Giving food to the third world. Helping out your fellow man or heartless economic terrorism?

by: Brandon

I know this might sound insane but don't go deleting us from your bookmarks just yet.

How could giving food to starving people ever be a bad thing?!?! Well, that's what I'm going to try to explain with a few graphs and hopefully a little bit of rational thinking. Just stick with me and try to be open minded.

We as United States citizens have been blessed with an abundance of food. Many of us have never been, nor will we ever be hungry. Food is everywhere, so why not help out our fellow man by giving them what we have left over? That's why the Democratic Party pushed for P.L. 480 back in 1954 when Dwight D. Eisenhower was in office. When President John F. Kennedy was president, he renamed the project to "Food for Peace". This bill then became the "Federal Agriculture Improvement and Reform Act of 1996" (FAIR) during the Clinton administration (noticing a pattern evolving here?).

This program subsidizes domestic goods (buys food from U.S. farmers with your tax dollars) and gives that food to foreign governments as a low interest loan (2 to 4%) with many grace periods and leniency on repayments. These governments then turn around and sell the food to their citizens to raise cash for their governments. This is intended to help that particular country develop economically... but the road to hell is paved with good intentions.

Side Note: Isn't it interesting how our government makes all of these loans with our tax dollars and they don't repay us any of the interest they profit from them? Not just food, but when they bail out industries too... It just seems to me that I should get a check at the end of the year for that 2 to 4% profit off of the interest they made from the loan... maybe instead of it going back into some sort of pork project... Anywhoooooo…

Okay, now let's imagine that there are 1 million basket balls in the world and the price that unregulated markets are willing to pay for those basket balls is $1 each. Now let's imagine that 1 million more basket balls fall out of the sky one day. How much are all the basket balls worth now? Well, probably about half of what they were worth before right (in this example anyway)?

Let's see this in graph form:



S = Supply
D = Demand
P = Price
Q = Quantity Demanded

The first graph represents a standard supply and demand curve for an unregulated market. Supply and demand are inversely related so that when there is a large supply of something there is less demand for it and vice versa. The dot in the middle represents the equilibrium price and quantity demanded. In this example it's for basket balls.

The second graph illustrates what happens when you dump (and I use that word on purpose) basket balls into an economy. As you can see there is a shift in supply expanding it outward. In effect this decreases the price for basket balls and increases the quantity demanded at that price (in the short run).

Now I know some of you out there have put 2 and 2 together any you know we're not talking about basket balls here... we're really talking about corn, wheat, honey, cotton etc. and you might be thinking to yourself "Okay, we've doubled the amount of food they have and decreased the price that these poor people have to pay for it. I see no problem here... this Brandon guy is an idiot". Stick with me.

It's time to ask our selves what our goal is here. Do we want to these people to eat for a day, or eat for a lifetime? In the short term, this does combat world hunger. In the long run, we keep are keeping third world countries poor. I'll explain.

For the sake of math, let's keep this example simple with some made up imaginary numbers. Let's say that you're a farmer and you grow corn. Let's say that you can grow 100 cobs of corn every year and they cost you $0.75 each to grow. Let's also say that you are able to sell your corn for $1 each and make a profit of $.025 each (equilibrium price in an unregulated market). Now let's imagine that the United States government dumps an additional 100 cobs of corn into your economy. Now the price of corn is artificially deflated to be only worth $0.50 each to the consumer, but it still costs the farmer $0.75 each to produce. Now the farmer is losing $0.25 per cob of corn.

This is similar to when chicken farmers in the United States drowned all of their baby chickens because they couldn't afford to raise them and they couldn't afford to sell them. It seemed heartless to most people but what were they supposed to do? Let them starve to death slowly in a field somewhere?

This is the problem. Government intervention of free markets has now provided disincentives for the farmers in these countries to continue to grow corn. You have put them out of business and now the country relies only on the federal food relief that was given to the country. Now that these farmers are not making food anymore we're back to square one on the amount of food that's in the economy. No additional people have been fed, the price will find a newer and higher equilibrium again, and it doesn't make economic sense for local farmers to grow their own corn. Not to mention, we, the United States Tax Payers, footed the bill for this mess.

