Speer: Free Markets: Obvious, Simple System of Liberty
Review: Last week’s column introduced an email I recently received expressing some concern about my perspectives on the market and the business. Most significant, the reader mentions:
Perhaps the system is not ‘broken’, but it could and should be better…when processors were making $500 to $900 gross margin for only owning cattle for a couple of weeks and feeders lost money for quite a few months over a period of about 2 years for owning cattle for 150-180 days, the system was not working well. (emphasis mine)
Conundrum: That brings us to the next item in the email: “Unfortunately, the increases in harvest capacity will come on board at a time when cattle inventories have declined and some of the expansions will not be able to compete with the larger processors.” So, what about that?
Record packer margins were the tipping point to attract new capital to the business (that’s how it always works). And many people in the “market is broken” camp have celebrated that outcome. But now they’re in a box.
On one hand, the complaint was margins were too high; the packer was making too much money. And thus, the reader reprimand: “The system was not working well.”
On the other hand, even before the expansionary companies are open for business, there’s now angst packer margins will be too low. In the low margin environment, these new companies won’t be able to outlast cash burn through tight supplies.
Knowledge Problem: To alleviate those concerns, there must be some way to thread the needle. There exists some just-right, all-is-fair margin for the packer. Right? But what is that number? How is determined? And who’s determines it? Perhaps there’s need to establish a federal packer margin oversight commission?
Of course, there is no such thing as a just-right value. As noted in my previous Knowledge Problem column, “None of us (especially legislators) have perfect knowledge nor expertise to really know what the industry should look like. More importantly, it’s impossible to know the future; therefore, any sort of legislative directive is always looking backward.”
Therein enters the risk of central planning. Vincent Geloso (The Ripples of Government Intervention) describes it this way: “…when someone says, ‘what could go wrong’…the reply should be ‘a lot that we will only comprehend many years from now’.” (see Settling The Score With Big Cattle)
Biased Towards Liberty: All that discussion brings us to one of the final comments contained in the email: “So, I think that you are biased toward 100% government-free involvement and that you are hiding behind the record cattle prices to write that the system is not broken.”
Ok, but that accusation can work both ways: perhaps you’re biased towards central planning and government intervention and emphasizing low prices to justify the market is broken.
All that aside, as noted in my previous column, the free market emphasis happened long before record prices (just ask R-CALF). Regardless of price levels, I noted in a previous column (Policy Makers Should Just Leave Well Enough Alone), that:
In the end, it’s the principles that really matter. The private sector evolves because that’s what makes sense for the business. And regardless how good intentions may be, government generally fails at making things better. New regulation always brings a plethora of unintended consequences.
Free enterprise indeed. Protective meddling always leads to more meddling and continually erodes economic freedom over time. And in the end, it’s that principle that matters most – best summed up by Adam Smith: free markets are “an obvious and simple system of natural liberty.”
