“Inflation is just like alcoholism,” said economist Milton Friedman. “In both cases…the good effects come first, the bad effects only come later.” Could there be a lesson here for Joe Biden? “
The Wall Street Journal attempted to explain why Joe Biden’s effort to hammer the meat producing industry into submission is based on Biden’s typically foolish interpretation of free market economics, and, is in fact exactly what communist dictators who force ‘centralized planning’, try to justify.
This Journal editorial might still be a little difficult for the average American non-econ major to fully understand but it does make sense…something the Biden regime both doesn’t understand, but still intends to impose on this nation…just like Mao did on his.
Old Joe Biden, the economics expert, isn’t ! dlh
Bold our emphasis, our annotations in red.
The Wall Street Journal: CARVING UP BIDEN’S INFLATION “THEORY”
Inflation keeps rising, and maybe the place where Americans have noticed it most is the grocery store. Prices have climbed 16% at the meat counter in the last year, and so President Biden is rounding up the usual scapegoats: Big meat producers.
“While their profits go up, the prices you see at the grocery stores go up commensurate and the prices farmers receive for the products they are bringing to market go down,” Mr. Biden said Monday. “This reflects the market being distorted by a lack of competition,” adding that “capitalism without competition isn’t capitalism; it’s exploitation.”
Thanks for the lecture, but back to Econ 101, Mr. President. Meat prices fell in the five years before the pandemic, and markets didn’t suddenly become less competitive. Like so much else in the Biden era, meat prices have soared amid surging demand, rising production costs and constrained supply.
The White House targets four large producers that publicly report financial information. It says gross profits at Tyson, JBS, Marfrig and Seaboard Foods have increased more than 120% since before the pandemic while their gross margins are up 50%. Tyson’s last quarter earnings report shows it “made record profits while actually selling less beef than before,” the White House says.
Let’s look at that earnings report, which shows Tyson sold modestly less beef in the past fiscal year than in 2019. But Tyson executives noted during its earnings call that “customer demand” had “outpaced our ability to supply products” amid a severe labor shortage. One reason for this worker shortage is government pandemic transfer payments that subsidize leisure.
Who does not know that the “pandemic” tax subsidies were generous and extended beyond any justification, bribing people to stay out of the workforce.
At the same time demand for meat, and beef especially, has increased. During economic downturns, people typically buy less expensive protein. The opposite happened during the pandemic as incomes increased—also partly a result of expanded transfer payments—so people have had more money to spend on pricier cuts of meat.
Combined with regular unemployment benefits , the “covid extra” infusions produced more income for many people than when they were working.
Global demand for American meat has also soared. The U.S. exported record amounts of pork, chicken and beef to China in 2020 and 2021 as Beijing sought to fulfill its agriculture commitment under the Trump trade deal. American producers also benefited after China restricted Australian beef as punishment for Canberra’s request for an independent probe into the origin of Covid-19.
Tyson executives said they’re “working aggressively” to close the supply-demand gap, in part by raising wages and investing $450 million in automation. The company is also building “nine chicken plants, two case ready beef and pork plants, and one new bacon plant.” Investment requires money and time, which the White House doesn’t seem to understand.
The other reason prices are rising is because costs for meat producers are also rising fast. As usual during bursts of inflation, commodity prices increase. Tyson said cattle prices were up more than 20% in its last quarter. “Like many other companies we were faced with a range of higher levels of inflation, notably higher grains, labor, meat, and transportation cost,” Tyson said.
Meat producers’ margins are fatter because markets ration scarce goods via prices. When supply declines and demand increases, prices go up. This means larger margins for producers. Margins will retreat as the mismatch eases over time. The alternative would be for government to impose price controls, which would result in shortages and reduce investment in growing supply. That would be insane—but don’t rule it out with this crowd if prices keep rising.
On Monday Biden officials also threatened meat producers with antitrust action if they don’t restrain prices. Antitrust has become Team Biden’s household remedy for every economic problem, like tariffs for Donald Trump. Slaughtering meat producers won’t increase supply or reduce prices.
Main Street: “Inflation is just like alcoholism,” said economist Milton Friedman. “In both cases…the good effects come first, the bad effects only come later.” Could there be a lesson here for Joe Biden?