Monday, September 24, 2007


Have I been blogging overtime lately? Post-wise, certainly. I think part of it is because Forro has been out of town on business and that's resulted in more to say than usual. Part of it is also a strange confluence of events that have resulted in a lot of postworthy topics. Eventually I think things will change and it'll go back to a 5 post a week format, and eventually may be tomorrow or it may not. How mysterious is that?
Anyway, to the post. There was an article in the Journal last week (subscription required - for now) about how the US tobacco growing industry is in an upswing. How is this possible with everybody stopping their cigarette use? Because they ended subsidies of the crop! This is the opposite of what some would have you believe. I've heard numerous people say that without subsidies the simple American farmer would never be able to survive. For starters, the simple American farmer is actually a big conglomerate now, perhaps ConAgra or someone else. Second, the subsidy system penalized people trying to get in to the market. Because the government was propping up older acreage, people who wanted to get into the business had to buy a quota from someone who held one at up to 80 cents a pound. With the removal of the quotas and subsidies, that means that the break even price point on tobacco has gone way down, to where even though tobacco is currently at around 1.60 a pound, farmers are making more than they did when the government artificially kept prices at around 1.98 a pound. If there's anything to be learned from this small experiment in eliminating subsidies, it's that the market will create a nice equilibrium.

No comments: