Free Markets, Free People

Why protectionism equals crony capitalism

The invaluable Warren Meyer at Coyote blog (one of my all time favs) has a great article up on protectionism and why its something we should be avoiding.

President Obama used a lot of his state of the union address again teeing up what sounded to me like a new round of protectionism.  Protectionism is the worst form of crony capitalism, generally benefiting a handful of producers and their employee to the detriment of 300 million US consumers and any number of companies that use the protected product as an input.

The example he uses?  Sugar.  What industry does it protect and subsidize in the end?  The producers of high fructose corn syrup (HFCS).   And what does the government tell us about HFCS?

It’s bad for us.  Sugar would be preferable.

So why do we continue to use it in place of sugar?  Protectionism.  Look at the chart he includes:

 

sugar-500x400

The chart says it all.  With the tariff added, look at the average US cost of sugar vs. the world’s average cost.

As Meyer points out though, that’s not how this gets spun:

Food activists on the Left often point to the use of High Fructose Corn Syrup (HFCS) as one of those failures of capitalism, where rapacious capitalists make money serving an inferior product.  But HFCS resulted from a scramble by food and beverage companies to find some reasonable alternative to sugar as the government has driven up sugar prices through a crazy tariff system that benefits just a tiny handful of Americans, and costs everyone else money.

Yup, the usual, convenient and usually wrong whipping boy – “market failure”.

When a tariff is involved, you’ve just moved out of the realm of real capitalism and into the realm of crony capitalism.  This has nothing to do with markets failing.  This has to do with the usual – government intrusion using their monopoly power of force which then distorts a market and causes users of the product whose price they chose to artificially inflate with a tariff to seek lower cost alternatives.

Remember, the same government that is claiming HFCS isn’t good for you is the one that’s also made it impossible to use a product that it claims is better for you (in relative terms of course):

Meyer:

For the last 10 years or so, HFCS-42 has actually traded at a price higher than the world market price for sugar, but lower than the US price for sugar.   There is a lot complexity to prices, but this seems to imply that HFCS would not be nearly as attractive a substitute for sugar if US sugar tariffs did not exist (not to mention subsidies of corn which support HFCS).  This can also be seen in the fact that HFCS has not been used nearly so often as a sugar substitute in markets outside of the US, even by the same manufacturers (like Coke) that pioneered its use in the US.

Or, if markets had been left alone, all indications are we’d be using lower cost sugar right now.

Meanwhile the government protects and subsidizes an industry that makes a product it says is worse for you .

Make sense?

~McQ

Twitter: @McQandO

55 Responses to Why protectionism equals crony capitalism

  • For decades, Chicago was the center of a world-dominating candy-making industry.

    Now, pretty much gone, and directly connected to the cost of sugar.

    BIG GOVERNMENT RUINS.

    Markets provide choice, use resources efficiently, and raise the standard of living for everyone.

    • @Ragspierre AND they screwed with my Coca-Cola and Dr. Pepper! Thank God for Mexico and Mexi-coke because they just closed the Dublin Dr Pepper bottler.

      • @looker @Ragspierre The are a whole raft of studies that HFCS is one of the leading causes of onset diabetes type II. Natural sugar, not so much.

        • @Neo_ @looker @Ragspierre Yes, I have seen those studies, and contemplated whether the Congressmen who rigged the system in favor of HFCS might one day be considered guilty of mass manslaughter. If some of the grimmer numbers are to be believed (and the studies are confirmed long term), HFCS might end up being responsible for hundreds of thousands of premature deaths.

          (For those interested in more detail, research suggests that some people are genetically pre-disposed to get liver damage from too much HFCS. So it doesn’t affect everyone, but there is a decent sized cohort of people are are so affected. Side effects of the damaged liver include bad appetite control and consequent weight gain, with type 2 diabetes as a late stage result. Best evidence to date suggests that a diet completely free of all sugars and low in other carbohydrates is the first line treatment regimen.)

        • @Billy Hollis @Neo_ @looker @Ragspierre I think you are 100% correct, and the weird thing is that there is a simple free market solution to the problem. We don’t need to ban HFCS, we just end the corn subsidies that make it cheap and end the sugar tariffs that make it expensive. Of course there are too many lobbyist dollars in the mix for either of those perfectly sensible things to happen. Sugar Barons are happy to sell less sugar for a higher price, and Big Ag is perfectly content to sell artificially cheap HFCS. Everyone wins, Big Ag, HCFS, Congress, Lobbyists. Oh, well, except for consumers, they lose.

