Monday, May 01, 2017

Is this administration actually mad?

We know Donald Trump says crazy things to get a media high, but the rest of them are supposed to be competent enough to not have similar mental issues.  I would like to believe that but...

I came across this bit from the Farm Policy folks. The last part has a set of baffling positions from Secy Ross. Secy Ross says its okay for NAFTA to fail today because the US will be able to sell its excess grain elsewhere. This is a completely baffling viewpoint that I don't think belongs in the Secy's mind.

In macro-economic sense, the details even out in the long run. If excess of a commodity is produced, the price point shifts and new market opportunities open up. As new markets open up the production and lending shifts to accommodate for a revised flow of wealth. This has happened since time immemorial and it always works out (for the actuarial economists anyway).

But in at the microscopic level - for the human beings caught up in the midst of a major economic shift - the price is often unacceptable.

For example - consider this macro-economic scenario.

In the late 20s in the US, it was clear that agricultural production was imbalanced. The amount of  food produced was too high and the markets were unable to support a very high price. The farms had taken out loans to buy new equipment to boost production during the war and they were having a hard time paying out those loans but default rates were low.

The world as a whole was quite a bit hungrier in the 20s. Most countries could not produce enough food to feed their populations and nutritional standards were extremely poorly met.

Then came the stock market crash and the Smoot Hawley act. As exports from US farms shutdown, the domestic market flooded with excess grain. The resulting price drop killed all profits and the farms couldn't pay back their loan. The collapse of the financial sector accelerated the depression and farms stopped functioning as farmers couldn't get enough money to buy seeds. There was a famine that followed.

Eventually the famine caused commodity prices to rise, but then so many jobs had been lost that people continued to starve for almost two decades afterwards. The Roosevelt Admin started the New Deal program, which put money into peoples' hand and the rising tide of war in Europe help make US armaments industries profitable. Between these two factors, the economy recovered and everything after a disastrous world war in which 100 million people or so died - became better.

It sounds great when you say it like that! (copyright J K Rowling in the Deathly Hallows)

But at the microscopic level - million died of starvation and completely avoidable causes in the economic transient. Can you imagine what it must have felt like for the farmers who got shafted by this change? the families of the farmers? the kids?

I don't know if Secy Ross is aware of the history of the depression because the world was hungry back then too but the agro-economy of the US still collapsed! So why didn't the countries line up to buy the grain back then?

The reason for this collapse was that none of the economies were set up to buy US grain. None of them were in a position to pay for it at a price the US found comfortable. There simply weren't enough ships to move the grain to distant shores, there weren't enough tariff control agreements to allow US grain to reach this distant markets and each nation felt it had more to gain by imposing tariffs (just like the US did under the Smoot Hawley Act) than by buying US corn/wheat

If this is the level of  competence at the Commerce Secy level, we are doomed. This man does not appear to understand the basics of a market actually works.


At 12:48 AM, Blogger Wise_Ass said...

It will be a very sad day four years from now when POTUS Donald Trump successfully complete 4 years and this blog keep peddling impeachment spankbank! :D


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