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EScroogeJr (< 20)

How soon will the US introduce export quotas?

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April 23, 2008 – Comments (7)

All over the world, from Russia to Argentina, governments' response to agflation has been uniform: limit the export of grain or whatever agricultural commodity the country in question happens to produce. This goes against the textbook, officials quietly acnowledge, but it's one thing to read the Wealth of Nations in your study over a cup of coffee with a sandwich, and quite another to watch food riots from out the window of your car on your way to a policy meeting. When a shortage becomes real enough,  governments always introduce quotas and rationing, even if it makes Adam Smith turn over in his grave. So it's only a question of price point at which the US government will have to put a limit on exports. The repercussions of this move will be quite serious. First, if if happens, importing countries could easily see the price of food double or triple. Which, in turn, should ruin some economies, devalue some currencies and put an end to some economic growth stories. Secondly, we'll likely see a global boom in agricultural equipment and irrigation projects, and possibly, some wars over water supplies. Third, OPEC countries, which have lots of oil but very little grain, will feel an urge to retaliate with oil export quotas, which will be another fascinating story to watch. And yet I don't see how the US can avoid such measures for too long. Food inflation is the nastiest kind of inflation, and, besides, the timing could not have been worse: just when landlords need a rent increase to turn the ATM back on, it turns out that renters have spent everything on groceries and the rental check fails to arrive. And that would be really nasty for everyone. No imputed rents - no appreciation, no HELOCs, no economic expansion at zero cost as you enjoy the HELOC-driven demand without having to pay wages. At some point the pressure to switch from the "invisible hand" to old-fashioned regulation will become too irresistable.

7 Comments – Post Your Own

#1) On April 23, 2008 at 8:31 PM, Imperial1964 (97.91) wrote:

Retaliatory quotas could trigger a depression.  And with a congress run by democrats and a whitehouse that will probably go that way too, some degree of protectionism is inevitable.

Not that the last congress or current administration have managed the economy well.

Treacherous waters we tread... 

 

Oh, and to answer your question: It won't happen until after the presidential election.

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#2) On April 23, 2008 at 10:00 PM, FourthAxis (< 20) wrote:

I just dropped a blog about how Sam's Club and Costco are limiting rice sales.  In the US?  WOW.

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#3) On April 24, 2008 at 12:53 PM, leohaas (93.95) wrote:

In general, it is IMPORT quotas and duties that lead to retaliation, not export quotas! And for poor countries barely able to produce enough food to feed the own population, export quotas make sense. Anything is better than food riots, just ask Marie Antoinette...

The US is quite capable of growing plenty of food for itself. As a matter of fact, we subsidize agriculture with billions a year to make sure we have an enormous food overproduction. There is no need to fear that we'd ever need to import any food (unless the Yellowstone supervolcano erupts). Therefore, export quotas set by other countries are inconsequential to us in the US.

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#4) On April 24, 2008 at 2:25 PM, EScroogeJr (< 20) wrote:

It's wrong to think that once we can ourselves, there's no need to put a limit on trade. If prices are higher on the international market, then all the food originally intended for domestic consumption gets exported until domestic prices catch up. So you will still have to compete with foreign consumers for food even though you think that "we grow enough".

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#5) On April 24, 2008 at 10:18 PM, leohaas (93.95) wrote:

We don't grow enough, we grow way too much thanks to our farm subsidies. Maybe the Chinese can funnel some of our dollars back by buying all the corn that now goes into supersizing! That will resolve 2 of our biggest problems at once: we will be lowering our trade deficit and our obesity rates...

See, we can afford the doubling of the corn prices: 6 cents worth of corn in a box of corn flakes instead of 3 cents does not make any difference to us. For those living on $2 a day, like about 2 billion of the people on this earth, that is the difference  between scraping by and starving!

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#6) On May 01, 2008 at 2:50 PM, FleaBagger (33.11) wrote:

Right on about the farm sibsidies, leo. (Is that the first time we've agreed on anything political?) Food shortages are caused by government interference, not the lack of government interference, Scrooge, so less interference in the market would be a less destructive, more effective way of handling the problem. Some great Englishperson once told a Russian counterpart, when asked how England always managed to feed her people without growing nearly enough food on its own land, "England's people feed themselves."

That is why free countries never suffer famine, and centrally controlled countries do with alarming frequency, irrespective of agricultural potential.

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#7) On May 01, 2008 at 8:15 PM, EScroogeJr (< 20) wrote:

FleaBagger, the question of government interference is a complex one. I could give you arguments both for and against it. It does seem that a free market system works better in most situations. However, it's not like people will always find ways to feed themselves in a free market economy. To take a second look at your example, you would do much better as a Russian serf than as an English peasant who happens to live during the period of enclosures.

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