soup lines stretching city blocks, spanning streets.  Americans – hungry, malnourished and without work.

Imagine the Department of Agriculture (DoA) – obviously worried about the situation – releasing information on four sample diets: a liberal, moderate,  minimum and emergency diet. 

Imagine the government announcing to the nation: “Figures show we cannot produce enough food for our population for a minimum diet, a mere subsistence.”

Now, with that “Great Depression” backdrop, consider the following:

“We had men burning oats when we were importing oats from abroad on a large scale, killing pigs while increasing our imports of lard, cutting corn production and importing 30 million bushels of corn from abroad…while Wallace [then Secretary of Agriculture] was paying out hundreds of millions to kill millions of hogs, burn oats, plow under cotton…” – historian John T. Flynn:

The DoA signed up around 1 million cotton farmers, and paid them $100 million to plow under 10 million acres of farmland.  Why?  To force up prices.  But the results were disastrous.  Economist Clifton Luttrell explained, “…a large portion of the American cotton crop was grown for export and a number of close substitutes were available.  Wool, silk, and other vegetable fibers…and a new and vigorous rival – synthetic fibers – emerged to take an increasing portion of the domestic and world fiber markets….”  The false shortage that government policies created simply drove the cotton business into the ground, and gave competitors a boost.

The government paid hog farmers to slaughter 6 million baby pigs.  California peaches were left to rot in their orchards.  Less than 1/10th was saved as food and used in relief efforts.

Why in the world did this happen?  Let’s back up a few years.  During World War I, American agriculture experienced increased demand, since European farms were devastated.  After WWI, American farms did not cut back so when the Great Depression hit, there were too many farmers cultivating too many acres.  Political support from farmers was important to FDR (and a big reason why he was elected in 1932), so he sought to enact policies that would help them.  Farmers lobbied for mortgage moratoria.  Congress authorized the DoA to restrict the output of food processors and began to tax them, giving the proceeds to farmers in return for reducing their acreage.  Were they successful in raising prices?  Yes!  However, they raised prices in the midst of deflation and millions of industrial workers being unemployed, and – ironically – the price hikes caused the farmers themselves to pay more for manufactured goods.  The aftermath ruined the small family farms – since many were unable to pay their mortgages, or make enough to live in a market the government had forced to contract.  The more acres you owned and kept out of production, the more subsidies your received from the government.  Sharecroppers were hit the hardest, while large corporate farms began to gobble up the smaller ones who could not afford to stay in business.  The very “forgotten man’” that FDR and the New Dealers claimed to be fighting for was trampled underfoot by their policies.  It’s no wonder that the Supreme Court ruled the Agricultural Adjustment Act unconstitutional in 1936.

These are wonderful examples of how well-intended ideas can wreak havoc when made into law without any consideration of their real-world impact.  Too often, government officials only assess the political impact.  A global market is a highly dynamic environment.  In order to have all the necessary knowledge to predict every possible outcome, and to know how each consumer in the market will respond, in addition to the ‘natural’ factors like drought, earthquakes, etc., one would have to be God himself to centralize control of prices, supplies and consumption and actually execute it successfully.  Yet, doesn’t it seem that our government is constantly infatuated with the idea that they can do the impossible?  The temptation to rely on technocratic solutions is a strong one, and officials often believe that they just need more of the right information to do it correctly.  An earlier post of mine explains that at some point, the brain can no longer absorb information, and attempting to do so makes it more difficult to make right decisions.  There are simply too many moles in this cosmic game of whack-a-mole for us mere mortals to presume we can beat them all down at once.