        • @CaptinSarcastic “…we just end the corn subsidies…”

          I’d change that to “we just end all subsidies”. As long as we have them, businessmen who would rather get money via influence instead of making a better product or service will game the system, and we’ll get various unanticipated side effects.

          Not the least of which is encouraging people to screw their fellow men via government cronyism instead of doing something of value.

        • @Billy Hollis As much as I wish I could disagree with you because there is a certain logic to some subsidies, you’re right because subsidies are are a corrupting power. I can say only allow GOOD subsidies, but every lobbyist has a GOOD subsidy. Not only that, without domestic subsidies, we really could say to our global trading partners that we WILL tariff subsidized products you want to sell in America. Hard to say that now, with a straight face.

  • Sugar and other sweeteners are, in fact, so toxic to the human body that they should be regulated as strictly as alcohol by governments worldwide, according to a commentary in the current issue of the journal Nature by researchers at the University of California, San Francisco (UCSF).

    The researchers propose regulations such as taxing all foods and drinks that include added sugar, banning sales in or near schools and placing age limits on purchases.

    • @Neo_ Eat your tasteless gruel proles.

      • @looker I see the solution as merely outlawing the “collection” of campaign funds.
        You can try to give all you want and you can spend all you want, but it will be illegal to accept campaign contributions.

        • @Neo_ @looker That could actually done, legally and Constitutionally, but only to sitting members. It might be interesting to get term limits when only the challenger is spending money. Oh, but getting it passed by the guys who will lose their jobs by passing it…

    • @Neo_ I just had a sudden vision of getting a baggy of real candy when buying some nose candy from my local pusher…

      • one of these days they’ll do a study that shows we all die eventually even we exercise our little hearts out and avoid sugar, caffeine, alcohol, the temptations of loose women, and red meat.

        I know that’s kind of a revelation these days

      • @DocD @Neo_ one of these days they’ll do a study that shows we all die eventually even if we exercise our little hearts out, avoid sugar, caffeine, alcohol, the temptations of loose women, and red meat.

        I know that’s kind of a revelation these days but now that I say it, I wonder exactly what the point of life is without all the wicked things I just listed.

        • @looker @Neo_ “sugar, caffeine, alcohol, the temptations of loose women, and red meat.”

          Preferably all at once, daily.

        • @DocD @looker @Neo_ Irish coffee, with a companion, over a plate of steak and eggs…followed by a fine cigar.

          The breakfast of champions!

        • @Ragspierre @DocD @Neo_ Ah yes, but now of course they want to make blending alcohol and caffeine illegal because one kid drank too much of some over the counter mix and trashed daddy’s suburban (which wasn’t HIS fault you know, it was da drugs what did it…)
          .
          Ah, 270 million of us, suffering for one, stupid, little, asshat.

        • @looker @DocD @Neo_ All those things are awesome, until they are the mainstays of your diet, then they tend to lose their allure and your just become a bad but addictive diet. Though I can’t say what the harm of loose women is, but I am sure some sociologist could.

        • @DocD @looker @Neo_ All things in moderation, including moderation.

      • @DocD You will need a permit, like the permits required to buy Drano in Illinios

    • @Neo_ I guess we can look forward to the “tobacco” lawsuits against “big sugar” (who is NOT a character in a Tennessee Williams story).

      And the first nanny-state attempts to take chil’ren away from sugar-pushing parents.

      Cripes.

    • @Neo_ Damn! You beat me to it!

    • @Neo_ That is probably going a bit far, but there should be some middle ground. As it is, the American Beverage Association has been able to spend YOUR money on lobbyists to protect their profits from citizens interested in common sense rules that address the costs that this stuff puts on health care system. I’d say tax all products where sugar is the one of the top 3 ingredients, stop any subsidies, and do not allow foodstamp users to buy these products with foodstamp cards. I would NOT include obvious things that are made of sugar, but are not used, or intended to be consumed as purchased, such as raw sugar, syrup, and other sweet toppings and the like. If a guy wants to drink syrup to get around the tax, I’ll just have to live with that.

  • I will be interesting to see where ethanol goes. With the end of the ethanol subsidy and the tariff on Brazilian (Brazil .. Soros ?) ethanol, the whole game will change.

