Subsidized Prices

Agriculture and industry have been at odds as long as both have been strong enough to influence politics. In the nineteenth century, Congressmen argued over tariffs because high import tariffs helped industry and hurt agriculture. They argued about internal improvements because canals helped farmers in the north get food across the Appalachians to feed to growing numbers of cotton mill workers on the coast, but southern farmers could get by sending cotton to New England with rivers that drained into the Caribbean and Atlantic.

The ancient conflict took a different turn when Paul Volcker decided the primary cause of inflation was the constant increase in wages which pushed up the cost of goods. By chance the prices of oil and meat increased while he was promoting policies to keep wages down. The government’s answer then was not to improve wages, but to subsidize prices.

That the idea seeped into our political discourse through ranchers is probably not accidental. Since the depression, the government had been trying to ameliorate the boom-bust cycles of agriculture by restricting production, then by subsidizing prices. It was impossible not to extend the idea from one group of raw food producers to another.

Ever since, the only solution to economic problems both political parties would agree to support is subsidized prices. When college tuition got too high for the middle classes, the answer wasn’t to explore why costs were rising, but simply to argue who should benefit from the subsidy (loan) program and how onerous it should be.

Similarly, when health care costs began increasing faster than other commodities, few politicians were willing to upset their corporate contributors by investigating how costs are set. Instead, the argument became limited to how to subsidize the price, for whom and under what conditions. The higher prices rose, the larger the number of people who needed support.

Few recognized the reality that there no longer was any connection between wages and prices, and that prices continued to rise when the cost of labor was falling. Economics courses didn’t change to reflect new experiences about the hesitancy of prices to fall, when increased prices became the measure of our economic well-being. Annual increases in GDP ultimately required increased profits, which increasingly came from high prices for real estate and increased compensation for managers.

The only answer was to find more creative ways to cut the cost of labor, and so congressmen manipulated the tax code to encourage the transfer of work to cheaper countries. The gap between wages and prices increased for workers, but not managers who exploited the changes.

When contractors built more houses than there were available customers, the answer was to manipulate the price of owning a home by changing the rules of mortgages. More recently, congressmen added tax credits as a solution to the wage-price gap. Their primary concern was to stimulate housing by not allowing inflated prices to fall.

When more women had to work to supplement household incomes and the use of older children as babysitters was frowned upon and neighbors or older relatives were unavailable, the question wasn’t why are wages so low that two people must work to produce the same income as one had in the past. Instead, the answer was to manipulate the tax code to subsidize the price of childcare.

When better off families needed servants so couples could each pursue careers that demanded long hours while maintaining their physical presence in the community they found they couldn’t find affordable low-cost labor. Similarly, when those contractors needed increasingly cheaper skilled tradesmen to improve their profits or those meat producers needed inexpensive labor, they found no surplus of cheap, unemployed workers.

They did what people have done in this country since the nineteenth century; they turned to immigrants. The fact that Congress had been passing laws since World War I to restrict that labor pool was simply inconvenient. A variety of government policies and inactions that permitted illegal immigration had the effect of subsidizing the price of labor for the wealthy, contractors, and meat producers.

When many people could no longer afford to buy cars, the question wasn’t why have car prices continued to increase when fewer people work to make them and their wages have been dropping. Instead, car companies began manipulating prices with buyer incentives. When those no longer worked, the government had to step in and further subsidize the price.

Now people are beginning to ask why there are no jobs in a recession. There is no recognition that when those jobs were sent overseas, the machine tool industry also moved. You can’t restart a factory stripped of its machinery, or restart mothballed equipment when no machinists apprentices were trained to replace the people who understood machinery when they reached retirement age.

The resources are gone, and any government program, analogous to those of Alexander Hamilton, to bring them back will take time and cost money. At the time Hamilton was bitterly opposed by one political party, because he essentially advocated policies that subsidized infant industries with higher prices for imported goods. No one can begin manufacturing anything in this country without the same kinds of subsidies. Any such program would face the same opposition that met Hamilton.

The only political will is for subsidies that maintain the illusion people can afford increasing prices, while complaining about the consequences of those policies on people’s sense of initiative and responsibility. No one is quite willing to admit that perpetual subsidy is no more stable than the life on credit that marked the farmers whose problems the government first tried to solve two or three generations ago.