Economies grow because capital is being invested in labor and technology to grow one or more industries. But this doesn’t happen just because one wants it to happen. There has to be one or more “triggers” creating the need for more capital and labor.
Triggers could be a strong rise in population growth or some strong form of ”game changing” innovation that literally creates new companies, industries and products. Or, as is often the case, governments decide to support certain industries by directing subsidies or tax incentives their way to insure growth.
China is an excellent example of growth created by government actions to support exports. If Ford wants to build a factory in China, Ford would have to partner with a Chinese firm, would have to use local labor and some portion of local product supplies and would have to export half of what they make. These and several other official government policies, including pegging their currency to a value just under the dollar which guarantees China a price advantage, have been successful in creating jobs, income and overal economic growth in China.
In the US, taxpayers pump billion of dollars into basic research in several industries which, in turn, results in innovations that are made available to private industry. Two related industries, medical devices and pharmaceuticals, have received much of this money. It is no accident, therefore, that these two industries have been shining stars in terms of growth and income. In the 1950s under President Dwight Eisenhower, taxpayers subsidized building the interstate highway system, which in turn guaranteed an explosion in the automotive industry. The all important internet was invented, tested and installed by the government and then handed over, literally without charge, to private markets. The internet has been a tremendous job and income creator not only in the US, but worldwide.
But America, for a number of reasons, has forgotten how important government action can be for supporting real job and income growth. In fact, a common theme in Washington DC today is that government can’t do anything but waste taxpayer dollars and destroy jobs and income. This belief may be the single most important cause of America’s fall from economic grace.
The US should take a page or two from the Chinese. Running huge trade deficits is like having a hole in a tire you’re trying to inflate. Every pound of pressure you try to put in the tire, just goes out through the hole. China’s policies insure that investments they make results in the export of native made product. Having local labor and product requirements, plus export requirements of product made, do just that.
The US should have the same requirements. That we don’t have sensible requirements insures that US corporate and private investment capital results in jobs and income growth outside the US. We’ve been making more product and hiring more people–just not in the United States.
At the same time, we have subsidies that are wasteful and inhibit native job and income growth, among other ills. Take the annual $4 billion subsidy for corn. It has made corn cheap and plentiful, but it has created a giant industry that is destroying agriculture and making our country, literally, physically ill. Ill health and the destruction of farm jobs (not to mention all the related supporting industry jobs) has helped weaken the nation for the benefit of the few.
From the blogsite accidental hedonist:
Out of all the e-mails I get in regard to High Fructose Corn Syrup, the second most popular question asked is “why do these companies use HFCS?” The most popular question, for the record, is “Wouldn’t it be easier to create a list of products that don’t have HFCS?”, to which the answer would be no, but only because I am lazy.
But back to the question of why is HFCS used: As many have guessed, cost is the only reason that HFCS is used in place of cane sugar. As I clumsily pointed out in another post, a 1/10th of a cent increase in sweetener, per serving, would cost Coca-Cola roughly $122,423,790. And here you were thinking your car insurance costs were high.
The answer to the question of why HFCS is used is fairly clear and easy to figure out. The more interesting question is one that’s almost never asked -
Why is HFCS so much cheaper than cane sugar? The answer to that question may surprise you.
Because the government wants it that way.
The Federal Government accomplishes this in two major ways:
- Sugar Tariffs
- Corn and Sugar Subsidies
Add these two variables together, and the result is sweetener made from corn.
The difficulty in explaining how the above work is in understanding that none of the above would exist without at least tacit complicity between the Sugar Industry, the Corn Industry and the United States Department of Agriculture. Remove any one of those three players from the equation, and the tariffs and subsidies most likely go away.
Let’s start with subsidies. A subsidy was developed to help a farmer make up money lost between the cost to produce a product, and the higher market cost. For example, if it cost me 1 dollar to grow a bushel of corn, and the market demanded only 80 cents, the government would make up the difference and pay me 20 cents, plus a little more so that I can make a profit and give me a reason to keep growing corn. A nice idea in theory, but in practice it essentially ends up paying a farmer both when they produce too much and when their crop prices are too low. As anyone with a passing grade in Econ 101 can tell you, making too much of a product is one cause of lower prices, the government ends up giving out a lot of money. To the cost of $22.7 billion in 2005.
A free market economy is exactly what we don’t have in our agricultural industries.
Now let me introduce you to the Big Player in the Corn Industry – Archer Daniels Midland (ADM).
The libertarian Cato Institute writes of ADM:
The Archer Daniels Midland Corporation (ADM) has been the most prominent recipient of corporate welfare in recent U.S. history. ADM and its chairman Dwayne Andreas have lavishly fertilized both political parties with millions of dollars in handouts and in return have reaped billion-dollar windfalls from taxpayers and consumers. Thanks to federal protection of the domestic sugar industry, ethanol subsidies, subsidized grain exports, and various other programs, ADM has cost the American economy billions of dollars since 1980 and has indirectly cost Americans tens of billions of dollars in higher prices and higher taxes over that same period. At least 43 percent of ADM’s annual profits are from products heavily subsidized or protected by the American government. Moreover, every $1 of profits earned by ADM’s corn sweetener operation costs consumers $10, and every $1 of profits earned by its ethanol operation costs taxpayers $30
Do you want to know who makes HFCS? It’s Archer Daniels Midland. Do you want to know who pays for HFCS? That’d be you and I, in the form of the taxes we pay to the U.S. Government. The government spent $41.9 billion on corn subsidies from 1995 to 2004, a trough of money at which ADM gladly ate. ADM buys 12 percent of the nation’s corn at a heavily subsidized price from farmers, and turns it into high-fructose corn syrup and ethanol.
