Wednesday, April 28, 2010

Government intervention and economics in Iowa farming

Iowa Congressman Leonard Boswell (D-IA) is getting ready to develop a new farm bill. He has plans to speak to Iowa farmers as well as start the ball rolling in the House committee meetings. Most likely, the Congress will think of new ways to intervene in the agriculture sector of the economy (including Iowa's) and create unintended consequences.

The Federal government has been distorting the farming sector for many decades through bio-fuel mandates, subsidies, tariffs, and other policies. Farming and commodities, like any other markets, must balance supply and demand with prices arbitrating the right quantity to produce while minimize the input costs.

For too long, the government has micromanaged and socially engineer incentives and disincentives what the mix of what farmers produce. Instead of farmers balancing their long term best interest and highest return on investment capital and labor inputs (human capital, equipment and land), farmers respond to the intervention of the government policies (i.e. mandates, subsidies, tariffs). These policies encourage overproduction of certain commodities and underproduction of others.

Read the rest of the article here.

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