So what about the non farmers in these countries who have no understanding of how this works? Now they somehow feel entitled to these food programs. How are their governments (who are profiting from these programs) going to portray us when we withdraw these food programs? The point is we shouldn't have gotten involved in the first place. Government intervention in business = bad. Period.

So what am I suggesting here? Is it always a bad thing to give food to other countries? Well sometimes bad things happen to good people. Sometimes there are floods and hurricanes and food crops are completely wiped out. Sometimes people are in desperate need of short term help. Although I don't believe that it's necessarily the governments job to step in with tax payer dollars to help out, I do think it's okay to help out your fellow man every once in a while. Who knows? You might be down on your luck one day. Just seriously rethink the consequences before you act in the long run. These programs have been around for more than 50 years now.

A voice of reason...

by: Brandon (re-post from 2008)

Last year I bought a new car. I really needed a SUV because my new beetle wasn't cutting it anymore. I was hauling all sorts of junk in it for my t-shirt business and lumber to work on my house and it just didn't make sense anymore.

While shopping around for a new car I came up with the following list of wants / needs.

Needs:
1. Seat at least 7 people (because I needed to take it on the road for band stuff)
2. Tows a large trailer (for band equipment & my merchandise business).
3. Gets 20+ miles to the gallon.

Wants:
CD Player

I went to all the websites. I did all the research. I asked around for family and friends advice. I finally decided on a v6 Toyota Highlander because it met all of my needs and wants and towed 6000 lbs. I bought it used with 20,000 miles on it for less than $18,000 (The new price being somewhere around 20k to 22k).

A few months later, a family member came over to my house with a beautiful new GM Tahoe. It was the base model of the car but it still had leather heated seats, navigation, DVD, and all the bells and whistles. It seated 7 people and towed 6000 lbs. And it got an amazing 25 miles to the gallon. I have to admit, I was rather envious... that is until she told me how much she paid for it... $40,000!!!

Let's do some math here. Let's say that gas costs $5.00 per gallon from now until I sell this car (probably 5 years or 100,000 miles which ever comes first). Let's say that I put another 80,000 miles on the car. If I get 20 miles to the gallon, I will have used 4000 gallons of fuel and paid $20,000 in gas over 5 years. Now let's look at the Tahoe. If I use the same math I would have consumed 3200 gallons of fuel and spent $16,000. A price difference of $4,000 does not justify spending another $22,000 on a car today, or over the course of 5 years (and that's gas calculated at $5.00 a gallon, the numbers would be signifigantly different if calculated at today's $2.00 prices increasing through 2013 prices).

I guess the point I'm trying to make here is that GM has been building cars that are too expensive and ignoring what most consumers want for too long. They have spent too much time fighting legislature against gas guzzlers and handing out $1.99 gas cards for a year to get people to buy their cars. Overall poor management.

There are 4 costs that pretty much contribute to the price of any good. They are Raw Materials, Setup / Development costs, Labor, and Taxes. Well, taxes are pretty much impossible to control (except by voting responsibly) and they get bigger every year. Setup and development costs are needed to develop any new product and usually fixed, but managed wisely can reduce some costs. Raw materials, just like anything else, get more expensive as the resources required to make them become more sparse. So how do you control costs? Well, labor get's its own paragraph...

Labor is difficult to control, especially in the auto industry. Lets say you need to decrease supply to reach equilibrium because you're making too many cars and not enough people are buying them, and therefore you need to lay off workers that are not needed to produce those goods, how can you do that when you're going to get sued by some labor union or you have to pay them severance pay? This is probably the highest cost of the car... along with the several features that you think are cool but could live without. This is why American industries ship their production out of the country... to control labor cost. They do this because they're tired of labor unions pushing them around and telling them how to run their business. Shipping jobs elsewhere (to areas of inexpensive labor) is not always a bad thing because we as consumers enjoy cheaper products. When we have money and we want to spend it this is good. However, when we don't have money and we need to earn it, this is a bad thing. Any government or union interference with labor wages is a bad thing because it drives wages above the equilibrium price. Period. If an automaker can only afford to spend a fixed amount of money on its labor, and someone is artificially increasing the price of that labor, then they will higher fewer employees to fill that gap.