  • A bit off topic but since you bring up sugar…
    “Should the government regulate sugar, just like it regulates alcohol and tobacco?

    A new commentary published online in the Feb. 1 issue of Nature says sugar is just as “toxic” for people as the other two, so the government should step in to curb its consumption.”

    http://www.cbsnews.com/8301-504763_162-57369857-10391704/sugar-should-be-regulated-like-alcohol-tobacco-commentary-says/?tag=cbsnewsLeadStoriesAreaMain

    • @tkc882 The findings confirm an “Australian Paradox”—a substantial decline in refined sugars intake over the same timeframe that obesity has increased. The implication is that efforts to reduce sugar intake may reduce consumption but may not reduce the prevalence of obesity.

      • @Neo_ Whatever happened to eat right and exercise? Oh wait, that doesn’t require a massive government intervention program. My bad. Common sense is dead.

      • @tkc882 Hey. The science is settled.

      • @Neo_ @tkc882 I have read that the artificial sweeteners in diet foods may actually fool the body into expecting a lot of calories to accompany the sweet taste, and when that expectation is thwarted, it increases hunger and food intake to the point where the artificial sweetener, in a case of operant conditioning, causes the body to seek more calories than it would have had the sweetness not been introduced. In comparison to sugar, which gives the body the calories it expects with the sweet taste, satiates that caloric expectation. The answer nutrionally, not necessarily culturally or politically, is to moderate the intake of sweet tasting things, artificial or caloric. As we innovate, we need to take stock of the innovations and behave responsibly. I know you think my suggestions put the government in charge of people’s decisions but that is the opposite of my position. I just think people ought to be responsible for the decisions they make. In some cases, I think prohibitions should be eased, and in others, I think that the costs of certain choices should be brought to bear on the people making the choices. If you drink a soda a week, your cost and it’s impact on your health will be negligible, but if you drink a 12 pack a day, your cost will be considerable, as will your future healthcare costs. I am not saying take that choice away, just make people pay for those choices when we know the outcome. Those are sadly the kind of discussions that happen in a society where healthcare costs are shared. You may not want to live in such a society, but you do.

    • @tkc882 Because, you know, regulation prevents alcoholism and smoking. Specially among the poor. Fook it, I say go the whole hog and get El Presidente to declare a “War on Sugar”. At least when the poor Mexicans caught smuggling the stuff over the border they can claim they really just like sweet coffee.

      • @DocD @tkc882 “At least when the poor Mexicans caught smuggling the stuff over the border they can claim they really just like sweet coffee.”

        Dude, now you’re back to interfering with my Mexi-Coke supply of Coca-Cola with real sugar, Good thing you’re across the wide ocean, or da boys would have to come round to your place and do unfortunate things to help you see da light.

  • I could not agree more, but my take is that this is not an outlier but in fact symptomatic of they way our goverment functions in total. We protect companies with tax policies, direct subsidies, indirect subsisdies, regulation that that laege enterprises can easily absorb but are prohibitive to upstart competitors. I see a role for government in looking for (and addressing) unethical activities that would hamper competition, expecially from foreign competitors. I see nothing wrong in foreign trade, but I also seeing nothing wrong in restricting imports from countries that subsidise theor industries and abuse their labor force. By allowing, without question, imports from any without looking at unethical production methods, we will get cheaper goods, but it will artiificially drive down American labor to compete with what is essentially slave labor. Is it really fair trade to have a company who runs factories like Foxconn in China to be able displace American manufacturing? I suggest that Foxconn (or more precisely China) is deeply involved in political spending in the US (illegal in theory, but with anonymous contributions and contributions through US subsidiaries, perfectly legal) to assure that politicians don’t look behind the curtain. This is a different kind of protectionism.

    • @CaptinSarcastic Which only requires BIG GOVERNMENT, and an elite telling me what is “ethical” and what is “abuse”.

      Typical.

    • @CaptinSarcastic Is it really fair trade to have a company who runs factories like Foxconn in China to be able displace American manufacturing?

      How dare you attack by innuendo an American company which has supported progressive policies and who has Al Gore on it’s board. Everybody knows that you are supposed to single out companies run by the Koch Brothers or other enemies properly identified by your DNC masters.

