On economics help, we get to see a how political failure is cast as market failure.
Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy, it fails to address issues relating to agriculture.
Then the author compounds the error by stating that the volatility of weather creates a volatility in prices:
The problem of volatile prices is that:
1. A sharp drop in price leads to a fall in revenue for farmers. Farmers could easily go out of business if their is a glut in supply because prices can plummet below cost.
2. Cobweb Theory. The cobweb theory suggests prices can become stuck in a cycle of ever-increasing volatility. E.g. if prices fall like in the above example. Many farmers will go out of business. Next year supply will fall. This causes price to increase. However, this higher price acts as incentive for greater supply. Therefore, next year supply increases and prices plummet again!.
3. Consumers can be faced with rapid increase in food prices which reduces their disposable income.
To which I replied:
Fascinating. Fascinating that you would consider any of these properties a market failure.
1) Farming has declined as an employer of people since 1900 to the point where it is now little more than a subsidized hobby industry that we support for purely aesthetic reasons. For that reason alone, it cannot experience ‘market failure’. It’s a commoditized industry. Farming is an industrial occupation for conglomerates. Everyone else in the business is in it out of love or habit not profit.
2) The US western expansion was created in an era of farming, and the land settled by farmers (and ranchers). The era of industrial expansion was created to support the expansion of farming. Now that farming has become mechanized and industrialized, people are leaving the breadbasket for the commercial and technological centers – that’s why those parts of the country are being depopulated.
3) It is impossible for farming to experience ‘market failure’. It is only possible for people to cling to an unproductive means of production, and to fail to develop alternative careers.
The problem is political failure. Not market failure. Markets can’t fail. They can be insufficient to solve certain problems of capital concentration that only governments can accomplish. The political failure of attempting to persist farming is a failure because the market is telling us that farming is no longer valuable as an occupation. The political system is failing because it cannot develop alternatives to farming fast enough.
It’s a problem of political failure not market failure. And it’s human failure. The romantic and luddite desire for antiquated means of production.