Fitz
Diminishing Margarine Returns
Norway is undergoing a mass butter shortage just in time for the holidays. Some reports have pegged that the black market price of butter has hit as high as 3,000 kroner, or $515 for a half-kilo of the yellow spread. A Russian man was arrested for trying to smuggle 90 kilos of butter, apparently with a street value of $92,000 (margarine of error +- 98%) into the country. Are there any questions as to one – and only one – culprit that could cause this: Diet craze causes butter shortage.
Wait, what? A diet craze is causing a shortage of butter? Are they putting it on a stick and deep frying it? Never mind, thats Iowa. So what is causing this dairy crisis?
“Many are blaming Tine for not addressing the butter shortage sooner and being slow to acquire butter from outside countries.” Tine is Norway’s largest dairy co-operative with a monopolistic 85% of the market.
“I think this is absolutely ridiculous,” Svetlana Paludo told Norwegian Broadcasting (NRK). “It’s terrible with monopolies.”‘ Or, with a little license, I might edit: ‘It’s terrible with government-imposed protectionist monopolies.’
Here ‘s more: Butter Shortage Hits Norway. Again, why? “The reasons behind the Norwegian butter shortage are similar to those recognised also in Finland. The demand is suspected of having skyrocketed as more and more people now favour low-carbohydrate diets and organic food.”
Low-carb diets are fairly popular in the US, too, but we don’t have this problem. Maybe we can sell some of our butter to the Norwegians, since it is cheaper here? That’s how trade, and capitalism, work. With transportation and logistics technology today, shipping should not be a major problem, even in a low-margin business like butter.
Oh, wait. “Norway is not an EU country, and the import tariff on butter from abroad has been set at 25 Norwegian krone (EUR 3.30, USD $4.33) per kg. For this reason dairies from other Nordic Countries do not really export their products into Norway at all.”
So, in conclusion, let’s blame the mega-conglom-co Tine for failing to accurately predict and prepare for changes in consumer preferences. The fact that the government has made it economically disastrous to attempt to compete with them has little to do with their, and the local market’s, failure.
At least there was some recognition of a root cause: ‘After the butter shortage hit the country, Norway agreed to lower the import levy to a mere four krone per kilogramme of butter, a move that failed to resolve the problem.’ Might that failure have something to do with totally-missing-the-point?: ‘“We have nothing to offer at such short notice. Also, from the business point of view such short-term activities are not really worthwhile. Norway has already communicated that the Customs duties will be raised back to normal on January 1st [emphasis added]‘, Brøgger says.” Because it isn’t like businesses plan for the future or anything.
“Butter shortage” rightly has the ring of a history lesson concerning the inability of communist economies to meet basic human needs. That any Norwegian doubts that the dairy tariff is the primary – indeed, only – culprit in there being a shortage of butter in a modern, industrialized economy, seems to present a compelling argument that rudimentary economic thinking still hasn’t made much of a dent in the more popular mercantilist mindset.
On why alien invasions can’t fix economies
Back in August of this year, 2008 Nobel laureate and Keynes disciple Paul Krugman (pictured left) made the following statement:
“If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months,” he said. “And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better–”
“We need Orson Welles, is what you’re saying,” Harvard economist Ken Rogoff interrupted.
“There was a ‘Twilight Zone’ episode like this in which scientists fake an alien threat in order to achieve world peace,” Krugman continued. “Well, this time, we don’t need it, we need it in order to get some fiscal stimulus.”
I mentioned this in the about section of this blog, but the logic is so ridiculous to me that it demands its own article. Yes, I realize he’s saying it tongue-in-cheek. Thats not what makes the statement ridiculous. What makes the statement ridiculous is that he actually thinks that redirecting the productive capacity of this nation towards fighting off any enemy would benefit society. Keynesians love using examples like this to justify government spending on war. After all, World War II was the sole reason we escaped the Great Depression, right? (Well, empirically, no)
Krugman’s alien invasion scenario is a metaphor for a World War III. Using common sense and a little bit of historical knowledge, its easy to see why a third World War would be a bad thing for the economy (and humans in general). Sure, we’d probably have a drastic reduction in unemployment. We’d probably have a shortage of labor even, requiring production in other areas to be interrupted andredirected to helping the war effort. Thats exactly what happened in the 1940s.