      • @Neo_ Apple is no hero of the American worker. Great products to be sure, but when all is said and done, they could employ hundreds of thousands of workers in the US and the cost of Apple products might go up a few percent. The sad thing is that an uniquely American company, who subsidized by the American people at one point, now says, ““We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” There was a time when American corporations WERE people, and the were patriotic AMERICAN people. Now they are neither. There are two problems with the statement from the Apple exective above, one, that their only obligation is to make the best product, that is flat out false, they have an obligation to their shareholders to make a profit. Two, there is no way that Apple products are BETTER because they are manufactured in a Chinese government subsidized factory where worker conditions would be considered slave labor if they were in America. The right and left in our government and just two different conduits for crony capitalism, and they give We The People the illusion of choice. This is exactly what I am talking about, an honest government would say that Apple’s manufacturing is NOT a level playing field, therefore we’ll tack on a 30% tarriff for these products, enough to make it worth having them built by laborers who are not under gulag conditions. Is it a free market when we have to compete with decidely un-free markets without recourse?

  • http://justoneminute.typepad.com/main/2012/02/regulating-sugar.html

    Interesting. We presaged a lot of this yesterday. Well, one of us called it “poison” a few days ago. What a trend-setter.

    • @Ragspierre Sugar, in and of itself is a poison, slow acting to be sure, but empty calories which CAN serve to enhance the taste of actual nutritious foods, but have ZERO functional value as the main ingredient in a food or beverage. Unless of course you value the logic of a six year old, “but it tastes good”. It is my understanding that anti-freeze tastes good, but we don’t drink anti-freeze. The main difference is that the poisonous affects of anti-freeze are immediate with small doses, and the poisonous effects of sugar require large doses over a long period. However, I am not one to say that people can’t kill themselves if they choose to, I would oppose any efforts to ban sugar or sugar sodas. But I also do not feel that it is appropriate that I would be forced to pay for someone’s bad decisions. No taxpayer dollars should pay for sugar sodas, we should not subsidize the sugar industry.

      • @CaptinSarcastic @Ragspierre logic of a six year old “”but it tastes good” Oh, please.
        We don’t eat cardboard. We have 5000 years of civilization experimenting with foods and spices to find things that appeal to our taste buds. Eating is something we HAVE to do so why is it the logic of a six year old to want it to taste good?

        Water is poison if you drink too much of it. Moderation. Geeze was today your day to be drama queen? Kill themselves from eating “poisonous” old sugar, sigh.

        Now, as to subsidies, different story entirely. Since I don’t want to feed college students on welfare dollars, I’ll sign on to any bill you put forward that says we shouldn’t be subsidizing the sugar industry.

        And speaking of subsidies, let me guess where these yahoos got their funding to study the horrible horrible toxic substance known as sugar.

        • @looker @Ragspierre Okay, water and sugar are equivelant, both are absolutely essential to sustaining human life, nothing left to argue here.

        • @CaptinSarcastic @Ragspierre Seriously, will you contend that we don’t need any sugar at all in our diets? That we derive nothing from it of value and that’s it merely a poison that we’d be totally better off without? Completely?

          I mean, I’m as aghast as the next, presumably sensible, man at the statistics for American consumption of sugar since the 1950′s and hope I’m not consuming NEARLY that quantity, so I’ll agree, we could cut back on sugar in our diets, but it’s a bit much to go whole hog on it. There are plenty of very natural things we eat that contain it without adding any of the cane or corn or beet variety.

          In fact, my discovery was that things I hadn’t thought of as sweet, suddenly were sweeter when I layed off regular consumption of soft drinks and processed foods. The one that comes to mind was limes!

          And herein lies the problem, you want the government regulating that, too? Where do they stop? How do you prevent them from treating it like they do the commerce clause, where they can really justify anything they like.

        • @CaptinSarcastic @Ragspierre And no, I was joking below, I don’t consume a lot of Coca-Cola, but as the most interesting man in the world says ‘but when I do”….

        • @looker @Ragspierre I never suggested that sugar be removed, I am trying to say that in and of itself it is a poison rather than a food. I would not put a single regulation in place to force anyone to stop using using sugar. But what I WOULD do is put a tax on products where the primary ingredient, besides water or non-nutritional filler is sugar. I don’t necessarily believe this would discourage consumption, that would be a nice side benefit, but the main benefit would be to counter-act the healthcosts created by over-consumption of individuals. We are ALL paying for it now, this would just bring some of the costs closer to the cost creating individuals. If I had to pay an extra dime for a Coke, it would cost me about $4.00 a year. I can live with that. If someone drank a 12 pack a day, it would cost closer to $400.00. That is likely a pittance in comparison to the healthcare costs they are going to foist on you, but it least it has them putting a little skin in the game. And besides, it will be a regressive tax on poor people, y’all should love that!