But there’s another side to this coin — The sugar tariffs. The sugar tariffs, put in place by law and enforced by the USDA, are so complicated that many people give up worrying about it. After all, paying $2.25 for a five pound bag of sugar is no big deal. Unless you consider that we could be paying as low as a dollar for that five pound bag, and wholesale purchases of sugar by companies like Coca-Cola, Heinz, and Kraft would pay even less.
So here’s the Sugar Tariff in action:
- First, USDA’s Commodity Credit Corporation lends money each year to sugar cane processors at a specific rate per pound of sugar. The loans must be repaid, with interest, after nine months.
- The processors use the money to operate their factories and to pay sugar growers for the cane or beets that they deliver to the mills. Should the price of raw sugar fall below the amount set by the government at the time of the loan, the sugar processing companies are allowed to forfeit their sugar in lieu of repaying the loan.
- The law requires that this program operate at no net cost to the federal government. The government must then manipulate the market to keep sugar prices higher than the price at which the sugar companies would forfeit their product. Otherwise the government would be out of the money lent and still have the sugar to distribute, further adding to the governments net cost.
- To manipulate the market, each year the USDA estimates how much sugar Americans will consume in the following year and how much sugar U.S. growers will send to market to meet consumers demand.
- The USDA then establishes a quota for imports of sugar from foreign producers, such as the Dominican Republic, Brazil, the Philippines, and Australia. This quota allows just enough sugar in to meet demand, but not so much as to affect the already high prices.
And that, in the nutshell, is why we use HFCS in place of Cane Sugar. We inflate the cost of sugar, lower the cost of corn, and Archer Daniels Midlands buys an excessive amount of corn at excessively low costs in order to make HFCS.
If you want to get HFCS out of our foods, have the government take care of the Tariffs, the subsidies, or both.”
Beezer here. Another strong policy tool is taxes. Because of the strong anti-government and anti-tax philosophy mentioned above, the favored policy tool has been widespread reduction in tax rates. But history has shown that progressive tax rates have equal or better positive correlations to periods of strong income and job growth in America, than do tax cuts. In other words it’s not the tax rates that insure strong growth, it’s those “triggers” (often created by government investment of taxpayer dollars). The only result tax cuts have a strong positive correlation to is government deficits.
Let’s make an attempt to identify some “triggers” government policies could set in motion that would draw strong capital investment resulting in jobs and income growth.
Energy. We now import at minimum about $400 billion per year to meet our use of petroleum for agriculture, transportation and electricity. Any policies that would encourage development of substitutes for petroleum would spur innovation and private capital investment that would create new jobs in new industries. And it would reduce, if not retire completely, that $400 billion wealth transfer we now make every year to foreign producers of petroleum.
Transportation. This problem is related to the energy one. Using petroleum substitutes for transportation, and greater reliance on trains as opposed to cars and trucks, would attract new capital to existing and new companies.
Base energy production. The same goes here as above. Investments in cleaner alternatives to coal, (such as natural gas as a “bridge” to sustainable sources) as one major example, would not only enhance our standard of life economically, but our standard of health as well.
Food. Our farm system is in a shambles. And our food is quickly becoming toxic. Installing policies aimed at increasing our food system’s diversity, and at better utilizing natural techniques for fertilization and crop efficiency, would restore some badly needed balance not only to the farming industry but to our diets. A major side benefit would be a reduction in diabetes and obesity, two primary drivers of our increasing cost of health care.
Financial regulatory reform. Considering what the country has suffered, and still suffers from, one would think this “trigger” would be obvious. But amazingly it isn’t. Setting strong limits on what the taxpayer will guarantee in the financial industry and setting strong groundrules on speculation and leverage would appear to be screamingly obvious. But because of the same philosophy of lousy government and tax cuts, we still have strong opposition in Washington DC to even these basic requirements. Reform here will avoid financial disruptions in the economy, an economic boon all by itself.
From 1932 until the late 1980s (almost 60 years) the US was spared financial meltdowns when these common sense rules were in place. But because of the same philosophy the rules were weakened beginning in the 1980s, and eventually eliminated entirely in 1999. The result: Seven financial economic crisises, including the last one which may still outdo the one that created the Great Depression of the 1930s.
Health care reform. Again what should be obvious to everyone (we can’t afford the system we now have) became merely a side item on the menu. The real opponent to reform was (can you guess?) fear of government, and unwillingness to actually pay for (read lower, not more taxes) a new system. The main issues of better healthcare, cost control, and universal access to health care services for more than 30 million uninsured, became irrelevant under the onslaught of this misogynist (one of hate) philosophy.
So there’s some triggers. To Beezer they should be as obvious as the nose on one’s face. But our belief in the myth that government, due to some mysterious illness (despite more than two centuries of evidence to the contrary), can’t even pull up its figurative pants by itself remains virulent in DC and within the Republican political party as well.
Too bad. We’re well on our way to becoming a declining nation with a declining economy and declining standards of living. So much we could do, so little understanding and will to do it.