Re: Some tampering brings unintended consequences

From: Kent Paul Dolan (xanthian_at_well.com)
Date: 02/06/05 

Date: Sun, 6 Feb 2005 02:00:51 +0000 (UTC)

"davtomcat" <davtomcat@hotmail.com> wrote:

> Kent Paul Dolan wrote:

>> The laws of supply and demand require that at
>> market equilibrium, everyone is just going
>> broke.

> A silly caricature.

Perhaps, but as accurate a one as a translation to
the common tongue of an Econ 101 textbook can
convey.

>> Food production is intensely cyclic, as fads
>> lead to production imbalances.

> I think weather is a bigger factor than consumer
> tastes in the short run.

You misread me.

Since we don't have a centrally planned economy,
farmers are free to focus on whatever crops they
expect will be profitable, which is usually "what
sold at a good profit last year", which is freely
available information, so in lots of cases, many
more farmers follow it and change to that crop, than
the market can absorb their production at profit,
resulting in fairly wild production cycles.

I suspect that in general the contrarians do much,
much better.

The "futures market" attempts to flatten this out,
by a transfer of risk to non-farmer investors, but
that transfer of risk is even more successful at
transferring a large fraction of the profit of
farming away from the farmers, beyond the parts
already grabbed by banks and such, because farming
is so cash intensive an industry.

>> Subsidizing, as a management technique rather
>> than as a food price lowering scam, evens out
>> what would otherwise be whipsaw price
>> fluctuations.

> The market provides ways of dealing with
> uncertainty, such as insurance and futures
> markets. If people don't make use of them in a
> particular case, it's because the cost exceeds the
> value.

No, you fail to include as a factor the value of
information. It is because the _perceived_ cost
exceeds the value, not the same thing at all.

> What you describe is a classic case of governments
> forcing people

I haven't described government suasion at all, and I
just love this Libartarian paranoia that attempts to
portray governments as something different from the
populations they govern, as if a population, in
choosing to do something via government tools rather
than via market tools, isn't still choosing and in
charge of its own choices, responsible for them and
susceptible to the consequences of them.

This is not mentally healthy thinking.

> to pay an above-market price for a service they
> have declined to buy at the market price.

You do realize that what you have written there
makes no sense whatsoever? Quite obviously, if
"they" have had a real opportunity to buy something
at a (lower) market price, and declined to do so,
"they" are not about to step up and purchase it
instead later because the price _rose_.

What makes subsidized goods attractive is that the
portion paid for by taxes is sunk funds, and an
unavoidable cost, but the price of "goods on the
shelf" is _lower_, precisely why sales increase,
just as that Econ 101 textbook would teach you to
expect in situations of elastic demand.

    [Also, because the subsidy + market price to the
    producer is _higher_ than without the subsidy,
    the good is more attractive to produce,
    providing an above (unsubsidized) equilibrium
    supply of "goods on the shelf", pushing the
    price lower yet.]

HTH

xanthian, amused. 

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