So how do we get out of this mess? Well first of all, giving them tax payer money won't help anything. Why? Well if you give money to a known crack addict to buy food, what do you think they will do with it? The auto industry is no different. Just let the market work itself out... and it will.

When you start saying "Oh, we have to protect the banking industry because if we don't the world will end", where can you draw the line? The same thing could be said for every industry in the United States whether it be Automakers, Semiconductors, Farming, Fishing, Underwater Basket Weavers or whatever. Well, my business has been pretty slow lately, maybe I'm entitled to a handout too. Perhaps I should charter a private jet to capitol hill? Well, I don't really think that because I think that I'm a responsible individual and if I handle my business and finances poorly I should be allowed to fail.

The fact of the matter is, the government has no business in business. They are there to do one thing... what we the citizens of the United States can't do on our own... and trust me, we know how to innovate and conduct good business. When a company fails, others will buy up their assets cheap and make a killing off of it and they won't repeat the mistakes of their predecessors.

If you want to see protectionism at it's worst, watch the following video. This is what happens when you over protect an industry... and not just the auto industry, but any industry (ie: banking, housing, semiconductors etc...):



I love how the breaks lock up and the car stalls at the end of the video. Priceless.


More good information can be found here:
Commanding Heights
Commanding Heights on Google Video


PS: Try to pay attention to see which political party votes for handing out your tax dollars to the auto industry. Maybe you should vote against them in the next election. Check out www.votesmart.org for voting records.


2009 UPDATE: Guess what, we just threw billions more of taxpayer's money at them and they still went into bankruptcy. Awesome! The democratic party will probably do a much better job of running GM anyway.

Will someone please explain...

by: Brandon (Re-Post from 2008)

Will someone please explain to me why $1.5 billion of our tax dollars went to buying people digital converter boxes for their old TV's?

Okay, so I'll give them the benefit of the doubt. I guess you could make the argument that "People get their news from TV (if you can call what comes on CNN or ABC "news"). What if there's a nuclear war or natural disaster. How will people get information on what to do?". That's about the only thing I can think of... but why does everyone need 2 converters? One wouldn't be sufficient for this task?

I'm also tired of people agreeing with me with comments like "Ya! That money should have gone to education, or feeding the homeless, or fixing roads, or to the unemployed underwater basket weaver's union" or some crap like that. The money should have stayed in our (the taxpayers) pockets... period.

Why do I need to give the government money so they can turn around and give it right back to me for things that I'm perfectly capable of doing on my own? If you can't afford a $40 converter box, you shouldn't be watching TV.

I'd also like to point out that due to the law of adverse selection, the less than 10% of US Citizens who really would have benefited from these (ie: the elderly) probably have no access to the internet so they couldn't order their government coupons to begin with.

You didn't even have to provide any proof of anything when you ordered these things other than a residential address. So now that all of the rest of us (including non-tax paying illegal aliens) have gotten them, the government will try to increase that $1.5 billion to pay for another round of them later this year.

Fantastic!


2009 UPDATE: Guess what, the government did move back the conversion date and they did add to that $1.5 Billion dollar budget. I wonder how many people there are out there like me who followed the law of adverse selection and bought them only to leave them in the box because I already have cable.

I did a quick google and according to the OC Register, here are some more interesting numbers:

Included within the additional funding for this useless social welfare program:

$54,000 for DTV Transition Maps awarded to Hammett & Edison.
$12 million for DTV call center support services awarded to IBM Corp.
$1.3 million for DTV magazine advertising for elderly and people with disabilities.
$1.5 million for FCC DTV Consumer Education Support Services awarded to Ketchum Inc.
$3.5 million for public relations and advertising awarded to Burson-Marsteller.


Interesting...