Patterico's Pontifications


Planet Money on Rent-Seeking, Part 3: The Government-Created Raisin Cartel

Filed under: Economics,General — Patterico @ 7:40 am

This is Part 3 of a three-part series about rent-seeking: legal bribery of politicians to pass protectionist laws. The series discusses individual episodes from the wonderful NPR show Planet Money, which often makes a surprising case for the free market.

Part 1 of the series dealt with state-created monopolies for car dealerships. Part 2 addressed the Jones Act, which creates an absurd and costly rule that shipments between U.S. ports must be made with American-made ships.

Today is Part 3: raisin outlaws. In this episode we meet a scofflaw who refused to join a government-sponsored raisin cartel, and broke federal law by selling all the raisins he had produced.

The show opens with an investigator who is looking into an illegal scheme in the Central Valley of California. Footage shows a truck showing RAISINS BEING SOLD!!!!!!!


It is illegal, this act of selling raisins. Il-LEGAL!

Because the government has created a cartel for raisins. Meet the Stalinist-sounding “Raisin Administrative Committee.”

During the New Deal, a glorious time of rampant government intervention into the economy, the geniuses in the federal government passed the Agricultural Marketing Agreement Act of 1937. Pursuant to that law, during the Truman administration, the Secretary of Agriculture issued a marketing order — Marketing Order 989 — which established the “Raisin Administrative Committee.” The committee, made up of raisin producers but overseen by the federal government, formally restricts the supply of raisins through programs of “diversion.” People sit in a room around a table. People make motions that are seconded and voted on. The upshot: producers divert some of their raisins into a “raisin reserve” — to limit the supply of raisins for sale, in order to keep the price high.

A Washington Post article quoted an expert calling this what it is:

It’s a cartel. Let’s use the power of the government to operate a cartel,” said Daniel Sumner, director of the University of California’s Agricultural Issues Center.

That’s correct. The producers are colluding. This type of action would normally be prevented by antitrust law. (I doubt it should be; but while I might be OK with cartels, I don’t like them when they are protected by the government.)

But some people don’t want to collude. Enter Marvin Horne. He refused to obey the “Raisin Administrative Committee.” The Washington Post article put it well:

In the world of dried fruit, America has no greater outlaw than Marvin Horne, 68.

Horne, a raisin farmer, has been breaking the law for 11 solid years. He now owes the U.S. government at least $650,000 in unpaid fines. And 1.2 million pounds of unpaid raisins, roughly equal to his entire harvest for four years.

His crime? Horne defied one of the strangest arms of the federal bureaucracy — a farm program created to solve a problem during the Truman administration, and never turned off.

He said no to the national raisin reserve.

More than 10 years ago, Marvin Horne sold all his raisins. In 2002, the “Raisin Administrative Committee” decided to “divert” 47% of the raisis into the reserve. Marvin Horne said: No. I will not do that. He and his wife spent nights reading the law to see if there was some way they could sell all their raisins. Seriously, they did. And they thought they found a loophole.

But then they had to pack the raisins. And the packers most people use to pack their raisins? Those packers had been to the meeting of the “Raisin Administrative Committee” too. So Horne and his wife had to pack their own raisins, to keep from getting nabbed for the illegal act of selling what they had produced.

They got caught. The Supreme Court (yes, this case has been there) details what happened next:

After petitioners refused to surrender the requisite portion of their raisins, the United States Department of Agriculture (USDA) began administrative proceedings against petitioners that led to the imposition of more than $650,000 in fines and civil penalties.

Hand over the raisins!!!! As Justice Scalia said in oral argument on the case: “Your raisins or your life, right?”

So how did the Court rule? Horne argued they couldn’t take his raisins without compensation, as it would be an illegal taking. Sounds good, right? Alas, the case presented a mere jurisdictional issue in the procedure posture that went up to the High Court. The whole thing is back in the hands of the Ninth Circus.

So: to review: to help business owners, the federal government sponsors a cartel. If someone tries to violate the edicts of the cartel, the government comes after him and imposes fines and penalties that, if upheld, will ruin him.

Nice free-market economy we have here in the United States of America, isn’t it?

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