When I did my recent three-part series on rent-seeking based on Planet Money episodes, commenter jakee308 said: “Do one on sugar.”
This is Part 4 of my three-part series on rent-seeking — legal bribery of politicians to pass protectionist laws. The series discusses individual episodes from the wonderful NPR show Planet Money, a sometimes quietly subversive show which does a lot of episodes (on NPR!) that explain how government interferes with 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. Part 3 introduced readers to the “Raisin Administrative Committee” — a government-sponsored cartel that controls the raisin supply, and ruins any raisin producer who bucks the Stalinist organization and dares to sell all his raisins.
Today, we have Part 4: the U.S. federal government setting minimum prices for sugar.
The Planet Money episode opens with a CEO of a candy company talking about how he could expand his operations here in the U.S., rather than send massive parts of his operations to Mexico. What does he need? he asks rhetorically. Lower tax rates? Workers’ comp reform? A right to work law? Nope. He says he could pay no taxes, and get all those other things, and would still manufacture candy canes in Mexico. What does he ask for?
“Let us buy sugar on the free market.”
People say: What? You can’t do that?
No, you can’t.
The program explains that there are two prices paid for sugar: what people pay in the U.S., and what the rest of the world pays. The U.S. price is, on average, 15 cents more per pound than it is in the rest of the world.
Just 15 cents? What’s the big deal? Well, the candy CEO mentioned above uses 100,000 pounds of sugar a day. So he pays $15,000 extra per day. That’s between $3 million and $4 million extra per year — a “sugar penalty” the businessman must pay as a cost of doing business in the U.S.
Why? If you guessed “federal law,” you have been paying attention. The operative provision is contained in The Food Conservation and Energy Act of 2008 (aka the U.S. Farm Bill), under which the U.S. Government guarantees a minimum price for sugar: 22.9 cents per pound.
The sugar beet farmers says foreign competitors are getting subsidies. Economists respond that the solution to unfair trade practices is a complaint to the World Trade Organization — or having the U.S. slap a tariff bigger than the subsidy received by the foreign grower. Not setting a minimum price.
The most revealing story: the sugar CEO says that, according to the Ken Starr report, Clinton took a 22-minute phone call from someone while getting serviced by Monica Lewinsky. (Supposedly he was trying to break it off — but the cigar incident had not happened yet, so . . . ) Who was Clinton talking to for 22 minutes at such a moment? A sugar magnate. Now that’s access. It turns out that the sugar industry spends a ton on lobbying — double what the food and beverage industry spent as a whole in one recent year.
The hosts talk to a Congressman who is a big supporter of the minimum price. He says people call him a communist — a central planner — and he’s fine with that. After all, it’s 25% of the economy in his district. The lobbying doesn’t affect me, he says. The sugar folks support me because I support them. Sugar creates jobs in the U.S., he says.
The candy guy replies: yeah. And it also costs the U.S. jobs in my industry — jobs that are going to Mexico.
Every government intervention into the economy has consequences — often unforeseen ones that are the opposite of what government intends. Yet the machinery of interference creaks on, inevitably — as lobbying money greases the wheels. And businessmen and consumers suffer.
Thanks to jakee308 for the suggestion.