I just read a great summary on The Freeman Online of the many problems with price controls. It was written in 1978 but is still quite relevant today. I highly recommend it.
Congress is currently debating reducing price supports on agriculture so refreshing our memory on the topic is important. It strikes me as ironic that when we talk about helping agriculture (and probably many other industries) we say \”price supports\” not \”price controls\” but the kinder sounding words should not mask the fact that under the hood it is about price control.
If as a society we think there is something to be gained by having more smaller farms and fewer big farms (see addendum at the end of this post), then we should be straightforward in our approach to achieving that end. Price controls are not a straightforward approach. They create all sorts of distortions and inequities in the market. I believe that there is nothing particularly unique about farms (other than, perhaps, their vulnerability to the vagaries of the weather) that indicates they cannot survive and thrive nicely in an open and free market, just like most other products made in this country. While I don\’t follow this industry closely, I gather that we have a reasonably efficient and competitive insurance industry in some markets. Is there a reason farmers cannot buy insurance to hedge against bad weather? If not, then even being subject to the vagaries of the weather does not make the market farmers face meaningfully different from other open markets. I suspect we would be doing farmers a great favor if we drastically reduced the paperwork and burden of regulation that they face in return for eliminating price controls. Then they would be freed to make intelligent decisions about what to plant when and how to market it and to whom.
Addendum August 2, 2011
Today\’s Wisconsin State Journal reports on a University of Wisconsin study that found that large dairy farms produce higher quality milk. Read UW\’s press release here.
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