Overcapacity

Mish Shedlock is reporting on a story of a chicken farm that is being shut down driving a county into a depression. The kicker is the large outfit that owns the operation does not want to sell, since excess chicken capacity is suppressing prices. This is another example of damage done during the boom, with the bust merely sorting out who loses, who pays.

You might check out ECONOMICS FOR REAL PEOPLE by Gene Callahan for a good overall explication.

I was teaching at San Francisco State last weekend and a fellow asked why if Austrian economics is so obviously correct, why do so few people embrace it? My first answer is, there is a tiny minority of Americans who wonder at "while baseball is so fun, why do so few Americans follow the game?" People follow what they follow. A first rate plumber cares nothing for economics, and when I want my pipes right, I don't care about his economic views. They don't matter. Everyone knows organic food is better for you, but Wonder Bread is still America's number one brand of bread.

In the instance of chicken ranches, we have excess supply of those chickens that become tender nuggets at KFC. During the boom, loans for everything, including chicken ranches, were cheap and easy. The big boys expanded and "modernized" (think less nutritional value, but less cost) leaving a swatch of perfectly good chicken farms redundant.

The heart of all of this is our economic system, and the Federal Reserve System. There is a move to audit it, and perhaps get rid of it. I doubt it will come to that, although I agree it should go.

If it does go there is a problem. The Fed system distorted the marketplace to the point where less than 100 years ago we had some 75% of Americans live on farms, and to day it is something like 7%. The fact that the government could control the economy, enforce "get big or get out." From there USA policy could use big ag to dominate the world by shipping cheap food overseas, in return for even cheaper resources from the countries we exploit. The Fed allowed us to become imperialistic.

But here is the problem: if we get rid of the Fed, then our system begins to fall apart, and to feed America most Americans will have to back into farming, or many Americans will starve. Does anyone see that happening?

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