        • @CaptinSarcastic @looker “…in and of itself it is a poison rather than a food…”

          Gawd, what an idiot. A poison your body is tuned to crave and metabolize.

        • @CaptinSarcastic @Ragspierre If you tax sugar and drive down it’s consumption, inevitably you will effectively subsidized (via punishment) some other product. Nature abhors a vacuum and people WILL find an alternative taste substitute.
          What if we discover Dr Sugar and Sugar have a back line to the Truvia lobby?
          Did they just decide to do this study on sugar because they were bored? Cui Bono?

          So if you don’t want to subsidize it, you should also be against taxing it. They are opposites sides of the government picking winners coin.

          Ah, the “we all pay for it!” ploy. We are ALL paying for a whole lot of things right now that I don’t think we should be paying for. The effectively ultra long term effect of sugar, an item that has been in recipes since we figured out we could squash the substance out of bees nests and cane plants (read, a long long long time) on health care for the majority of the population is not one of them.

          And I should love that idea that you want me to pay for health care AND you want to select WHY I pay for it? I don’t want to pay for it, it’s not the government’s job to pay for it, subsidize it, or otherwise get involved in it other than to make sure they somone’s not turning us into Soylent Green before our time.

          I don’t accept your premise that I need to stop it because it costs me as a result of health care, because I don’t accept your premise that I’m responsible for paying for everyone else’s healthcare.

          “If I had to pay an extra dime for a Coke, it would cost me about $4.00 a year. I can live with that. If someone drank a 12 pack a day, it would cost closer to $400.00.”
          And good of you to look out for the welfare of others being willing to stand on the principle and tax them for something you don’t do. That’s the kind of stand that allows for random stop search and seizure because ‘you’ never do anything wrong so you don’t care if the police start doing that to everyone else.

        • @Ragspierre @looker A normal healthy physiological need is satisifed by sweet elements in nature. We all have a predisposition that was born of a need for nature to ensure that humans were drawn to the taste of nutritional necessities such as apples, oranges, bananas, and other naturally sweet, and vitamin packed, biologically indispensable foods. To suggest that pure processed sugar or HCFS is what the body was tuned to crave and therefore natural in any way is to completely misunderstand the evolutionary development of human nutrition. In nature, sweetness is physiologically associated with high caloric value, a valued commodity in a world where calories are harder to come by. When this processed nutrionless garbage was developed through technological advancement, our physiology did not change, just our ability to consume toxic amounts of it. But thanks for giving me the opportunity to point this out to people who will understand it.

        • @CaptinSarcastic @looker What I gave you was the chance to prove you’re an idiot, and stubborn about your idiocy.

          You took it.

  • The U.S. became an industrial giant behind the highest tariff wall in the world. So, it’s not as simple as turning one’s nose up at tariff protection.

    Hamilton’s original consideration of protection was for the benefit of labor, not capital, which he believed would always look out for itself. (Hamilton was an advocate of manufacturing, of whom the growers were suspicious; Henry Clay implemented his basic program and it became known as “the American system.”) But it’s probably true that you can either have protection or labor unions and minimum wage laws, but not both. (Public employee “unions” are not really unions. They constitute a political-government class, a nomenklatura, that sits on the same side of the table as the government they work for, forcing that government to use its force to take more for them from taxpayers.)

    Free trade is the current paradigm, but can you have it with completely manipulative and decidedly un-free countries like China? U.S. population is 300 million; China can throw just a part of its workforce at us that would be that large below our domestic labor costs. Our employment costs *are* our welfare consort. You now have kids in multi-generation families where virtually no one has ever had a job. The elites sniffle and call this “social pathology” and the teachers unions insist that these kids go to useless schools to keep enrollments up, so that the number of jobs is maintained.

    So, it’s not as easy as crony-capitalism.

  • HFCS and sugar tariffs have direct links to crony capitalist ADM and the imposing of worthless corn-based ethanol upon the U.S. economy. Mises has the story which goes waaay back to America’s first racist joker from the USDA — Earl “Rusty” Butts. Check it out.

    http://mises.org/daily/3934