What would happen to the price of food if the US became laissez-faire? A socialist friend of mine says that if not for the government (though he never says what specifically) food prices would immediately go up in laissez-faire. (I assume he just means there would be nothing to stop those evil price gougers from trying to charge people high prices for food.)
What are the factors involved in food prices? Would not prices of food have to fall if the US were to completely go to laissez-faire?
Its a little long…
But challenge your socialist friend’s logic and historical validity. If we have to pay to subsidize food prices, are they really cheaper? Why was there not mass starvation before government intervention in the food market? Why could an irish dude in the 1900’s with a wife (not working) and 3-6 kids feed them all? Socialism flies in the face of evidence. I hate to blow my own horn, but here’s a post I made that you might find useful in anticipation of your friend’s churlish responses.
Food prices are skyrockteing in Venezuela.
I can think of two reasons food prices might increase if government involvement were to cease. First, crops that we directly subsidize (like corn) would no longer be subsidized. Second, with no FDA and similar government programs, individuals would probably want to pay for some sort of private food purity screening service. It seems likely that it would be more efficient for the producers of food to pay for this up front instead of each consumer paying to have everything they purchase tested after the fact. So the cost would show up in the price of food. (Presumably, taxes would also be lowered too, so you should still end up with more money in your pocket at the end of the day but you didn’t mention taxes specifically).
Of course this works both ways. Some food prices are deliberately propped up by the government. This was widespread during the great depression, and it still happens today. Sugar, for instance, is about twice as expensive in the US compared to everywhere else because of import restrictions. Do away with those, and the prices would decrease.
As far as “price gouging” is concerned, it can’t happen in a free economy (at least not for very long). If one producer jacks up prices too much, someone else will quickly jump in to undercut them. This isn’t always true when the government is involved: things like mandatory licensing, zoning restrictions, and legally enforced monopolies can make it difficult or impossible for another company to enter the market. But none of these would be an issue in a laissez-faire economy.
Indeed: http://www.cnbc.com/id/37786852
And not only Venezuela is having problems, in North Korea the communist government its allowing the market for food because it can not provide food to its citizens: http://belowthebeltway.com/2010/06/18/north-korean-communists-admit-communism-doesnt-work/
The problem with progressives/socialist is that they have no idea about economics and they will start saying all kind of crazy stuff. I know because I was one of them until I learned economics.
If the computer industry were laissez-faire, prices would skyrocket.
Oh wait..
Most food is not subsidized (e.g. apples).
Labor regulations, zoning laws, income and payroll taxes, and various other restrictions push up the price of food.
Subsidies of some food (e.g. corn) push up the prices of other food, as farmers will forego the production of certain foods in order to get subsidies. Also, farm subsidies sometimes pay farmers to not farm, thereby reducing the food supply.
I’ve actually thought about this a lot when considering socialized medicine (as food is another “essential” and what I’ve come to the conclusion of is that there’s no possible way that food prices would increase considering exactly how easy and cheap it is to grow food. I live in a fairly rural environment and as someone who drives by lines and lines of corn stalks every summer I can tell you that a small increase in the price of food would lead to huge increases in production and a bidding down of the price, when there are so many farmers in the world such is inconcievable of not happening in a free market. Think about it, farming and food production is practically impossible to monopolize.
Let’s also remember not to get caught up in the nominal price of food. Even if someone were to make a convincing argument that, without the state subsidizing certain foods (and related factors, like transportation), a loaf of bread might have a higher pricetag than it does today, we have to think of the lowered price of other goods due to the end of redistribution (those who paid for the food subsidy ) as well as increased production in all industries (with the market now free of government intervention). The real cost of food would most definitely fall, as it had fallen before the state started favoring certain agricultural producers.
And yeah, food is a pretty important good. It’s something that everyone really wants, and three times or more a day, they prefer to satisfy that want before many others. If the cost of food is rising in an otherwise healthy economy, we can expect entrepreneurs to direct capital toward food production.
Was it ever?
prices would be increased in laiseez-faire as many different inputs are artifically low besides direct subsidies to farmers. There is the cost of water, petroleum, roads, and many others.
also i believe in a laissez-faire that people should be forced to pay for pollution (negative externality health reduced animal production, crop production etc) so that would increase the price as well.
after a while though peopel would adapt and start growing their own food and more large producers wouold eneter the market which would then reduce the price. Also demand could decrease as well i.e. the type and amount of food people actually eat.
But you already pay for these subsidies in taxes… Having the government pay for something doesn’t make it cheaper.
Actually pollution is a violation of property rights and isn’t allowed under laissez faire. I can’t poison your food or spike your water right? So why can I spike your air?
I don’t think you’re a very good prophet. Food prices would have to go up 10x before people would start growing their own food. Even then, many people live in cities ><
Some food prices would undoubtedly increase. Your friend is correct (in a very narrow sense). I would just concede this point, and counter with the fact that several others have already brought up - government paying for something does not mean it’s free. I’m sure that your friend realizes that the wars in Iraq and Afghanistan do not come at zero cost to the American taxpayer. Subsidized food is no different.
@sieben
The subsidys payed to EU and US farmers has an effect on the global price of food which has depressed supply in places such as kenya and the like , also the tax burden is not equal throughout society due to progressive income tax so that one a close to same amount in total government benifits.
pollution is needed in a complex society due to the industrial processes needed to sustain a large amount of people thus there is pollution, by creating pollution u infringe on others property rights and must compensate them for that. If there was no pollution thus no infringing on others property rights then we wouldnt be able to maintain the high volumes of goods to sustain any sort of society.
finally ur view is subjective as is mine, and just because people live in city’s inven in high density dosent mean that they cant grow their own food it depends on the climate of the city it self and the technology that is avaliable to those poeple. Furthermore there are products that are specifically designed to grow food in high density enviroments. Finally where do u get the number that 10X current prices would cause this behaviour, is it country specific or does it deal with ur own country, state or local area.
So… food is “cheaper” because people pay disproportionately for subsidies? If we tax the rich, do they not pass on their costs to the poor? If we taxed the poor, would they not pass on their costs to the rich? Everyone is interrelated. You can’t have a truly progressive tax system.
Or you could sign away your rights to prosecute polluters. If you lived in the middle of nowhere no one would have a right to damage your air, but if you rented an apartment in the city there would likely be provisions that if air quality was below 10ppm particulates you can’t press charges…
Better be some good technology… I was under the impression you needed at least 1 acre to feed one person for a year. I dont think there are 10s of millions of spare acres inside CITIES that are even farmable…
Its a ballpark estimate… I’m saying that, as a poor student, what would it take to get me to grown my own food? The opportunity cost of being a FARMER instead of a student or working is astronomical. 10x is just a large number…
Anyway, none of what you said demonstrates that subsidies makes real food prices lower, but i’ll go on an extension: Subsidizing food leads people to overconsume, since they pay a reduced price at the store. The overconsumption is seen by the market as an increase in demand, so the price of food rises.