When weather was the biggest repeated story from earlier this year I suppose it was bound to have some actual impacts at some point. In some of the Upstate New York region, the polar vortices (there was more than one) have run afoul of the burgeoning wine industry. You don’t always associate the area with fine grapes, more snow and rust than anything else in the collective mind, unfortunately, but it has become pretty big business.
The incongruity of the climate with the size of the agricultural imprint is not lost on most people, particularly since severe winter is a very real threat to not just a year’s crop but overall survival. That kind of limitation is meant to keep a market check on the supply of any given commodity as the very real threat of weather-driven failure and ruin raises the financial stakes for investment in the first place. Or at least is “should.”
That has, in this age of creeping socialized “risks”, been so very apparent this spring. As soon as February, Senator Chuck Shumer (D-NY) began lobbying the Department of Agriculture to provide “assistance” as part of 2014’s version of the “Farm Bill” (specifically the, no joke, “Tree Assistance Program”; why not, vine can easily be construed as tree in the crony confines of DC). That, of course, was only the first round as Senator Shumer also pushed later for the USDA to recognize certain counties in Western New York near Buffalo to be declared agricultural disaster areas.
Growers are now saying that the assistance offered is not enough, threatening all kinds of doomsday scenarios should there be no largesse showered into them. This is taking “at the mercy of the weather” probably more than one step too far; as surely the basis for the idea was more sound at its stripped-down primordial introduction, in that there is a legitimate government interest (not undebatable, but reasonable premise) in trying to ensure financial firmness of the food supply. But like all “good” ideas, bureaucracy and a growing federal imprint leaves every warning about cronyism come to fruition.
If certain grape growers in Upstate New York fail because the government doesn’t exceed the weather in terms of financial impact, then that will have proven that there was, in fact, an implicit surplus in the price of grapes (for juice, wine or whatever) that is only now being recognized. How might these particularly grape “interests” have priced their product had they been under less illusion about any potential future subsidy should the frequent winters sap productive potential? In other words, if they (and this is being too general, as undoubtedly a good proportion of growers are not under the illusion of a bailout regime) had been honest with themselves about no government intervention at all, more would have had to increase their price in order to withstand future bad crop events; or fewer growers would have actually taken the financial risk with a more honest set of projections.
What does this implicit overcapacity do in terms of downstream effects? It reduces, for one, the price businesses are willing to pay for labor. We saw exactly this problem in action in Washington State a few years back as it related to apples. The governor declared whatever political maneuvers necessary to begin using prison labor to pick up the then “rotting” apple crop.
Male “offenders” from the Olympic Corrections Center in Clallam County were put to work gathering in that massive harvest, earning all of $8.67 per hour. That, of course, was not the true cost rendered to the apple growers since the state had to pick up the tab (or at least part of it) for transportation and security. That amounts to a government subsidy of growers and perhaps even an expectation for future subsidies.
[Governor] Gregoire was quoted in McClatchy DC as saying, “I don’t believe we have ever done this in history…But it’s either that or the apples rot.”
Contrary to that assessment, the markets at the time were declaring that rotting apples were exactly what was needed. If there was genuine demand for all that ripening inventory of unharvested apples, it would have been reflected in the price paid by wholesalers and ultimately consumers. That would have afforded the apple growers the profit opportunity to increase the price paid to marginal labor.
That entire episode was spun as a “shortage of labor” when in fact it was something entirely different. Large apple growers were only short of labor willing to work at the price they were advertising. Government subsidies play a large role in setting that deficient price, and then they (usually the very same politicians) decry the state of “income inequality” in America.
As a matter of economics, the labor “supply” in Washington, as in Upstate New York, is the only part here recognizing efficiency, and that government will not allow through corporate welfare. As I wrote eighteen months ago:
The laborers that are shunning that $28 per bin wage are doing the economy a favor. If they can get higher paying work elsewhere, they are demonstrating and living economic efficiency by moving to firms and industries that are experiencing the most profitable opportunities (in the aggregate). Again, profits and wages, in a market economy, are inextricably linked.
Labor and wages are a full part of true wealth, and the integrated relationship thereupon is the basis for actual economic advance or recovery. In order for that efficiency to occur, apple growers, in this instance, would have to go out of business, their crop “rotting” on trees. Instead, they received a bailout and the oversupply continues to depress wages and ultimately wealth creation.
Agriculture is not the only example, as so many industries are “dependent” on handouts for survival. And even that description is somewhat false, as companies without hidden subsidy might actually survive but not at the prices at which they are offered. That is perhaps most evident in “renewable” energy and the perpetual tax subsidies now running past two decades (to allow for prices to come down, 20 years is not enough?). The more this behavior embeds itself in the foundation of the economy, the more sclerotic the results – which is, as the grapes and apples show, exactly the intent. The entire purpose of all of this is to try to keep change from taking apart each individual piece of the economy.
Yet for all that seems comforting in the effort, it is change (mostly through failure) that actually produces economic growth, jobs, and everything else that moves society forward. We have mainstreamed the silver agitators of the 19th century as now an actual goal of policy when it was farmers being “forced” out of farming and into industry that marked the upward surge of economic development that defined not just the modern economy, but modern life itself. There is always to be a great deal of sympathy for those on the “wrong” end, as surely those ancient families of farmers were themselves “worthy” of remaining as such, but the constant dynamism of innovation worked as “deflation” in agricultural prices, ultimately benefiting everyone as food became, over time, far less of a budgetary item. That itself opened up the modern possibilities, allowing for the realization of technology to penetrate beyond simple laboratory fantasy.
The fight against change and failure is actually a fight against economic advance. Entrenched interests not only debase the economic foundation, they are truly the main perpetrators of “inequality.” That includes the quixotic and insane quest to “defeat the business cycle” or “fill in the troughs without shaving off the peaks.” The more that is allowed to try to do so, in whatever form, be it monetary or fiscal subsidy, the more neurasthenic the economy which simply means a slow and painful erosion. Dynamism means failure, but it also means opportunity which is not limited to the capital owner, as it extends vitally to wage of labor exchange.
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