Saturday, January 17, 2009

Avoiding Falling Production By Reducing Production

One good example of how crazy the anti-deflation hysteria often is, can be found in this story, where the U.S. government may pay milk farmers to slaughter their cows in order to reduce milk production in the hope of raising the price of milk.

Usually, people argue against price deflation on the ground that it could cause output to fall. Which is to say, avoiding deflation is seen as a means to achieve the end of avoiding reduced output (Which it usually, but not always, isn't in reality). But here the focus on preventing the alleged scourge of deflation becomes so strong that they deliberately implement the scenario that the prevention of deflation was supposed to prevent in the first place!

5 Comments:

Anonymous Madison Classical Liberal said...

But wasn't this the same reason that Franklin D. Roosevelt had pigs slaughtered and oat/corn fields burned during the Great Depression? He also wanted to reduce output to cause a rise in prices to benefit farmers.

11:58 PM  
Blogger stefankarlsson said...

Yes, the reasoning behind that was similar, which is to say it was similarly absurd.....

12:02 AM  
Anonymous Madison Classical Liberal said...

What type of economic school or theory would this absurd line of thinking fall under? Was this brought on by Keynesian doctrine? I know Keynes promoted government spending during a recession but did he also promote the reduction of inventory levels by government? I guess I don't understand where this crazy thinking originated.

12:07 AM  
Anonymous Anonymous said...

My wife and I have been complaining about the high milk prices and would welcome a price reduction. That they are off their peak is true, yet they are still high. See here:

http://future.aae.wisc.edu/data
/monthly_values/by_area/
10?tab=prices&grid=true&area=US

This is another example of special interest politics not "letting a good crisis go to waste".

5:10 PM  
Blogger stefankarlsson said...

Madison, I'm not sure it falls under any specific school. The one "school of thought" it would fall under would be as I mentioned in the post, the general fear of deflation.

10:27 PM  

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