Full employment is a nice metric, but an economy isn’t necessarily healthy if it has full employment. An economy is healthy if the needs and wants of its people are met and even exceeded (prior to this year, I had no idea what an iPad could do for me). Life during wartime is a life of austerity (it ain’t no party…it ain’t no disco). I was watching a documentary on H.J. Heinz the other day and during WWII, the government had Heinz convert his main factory to build war planes instead of ketchup (talk about a 180). The picture to the right is the ad that Heinz ran after the war when they converted their factory back (check out the bottom line: “- with all the zest of it’s PRE-WAR FLAVOUR!”). But in Krugman’s war economy, “frivolous” things like iPads and ketchup don’t get produced. To quote a rapping Hayek, “If all the workers were employed in the army and fleet, we’d have full employment, and nothing to eat.” Or, to quote David Byrne in his classic song ‘Life During Wartime’:
I got some groceries, some Peanut Butter
To last a couple of days.But I ain’t got no speakers, Ain’t got no headphones
Ain’t got no records to play.
Bottom line is we do not better society by spending our scarce resources (time and money) on wasteful endeavors. The opportunity costs are tremendous because at the end of Krugman’s 18 month farce, instead of an economy with better technology, farming practices and manufacturing processes, we have anti-space ship weapons. What the hell are we going to do with those? But to a Keynesian, a spoon is a shovel is a backhoe. Tell that to the construction worker looking a dig out a foundation, or the mother looking to feed a baby. What we spend our time and resources on matters.
On the Occupy Wall Street movement
It amazes me how Austrian-schooled economists can make comments that many dismiss when they first make them, but later on seem like they were speaking with advance knowledge of whats to come. I wanted to write a post about the Occupy Wall Street movement and I stumbled upon this video from a congressional testamony by George Mason University economics professor Russell Roberts. Here are his opening remarks:
Americans are angry about executive compensation.
Rightfully so.
The executives at General Motors and Chrysler don’t deserve to make a lot of money. They made bad products that people didn’t want to buy.
The executives on Wall Street don’t deserve to make a lot of money. They were reckless. They borrowed huge sums to make bets that didn’t pay off. And they wasted trillions of dollars of precious capital, funneling it into housing instead of health innovation or high mileage cars or a thousand investments more productive than more and bigger houses.
Everyday folks who are out of work through no fault of their own want to know why people who made bad decisions not only have a job but a big salary to go with it.
No wonder they’re angry at Wall Street.
But if we keep getting angry at Wall Street, we’ll miss the real source of the problem. It’s right here. In Washington.
We are what we do. Not what we wish to be. Not what we say we are. But what we do. And what we do here in Washington is rescue big companies and rich people from the consequences of their mistakes. When mistakes don’t cost you anything, you do more of them.
It sounds like he’s talking about the Occupy Wall Street movement. However, he made those comments before congress on October 28, 2009, almost 2 years before the first tent was pitched in Zuccotti Park.
I think his comments sum up my feelings about Occupy Wall Street exactly. People are rightfully angry at Wall Street for the situation that they have put our economy. However, you cannot blame the puppet without blaming the puppet master. People need to be equally angry at the moral hazard that government policies have created that guaranteed the risks the banks were taking with regard to the housing market.
This “crony-capitalism,” where corporations facing huge losses are bailed out by the government is being mistaken for real capitalism. Capitalism is a system of profit and loss. Potential profits encourage risk taking, while the potential losses encourage prudence. If you tell banks that they should make risky loans (i.e. sub-prime loans) and in return, the losses will be absorbed by the government (which is what Fannie Mae and Freddie Mac were chartered to do), no wonder these banks leveraged themselves to the hilt.
So instead of occupying Wall Street, occupy Fannie Mae, occupy Freddie Mac, occupy the Fed, and Occupy Congress for chartering these organizations. Don’t occupy retail stores this Black Friday, because then it really makes you look anti-capitalism. And by preventing companies’ ledgers from going from red to black, you’re only hurting the 99% you claim to represent when those companies take losses and are forced to lay off workers.