Monday, May 12, 2008

Speaking of Windfall Profits

Coyote Blog has an excellent point about the response to high prices in two industries:

This week, we have been given a chance to see a real contrast. Two consumer staples, gasoline and food, have both seen their prices go up substantially over the last several months. Both price spikes have been due to a combination of market forces (particularly increasing wealth in Asia) and US government policy that has the effect of restricting supply.

However, the political response from Congress has been completely different. In the very same week that Democrats in Congress have introduced bills to punish oil companies for high prices with windfall profits taxes, they have passed a farm bill that rewards farmers who are already getting record high prices with increased price supports and direct subsidies. This despite the fact that on a percentage basis, the increase in crop prices has been far larger than the recent increase in gas prices. The contrast in approaches to two industries in very similar situations couldn't be more stark.

Obviously, the difference is politics, as Coyote Blog points out. It seems that farmers make out no matter what happens. When prices are low, they claim to need subsidies so they can make a living and keep the "family farm". Of course, susbsidies were probably the cause of low prices to begin with, but no matter. When prices are high, they claim to need subsidies to ensure food security, as if high prices won't be enough to encourage future production increases. High prices should mean a reduction or elimination of subsidies in any sane world. Unfortunately, D.C. doesn't meet the definition of sane.

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