The Washington Post has a great front-page article on the milk cartel and how they crushed a competitor. Titled "Dairy Industry Crushed Innovator who Bested Price-Control System," it lays everything out from the law and its history to how the system really works e.g. campaign contributions, Innovator: $172,900, Dairy Industry: $7,577,409.
In the summer of 2003, shoppers in Southern California began getting a break on the price of milk.
A
maverick dairyman named Hein Hettinga started bottling his own milk and
selling it for as much as 20 cents a gallon less than the competition,
exercising his right to work outside the rigid system that has
controlled U.S. milk production for almost 70 years. Soon the effects
were rippling through the state, helping to hold down retail prices at
supermarkets and warehouse stores.That was when a coalition of giant milk companies and dairies, along
with their congressional allies, decided to crush Hettinga’s
initiative. For three years, the milk lobby spent millions of dollars
on lobbying and campaign contributions and made deals with lawmakers,
including incoming Senate Majority Leader Harry M. Reid (D-Nev.).Last
March, Congress passed a law reshaping the Western milk market and
essentially ending Hettinga’s experiment — all without a single
congressional hearing.
Read the whole thing.
I love Hettinga’s comment: ‘..this is a great country. In Mexico, they would’ve just shot me.’
Don’t you have it backwards, Chi? If $7M gets you a law that makes you $1.5B, the supply of willing politicians must be high, right?
I’d say our laws are not very good, our policitians are competing for donations, and the numbers might not be that far off.
Anon E Mouse, I think Chi has it right. If the rent-seeking market is efficient, we should expect to see marginal price equal marginal cost. An efficient rent-seeking market should consume most, all, or more than all of the rents. (And if campaign contributions really do get an average return anywhere like 20,000%, shouldn’t I be able to get Congress to pay off my student loans for a couple hundred dollars?)
Does anyone remember the linkage of dairy contributions and Nixon that came out with Watergate? If I recall there were a few millions being tossed around then.
That said, I’d be unfaithful to my rearing if I didn’t say that the high cost of milk is far down the list of things Americans should worry about.
Re: Bill Harshaw
We should worry about these things. 1.5 billion dollars or 1,500 million dollars or 1,500,000 thousand dollars; 150,000,000 ten dollar bills or 300,000,000 five dollar bills soon add up. Especially when you consider the number of programs like this the government has. Why should a bunch of dairy farmers get that money? Why should sugar farmers get that money? I guess Mancur was right about your incentives
It is amazing to me that we just brush off this type of waste as if it is nothing.
I guess Mancur was right about your incentives.
I diagree with the notion that this was a small amount of money with which to bribe elected officials. If it was a new policy that was screwing over consumers, then I’d be (only) a bit surprised they rent seekers got off so cheap. But they were defending an existing policy, and the politicians knew these rent seekers had an awful lot to lose if the challenge to the status quo came undone. If they refused to vote for screwing over children of poor people, then the rent seekers would inundate their competition with campaign contributions in the next election.
The problem quite simply is that we choose to give government scum the power to hurt the little guy at the benefit of the rich whenever we also give government the power to use discretion “for our own good”. You can’t have one without the other, a sword can point both ways.
This is the most depressing article I’ve read recently. I’m going to go watch football and turn off my brain for a while.
Pardon my lengthy post. Chi might be right — but I still don’t think so. I can’t quite put my finger on it, but there’s a bunch of confounding factors (otherwise I’d agree with Chi).
-Congress is going to either leave the law alone or close the loophole, or something else altogether. But I think we can assume it is just those two choices.
-But they have to do one or the other, regardless of who bids how much money–even if total bids = $0.
-There are only two bidders — the solo guy who tossed in $200k, and the rest of the dairy industry that kicked in $7M.
-Congress keeps all of the “donations† to their campaigns no matter what happens to the law.
-Presented with a choice of continuing to receive the $M/year or maybe get another $100k out of the solo guy, Congress folks picked the proven big spenders.
-Closing the loophole puts solo-guy in a position to where he has to severely out-bid the rest of the dairy industry to get the law changed.
-Congress can’t hold the dairy protection out for ransom. They’ve convinced the constituency that it is a necessary program — to overturn it, they’d need a really good justification.
