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Milk SubsidiesA few days back dairy farmers staged a protest in Brussels (the centre of the EU Government). Their tractors and trucks blocked the streets, they hosed the EU Parliament with milk and burned piles of hay and tires. You can read the whole nasty affair in the article "Farmers protest in Brussels against falling milk prices" published by Le Monde - France.

QUOTAS

Why are they so upset?

Because the EU government ended the system of quotas.

What are quotas?

Quotas are maximum arbitrary amounts of a product that a given producer is allowed to produce. Yes, it is as stupid as it sounds considering that the higher the production, the higher the wellbeing of people because of price drops and volume increases.

So, the question is why would the EU government do something so incredibly stupid?

Excellent question grasshopper!

The EU government imposed said quotas about 30 years ago to "combat" the "excessive" amounts of milk and butter that were manufactured in EU. Excessive? How come? Simple. The EU government in all its wisdom (i.e. pressured by dairy farmers) created a system of run-away subsidies for them. Thus, production skyrocketed because profits were guaranteed. Thus, the need for quotas.

Let's re-run this. Farmers pressure government for a "solution". Governments provide a "solution" in the form of subsidies. This "solution" creates the problem of mountains of unwanted products. The government "solves" this problem by creating "quotas".

And what do you get with a system of subsidies/quotas?

Galloping inefficiency.

Thus EU dairy farmers cannot compete with…well… anybody else. And what does this create? Closed borders to "protect" said farmers. And what do close border create? A barrier to trade. And what does a barrier to trade create? Lack of competition. And what does lack of competition create? High prices. And what do high prices create? The need for more "subsidies" so that people can "afford" the product. See the vicious circle? In engineering terms this is called a positive feedback loop. The way it works is that it reinforces itself after each cycle.

The ugly word for this process is called Mercantilism and it has been debunked since… oh… about 200+ years ago? We guess that Brussels' politicians never got the memo…

COMPETITION AND CONGLOMERATES

Are all the EU dairy producers upset? No. Only the small ones. Why? Because this quote removal is decreasing milk prices and they can't compete any longer. Their "way of life" is being threatened and obviously they have the right to… to what exactly? Oh… yes… "protection". It is only natural that when a person paying "protection" money and not getting it would get upset. But what about the "rest" of the people? Oh… them… who cares as long as producer's "way of life" is protected.

Conglomerates are increasing their efficiency (and output) because they expect to be able to export to new markets in Asia and Africa. Unfortunately, the only way to increase production is through efficiency and this means scaled-up manufacturing. What this means is that the small producer is out and the new mega-factories are in. Sad as it may sound, this is the only way to benefit the majority of the people, which is the best achievable goal. Now, small farmers do not have to be outright out. They can always dedicate themselves to other niche products, such as specialty dairy foods whose market is too small for big conglomerates to bother but just large enough as to be profitable. But of course, small farmers don't want to do this. Why would they when the can just demand "subsidies" from the state? The path of least resistance is alive and well.

EFFICIENCY AND INEFFICIENCY

In many other "developed" countries there is a turf war going on between inefficient and efficient dairy farmers. Efficient ones demand open borders, free trade and lowering of regulations. Inefficient ones demand just the opposite, which is closed borders, restricted trade and the increase of regulations (as a way to ensure high entry barriers to curb new competitors). And so if we take a look at government policies in other countries, you will note that they have schizophrenic or split-personality subsidy laws, regulations, policies and laws. The typical example of two such countries are Canada and US.

But what is the net result of these half-measures? Waste. Inefficient farmers consume a large part of the wealth that is produced by efficient farmers. Net result? Higher prices for consumers and higher "subsides" to "combat" higher prices. Yes, positive feedback loop at work again.

PAY AND THEN PAY SOME MORE

Yet another group of countries are just the opposite. They are desperate to squeeze out of every conceivable company as much money as they possibly can because they are utterly bankrupt. What a surprise. Examples of these shiny beacons of life include Argentina and Uruguay.

Some countries go as far as imposing export taxes to dairy products! Can you imagine? You are a dairy producer who must operate in a destroyed market with high inflation, high taxes and on top when you attempt to export, you must pay even more taxes!

Net result? Higher prices and lower production.

CONCLUSION

As we have been telling you for quite some time, the free market is a self-optimized system. Any tampering, any screwing-around with it only brings about lower wealth and lower customer satisfaction. The examples above cover the entire spectrum of idiotic government "actions" when it comes to messing around with the free market. As you can see, no position other than not messing around with the free market maximizes overall wellbeing. What a surprise…not!

Look, this is not complicated. You must choose between maximum wellbeing or interference. There really is no other choice. Really. Socialism and/or communism do not work because they interfere with free markets by definition. Their goal is to interfere with free markets "for the greater good". And what do they deliver? Overall misery.

It's your choice, wellbeing or misery. You must make this choice otherwise politicians will make it for you as they have been doing for the last 200+ years and we already know how the story ends. You are living it. Your choice.

Note: please see the Glossary if you are unfamiliar with certain words.

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