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Thoughts on Conventional Wisdom

Two confessions up front: First, I’m not an economist by any definition of that term, and second, if I can avoid entering a supermarket for any reason, I’ll do it.

But even with a 13-billion-bushel corn crop predicted, I’m still having problems getting my mind around various think tank and university reports on how $4 corn doesn’t translate into higher food costs. If there’s no relationship, why then do I keep hearing people talk — in tones of shock and awe — about $5-a-gallon milk and hefty burger prices?

I understand about the law of supply and demand, and I know we “cycle” our brains out in animal ag, but when I read that Iowa State has said that a 30% runup in corn prices only translates to a 1.1% increase in consumer cost, I’m left scratching my head. So by that model, if corn last year was roughly $2 a bushel, and it’s $4 a bushel now, that’s 100% price increase, which means — and I admit this is as rough as a DC street after the snow plow’s passed by — are we not then looking at about a 4% increase in food costs attributable to corn prices?

Maybe for some that’s a “minor” jump, but for the vast majority of U.S. consumers, a 4% rise in any of their cost of living components means serious budget rebalancing.

I guess I come at this as less of an intellectual or econometric modeling exercise and more from the perspective of how are some of these folks going to pay, and if they can’t, which food products do they cross off the grocery list?
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Another head scratcher: Why, if this country’s food safety regulatory system is supposedly broken — and judging by the number of recalls and various legislative proposals out there to “fix” it, it must be broken — are we going “enhance” that food safety system by increasing regulations and hitting food and ingredient imports with users fees to pay for the new system?

Traditionally — yes, I know I’m supposed to be thinking outside the box — when a program is imposed by the federal government to solve a problem of the public good, the federal government pays for it. When a program’s value accrues to the company, the company pays for it. Then why has every “imported food safety improvement” bill that’s been introduced carry user fees to be imposed on every product and ingredient imported into the U.S.?

The fact that FDA’s budget has been shrunk over the years by federal appropriators notwithstanding, I guess it’s because the Dems can’t afford to be seen as the spendthrifts they accuse the GOP of being for the last several years. But I’d argue, based on the appropriations bills that have been passed thus far, the odds of this Congress coming anywhere near balancing a budget or reducing the deficit are pretty much slim and none.

A bridge collapse in Minneapolis brings a Democrat proposal to hike the gasoline tax by five cents a gallon to pay for bridge inspection and reconstruction, but a CNN poll shows 65% of the public opposes the tax increase. Returning to the mantra of the previous item: How will the public feel when food prices go up because of the additional cost of importing every fruit, vegetable, meat, grain, oilseed, mineral and other animal nutrient? I guess “pay-as-you-go” now applies to private industry, and industry’s being told it gets to pay for the right to be even more regulated.