Elizabeth Warren and others are running around blaming inflation on greedy corporations’ “price gouging.”
Of course, this narrative falls apart when you realize producer prices are rising faster than consumer prices. If anything, producers are letting consumers gouge them by not passing on all of their rising costs.
But the “greedy corporation” narrative is great for politicians. It lets them deflect the fact that their reckless borrowing and spending is the problem.
It’s also empowering for them. Now they can come in and fix things!
But here’s a truth you’d be wise to remember — if the government is telling you it’s going to fix something, it probably broke it to begin with.
Warren isn’t the only one blaming business for inflation. Biden is on the bandwagon too. He has specifically zeroed in on meat producers.
Overall, meat prices have climbed 16 percent over the last year. Beef prices are up 20.9 percent. Biden says the problem is a lack of competition in the meatpacking industry. That’s causing “supply chain issues.”
“Capitalism without competition isn’t capitalism — it’s exploitation,” Biden said.
According to a factsheet released by the Biden administration, four processing companies control 85 percent of the beef market. The largest four firms control 70 percent of the pork market and 54 percent of the pouy market.
The Biden plan is to distribute $1 billion in coronavirus relief funds to help independent meat packers expand their businesses. According to the AP, the plan would also allocate funding to train workers in the industry and improve conditions. The administration would also issue new rules for meatpackers and labeling requirements for being designated a “Product of USA.”
But a question remains – how did a few big corporations come to dominate the meatpacking industry?
Biden and other supporters of federal intervention into the economy would have you believe it’s just the inevitable march of capitalism. Greedy corporations get bigger and bigger and swallow up the “little guy.” If you believe this narrative, high meat prices stem from corporate greed and the inherent evils of the free market.
But it wasn’t “capitalism” or the greedy corporations that caused this consolidation in the meatpacking industry. It was the federal government.
The Wholesome Meat Act of 1967 mandates meat must be slaughtered and processed at a federally inspected slaughterhouse, or in a facility inspected in a state with meat inspection laws at least as strict as federal requirements. Small processors found it difficult if not impossible to meet the federal requirements. The cost was simply too high. Of course, large corporations can bear regulatory costs. As a result, the meat processing industry went through massive consolidation after the enaction of this act.
Since the passage of the Wholesome Meat Act, the number of slaughterhouses dropped from more than 10,000 to 2,766 in 2019. Today, instead of hundreds of companies processing meat, three corporations control virtually the entire industry.
Federal law also prohibits the interstate sale of custom processed meat – meat from an animal slaughtered and processed at a facility where an inspector is not required to be present to observe the slaughtering and conduct an ante mortem and post mortem inspection of the animal.
We constantly hear about supply chain issues due to the coronavirus pandemic. (More accurately, government response to the pandemic.) But the lack of adequate processing capacity due to consolidation was already causing supply issues back in 2015. A report by the Farm-to-Consumer Legal Defense Fund sounded the warning at that time.
“The bottleneck caused by the lack of slaughterhouses has frustrated small livestock operations in getting their products to market and has led to an inability to meet the overall demand for locally produced meat. The 1967 Act has been one of the worst laws ever passed for local food; what’s more, it was known from the beginning that the Act would have the effect it did.”
The impact on small meat processing businesses was apparent within years of the passage of the act. In 1971, the Small Business Administration (SBA) presented a paper to the United States Senate Select Committee on Small Business titled: “The Effects of the Wholesome Meat Act of 1967 upon Small Business – A Study of One Industry’s Economic Problems Resulting from Environmental-Consumer Legislation Prepared by the Small Business Administration.” The paper warned that the cost of compliance would have adverse impacts on small-scale slaughterhouses and packing plants, saying “the Wholesome Meat Act was as much of a disaster for many small meat firms as a hurricane.”
“[T]he meat industries are among the more competitive in the American economy. But the Wholesome Meat Act could lead to a significant diminution of competition. How many firms would have to shut down because they could no longer compete due to the new law? … Would the Wholesome Act lead, however unwittingly, to an undesirable increase in concentration in the meat industries? Questions such as these, highly fundamental questions, were barely raised during the legislative process.”
It comes as no surprise that these regulations caused a massive consolidation of the meat processing industry. And it’s no surprise that this consolidation has led to supply chain breakdowns. Centralized systems are brittle systems. They lack redundancy. They lack escape valves. They are prone to fail under stress. This is true of supply chains, economies and governments.
In other words, this was entirely predictable.
But now Biden wants to fix what the federal government broke by throwing more money at it.
Here’s an idea: why not just do away with federal control?
Supporters of federal intervention will scream “Safety!” But if the Wholesome Meat Act was really about food safety, it doesn’t even deliver on its own terms.
By concentrating meat processing in relatively few facilities, the likelihood of widespread contamination increases. A single sick cow can infect thousands of pounds of beef in one of these corporate slaughterhouses. In a more diversified, decentralized system, outbreaks generally remain limited to small regions. Farm-to-Consumer Legal Defense report said, “The Wholesome Meat Act has not led to the production of safer meat today; there are more recalls than ever for positive pathogen tests in meat products.” You seldom saw nationwide recalls in the era of diversified meat processing.
More generally, states with “food freedom” laws that allow small producers to sell food outside of the established regulatory structure have not seen increases in foodborne illnesses. According to Forbes, representatives from health departments in Wyoming, North Dakota and Utah reported exactly zero outbreaks of foodborne illnesses connected to a business operating under a food freedom law. Meanwhile, “Last year, the Centers for Disease Control and Prevention investigated and advised the public on 24 multistate outbreaks of foodborne illness, the highest in over a decade, with federally regulated romaine lettuce, chicken salad, and even Honey Smacks Cereal all linked to outbreaks that hospitalized Americans.”
In a sense, Biden is correct – the U.S. needs more players in the meat industry. But the government created the problem and there is zero self-reflection or ownership of responsibility. Only promises to fix what the feds already broke.
This article was originally published at Michael.Maharrey.com