Sunday, May 29, 2011

Re-Examining Values/Unintended consequenses

The reason many in our country are opposed to having mostly lawyers in charge of our political process is that other than law, they don't know much. There are very few industrial,medical, statisticians, etc. In other words, these lawyers make decisions for real people doing real things. It isn't that they are inherently evil. They for the most part are just over ambitious egotists that love power. The problem is in how they apply that power.

I'm going to cite some examples of policy gone wrong and the unintended consequences they produce. Take ethanol for instance. Following the trend toward cleaner air, and attempting to control the price of fuel, they haven't done so for the aforementioned reasons.

Our federal government did two things that are helping to bring down our economy. First they subsidized ethanol production. Secondly, they placed import duties on Brazilian ethanol imports. This didn't appreciably bring down gasoline prices, it just created a competition for corn. Speculators in the commodities markets drove both gasoline futures and corn futures out of sight.

Farms and animal finishing plants then had to pay a premium, as they were/are competing for feed corn that now is twice what it was just a few short years ago. The consequence? You and I and especially older people on fixed incomes are paying almost twice what meat prices used to be. It would be nice if farmers were getting a better break, but unfortunately, their feed cost, diesel costs have skyrocketed the cost of farming and finishing beef, hogs and even chickens. The USA used to be proud of it's ability to produce more food for less cost through efficiency. Without a return to commodities sanity, that is over with.

Recently in my neighborhood market, one that is regionally competitive, I found a pound and one-half package of bacon was $7.00. That compares to half that just five years ago. Hamburger at $3.00 per pound. The one of two shelters for the poor. Hamburger and chicken. Chickens are running just as high. Forget about pricier cuts such as steaks. At about $9.00 per pound, most of us can't afford them, but soon, even now, if you look at the labels the grade, "choice," is being downgraded to select. When a meat industry cannot any longer afford the costs of fattening animals for food consumption, and when the retail cost sends people away from their meat counters, the producers start selling "select." That means you are buying range, grass fed beef without the marbling that makes it tender. On the one hand it probably is healthier, but you need a real sharp steak knife to cut it.

These are just two examples of economic policy that has boomeranged. Today, gas prices are nudging $4.00 per gallon again. Not because the Arabs have us over a barrel, but because of the speculating that goes on in the commodities market. Let me explain.

Investors that DO NOT USE the product they are bidding on, just buy the future contracts for delivery, then resell them when the price goes up, which they themselves have caused by the escalating of buying and selling. This applies to oil and grains as well. With feed grains, as I mentioned above, a shortage through an artificial competition for the grains, is much of the problem which then through speculation creates an even worse situation.

Two solutions come to me. Only through pressure on your elected officials can they happen. First, eliminate the farm subsidies for ethanol production. Secondly, eliminate the import duties on foreign ethanol. Thirdly and perhaps the most important, require any investor that buys oil or grain futures to actually take delivery of that commodity. Very rarely does an investor/speculator actually use or even want the product they buy. Just the margin of profit they realize when it is resold to a refinery or grain wholesaler.


Anonymous said...

Speculators are banking on shale oil production which is why gas prices have exploded, the Middle East is part of the speculation.

Our country is going down the tubes financially because we keep producing more paper currency. This is somewhat similar to paper money production during the Civil War.

"We (as a nation) are also spending half of our annual GDP on taxes and interest." Stansberry

Just my thoughts to a very complicated situation.


Bay Views said...

The points that I made are by no means the only ills in this country. I felt that taking too many on at once would scatter the subject. I have previously written about other aspects. Yours are also in my opinion, valid, NJ.