Day 553 Thursday July 26, 2018 1,025 Days to Go
Let’s talk tariffs! And farm subsidies.
The Trump administration used a depression era law to give farmers that have been hurt by his farm tariffs a ton of money. Surprisingly, when reporters asked exactly how were these farmers going to get this money and which farmers exactly were going to get this money, the administration had no answers and said they were working on it. This fits into how the Trump administration works, which is not shoot, aim, ready; but shoot, shoot, shoot, what?
Trump has courted farmers and he’s trying to do so with these tariff payoffs. Some have called them political bribes.
The “farm problem” has been around before and ever since economics was created as a field of study. No one has solved it. Here’s the problem. If a farmer grows a crop and all his fellow farmers grow the same crop then the price they get is determined by who wants to buy that crop. If they, the farmers, have a bad year then there isn’t much of a crop, prices go up, but there isn’t much to sell so the farmer makes a lot of money on what he sells but he doesn’t have much to sell. Likewise, in a good year he has lots to sell, but so do his fellow farmers; the price goes down, and he doesn’t make much money. That in a nutshell is the “farm problem.”
All sorts of solutions have been tried by the government. They have tried buying the surplus (we now have caves in Wisconsin filled with cheese.) They’ve tried trade deals with other countries Like NAFTA, which allowed farmers in Iowa to sell their corn to Mexico at a cheaper price than the Mexican farmers could make it. This drove the Mexican farmers out of business. They left their farmers and moved to the cities where they had nothing to do and were prey for the drug gangs. We’ve tried paying farmers to grow wheat, which they did big time, in places that wheat could grow for a year then ruined the soil, which led to erosion, and in some cases they stirred up dry lake beds and various poisons that ran down stream destroying what had been good fields. We’ve tried supplementing farmers to grow corn and soy beans, especially in Iowa, which when they get torrential rains wipes out the field taking the fertilizer with it, which runs down the Missouri and Mississippi Rivers into the Gulf of Mexico where it creates a giant algae bloom, which kills everything in the area hurting the shrimp and fishing industries.
Sixty seven percent of farmers voted for Trump. So how do they like the tariffs and the payoffs? They hate them. Why? Well, if you’re a farmer and you’ve planted your crop, you’ve got a lot of time to worry about the weather, the price you’ll get for your crop, and how various factions in the government are doing things to hurt you.
As soon as Trump announced his tariffs the futures prices of corn and soy beans plummeted. They’ve been yo-yoing up and down ever since, but they’ve been going down. Farming his a long term proposition. Many farms have been handed down generation to generation. Most farmers have loans that stretch out twenty and thirty years. Farmers are conservative, economically conservative. They have to be, because they are in for the long game. What’s the worst thing they can face? Uncertainty about their crop and the price they will get for it.
Trump and his Agriculture Secretary are desperately trying to reassure farmers that they’ve got their backs. This however is running into some harsh sentiment. Farmers don’t like the government telling them what to do (although farmers get more money from the government than any other group. Please, don’t call it welfare! That’s what poor people get. Farmers get subsidies. [Wait could we solve the poverty problem in this country by stopping welfare and starting subsidies? ] )
Here’s the problem. The handout (please, don’t call it a handout!) that farmers are getting is only for one year and it doesn’t take effect until next year. So is the bribe (please, don’t call it a bribe!) just something to mollify the farmers through the election? That’s hard to say because that would suggest that the Trump administration has a plan, which seems to be the anthesis of what they do.
Farmers want markets to sell their products, that means customers. They have spent years developing customers in Mexico, China and elsewhere. It’s not like you can throw a light switch and turn this on and off. It takes time. Farmers want policies that help them develop and keep markets, not bandaids. The Trump administration has thrown a giant light switch and given some farmers a small bandaid.
In economics one often talks about “guns and butter” to symbolize factory and farm. We’ve looked at the farm, how’s the factory doing. Remember Trump put tariffs on steel too. How’s that working out? Well a small firm in New Jersey that makes commercial dishwashing racks says their cost of steel has gone up 26%. If you’re making stainless steel dishwashing racks I gotta think that’s most of the raw materials that go into the product. From what I know about manufacturing if it costs 25 cents to make something, you have to assume it will sell retail for one dollar. That’s for a retail operation, maybe the percentages are a little different for industrial goods. But if I’m right that means the cost increase would mean a rise of 4 times 26% or 104% for the major raw good. Maybe, it’s not that bad, but it’s bad.
Yesterday General Motors said the steel tariffs have cost them a billion dollars. But you know what? Obama saved General Motors and the auto industry in America. Donald Trump seems bent on destroying everything Obama did, will he destroy the auto industry? Stay tuned. I wonder how those folks in the rust belt that voted for Trump and are in the auto industry are feeling right now?
If they are like the farmers or the folks that lost their jobs at Harley Davidson they are thinking, “He must have a plan.”
Let me let you in on a little secret, a secret that is right in front of your face.
TRUMP HAS NO PLAN!
Well, hold on. He’s hoping to get that vacancy in the Supreme Court filled with a guy who says the president is above the law. That’s his plan. So what if he’s the deciding vote to overturn Roe v Wade? He doesn’t have a vagina.
1,025 Days to Go
PS The Battle at Ujigawa by Teizo Hashimoto