-If a couple of congressmen decide the loophole needs to be closed, they each spend some amount of political capital (“burn a few chips†), and each gets headlines that say “Congressman Crass protects our local dairy farmers† in the papers back home.
-If those same congressmen decide to do nothing, then maybe the loophole gets closed by other congressmen (and our first two congressmen vote for it in return for later favors), or maybe it doesn’t. Our first two congressmen lose out on future contributions from either side.
-The dairy industry kicks in several $M each year to keep the protection they thought they had all along. The Congressmen keep their “protect local dairy producers† badge of honor. The dairies employ voters that have families of voters. Some of the “extra† profits buy votes directly and indirectly.
-Screwing with the dairy folks might upset other big donation-sources.
Current milk processing technology and the food marketing infrastructure have long rendered the function of the Milk Marketing Orders to that of price fixing alone. When first established, the idea was that because milk was a very perishable locally produced commodity, the Orders would protect the local producers from boom and bust cycles and guarantee the local consumers a steady supply of safe milk for the kids. Milk production more naturally follows crop production; high in the spring and low in the winter. Because some areas have very good “cow climates”at different times of the year, they can produce an excess of milk during some seasons compared to those in other areas. Some areas always have tough “cow climates”, such as the southeast, hence their local production costs are almost always high and non-competitive with other areas.
With UHT (ultrahigh temperature) pasteurization technology and the transportation infrastructure, the reasons that these marketing orders were established are now moot. Refrigerated tanker trucks constantly haul 10,000 gallon loads of milk from surplus areas halfway across the country for uses other than “fluid” (milk for drinking). Compared to normally pasteurized milk that must be under constant refrigeration and has a shelf life of weeks, UHT processed milk has at least 6 month or so shelf life at room temperature. As a result, many other parts of the world have gone to UHT milk. The energy cost of maintaining this cold chain in the US likely far exceedes the additional energy cost of UHT processing. This is likely another example of an old regulatory structure impeding the technology evolution of an industry.
Bob Dobbs,
That is why I refered to Mancur Olson. His book, The Logic of Collective Action, originates the idea of your post.
I don’t think Bob misses the point. He’s arguing that the aggregate loss of prosperity is not significant enough to capture the attention of most Americans on an individual level. Furthermore, a much smaller minority has a very large stake in maintaining the status quo. When power is concentrated, it’s easier for a small minority to wield great influence.
This is why Congress can only reform when it has a strong mandate from the public. Deregulation can only happen once in awhile, across the entire swath of American industries. Taken one at a time, industry will almost always prevail. Perhaps some ambitious conservative will seize the moment.
voting libertarian does nothing to help this situation
B-b-b-but I though “voting libertarian” was the answer to EVERY problem!
Because a *truly* libertarian gov’t would remove every impediment to the cartels.
Coach,
It is a total myth that there is such an animal as campaign finance reform. Those bills are nothing more than incumbent protection acts.
Incumbency gives a candidate a huge advantage that is very hard to overcome. The only way to even equalize the field is with money, and the more money raised (by all candidates) the less of an edge incumbency is. Thus abolishing campaign finance restrictions is the way to go, not adding more restrictions.
I figured it would be ok for someone to sell their own products. I kinda see it as someone stating up a business. But for them to do what they did makes no sense. it just seems like the government wnats to be in control of everything.
This reminds me of an anecdote I know from first hand
experience regarding the late Senator William Proxmire,
(“The Prox”), longtime squeaky-clean Dem from Wisconsin,
America’s Dairyland, who used to hand out “golden fleece”
awards for wasteful government spending while he chaired
the Joint Economic Committee of Congress.
In 1971 I saw him give a speech at the University of
Wisconsin economics department. He went on at great
length about how he was battling special interests
and saving the taxpayers money and so and so forth.
At the end one of the professors asked him, “Senator
Proxmire, if you are so much against the government
aiding special private interests, why do you support
tighter dairy import quotas?” The Prox did not miss
a beat and just smiled, saying “Well, of course I am
the senior senator from the state of Wisconsin.”
send the study matarial for reading and teaching also because iam a reader in “deptt. of a.h. & dairying sarvodya degree college, chaumuha ,mathura, u.p. india
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