From: viking@iastate.edu (Dan Sorenson)
Subject: Re: Misguided Economics
Organization: Iowa State University, Ames IA
Date: Fri, 14 Aug 1992 00:31:32 GMT

MEDELMA@cms.cc.wayne.edu (Michael Edelman) writes:

>In article <viking.713599039@vincent1.iastate.edu>
>viking@iastate.edu (Dan Sorenson) writes:
>           [I asked]
>>>         : However did the world feed itself before the 1930s? And how is
>>>is that there is a continuing supply of the bulk of food items that are
>>>not subsidized?
>>
>>        Go to the Phillipines, and see just what an orange costs you.  The
>>world fed itself before the 1930's by individuals paying what they were
>>willing to for what food there was.  Remember that the US was isolationist
>>at that time, and did not use grain as political leverage in the
>>international market.  In addition, we have since come to the ideal that
>>the public needs to be given some security from the State.  In the 1920's
>>and prior, you starved unless you either had the money or the friend to
>>feed yourself.  Today this is not so due to government policy.  In addition,
>>we have since come to think of food as a resource that may be exported for
>>political reasons.  We didn't sell computers to the USSR, but we sold grain
>>even when our military interests would have been best served by letting
>>the region starve (a best guess, I'm not on the Joint Chiefs).  These
>>two changes make food a strategic resource, and that the demand for food
>>is inelastic can be proven if you'll just quit eating and tell us what
>>happens to you.  You can probably eat a bit less, but you cannot quit
>>consuming this resource and still remain alive.
>>
> 
>The demand for foodstuffs is not as inelastic as Sorenson thinks. There
>are subsidized foods and unsubsidized foods, and in terms of providing
>for nutrition and survival these foodstuffs are perfect substitutes.
>No doubt this conceptual problem can be traced to those intro econ books
>in which all the economies have one consumer and only two goods ;-)

	I won't comment on the books -- I've read better owners manuals
for VCR's.  We are not worried about foodstuffs for survival, we are
worried about a wide variety of foodstuffs available at reasonable prices
in large quantities and that can be used as international leverage.  That
corn you subsidize gets sold overseas (the lab I work for tested seeds
for export to Turkey last year, and I understand the final tally was
almost a billion dollars in export.  That helps the treasury, and you).
I never said removing price supports would not result in lessened prices,
as it probably would.  However, the fluxuations of the market will most
likely cause food prices to fluctuate more than at present because of
the fluxuating supply of food being grown.  These fluxuations will be
felt throughout the economy as grains are processed far more than they
are eaten, and a dampening effect is probably in order.  I don't
claim to know all the economic factors involved, but I do know that the
policy has been reviewed by economists and is still being implemented.
The grain-growing states don't have enough clout on the Hill to keep a
pet project around like this when everybody else thinks they're getting
shafted in the process.

>He also seems to be confusing farm subsidies with welfare and food stamp
>programs. Otherwise his staements about starvation during the depression
>make no sense. I asked him how the entire human race managed to survive
>until the present time, as by his mechanism we should have all starved to
>death within a few years of the beginning of agriculture. After all,
>according to Sorenson all the farmers should have gone out of business once
>the plow was invented. The cost of food production dropped so precipitously
>at that point why would farmers have continued to farm without subsidies?

	You make a grave mistake here because you do not take into account
the declining need for farmers, the increasing population, and the
advancement in technology that allows more food from the same land.  In
the depression, farmers used horses and a typical farm was less than
200 acres.  The expected yield per acre was (near Ft. Dodge, Iowa, as my
grandfather tells it) 25 or so for corn, and about $10 for soybeans.  We
now get 200bu/acre corn (average is about 125 if not irrigated), and
close to 40 for soybeans.  Given the pathetic yields before, and the
large workforce required to grow it, food was a fairly expensive thing
to produce, and was fairly expensive to buy.  It was not uncommon for
hunting and trapping to suppliment the groceries as a matter of
economic necessity in those days.  With new technology, a smaller
farming population but larger overall population, and a decrease in
non-farm production (gardens) and farmland, the situation has changed
radically from what farming was in the 1930's.

	As for subsidies versus welfare and food stamp programs, I was
not the one who first brought up the idea that food stamp need is a
result of subsidies, but I will make the claim that removing subsidies
will not cause less need for food stamps.  In addition, I point out
that subsidies can be seen as "food stamps" for the farmers, since
they are a form of charity.  The food stamp recipient probably doens't
have to sink himself a few hundred thousand dollars in debt each year
to recieve them, though.

>I was speculating further about this interesting theory of his, and if
>we buy into it, we have proof positive that *no one* should be in any sort
>of business at all, since falling prices will eventually make any endevor
>unprofitible. 

	Please remember this when you discover that the electronics used
in many of our weapon systems are imported, since domestic semiconductor
manufacturers just couldn't compete.  A strategic resource, remember?

	With this logic, is it any wonder so few think economists know
what they're talking about?

>An he actually believes that food costs are lowered via the following
>mechanism:

	They are not lowered, for crissakes!  I _never_ said they would
be lowered by the use of supports.  I did claim that the fluxuations in
the market would cause increased prices at times, and also lower prices
at other times.  In addition, these fluxuations would probably have an
effect on the production of foodstuffs, resulting in fluxuations in
supply.  The demand will stay fairly constant, but when the supply
fluxuates the consumer is left with fewer choices.  But you'd like that,
so long as things remained a bit cheaper.  In dealing with your car
analogy, one wonders why GM produces so many different models of car,
while the cheapest to produce should net them the most profit if they
just built that one alone?  Could it be that GM figures more profit by
letting the most profitable cars subsidize the less profitable cars in
order to provide greater selection to the public?

<Dan Sorenson, DoD #1066 |"There'll be angels on Ariels in leather>
<z1dan@exnet.iastate.edu | and chrome, Ridin' down from heaven    >
<viking@iastate.edu      | just to carry me home." -- R. Thompson >
< ISU thinks I need more education, which they provide for a fee. >