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December 27, 2012

"The Milkman Cometh"

Another sparkling example of how government really works. (Look out for the "dairy cliff".)

Perhaps the most egregious exercise of dairy power was a New York State law of 1933 that declared that milk was a business “affected with a public interest” and allowed the state to set dairy prices. The New York board set 9 cents per quart as the minimum retail price of milk. A Rochester grocer, Leo Nebbia, was prosecuted for selling two quarts of milk and a loaf of bread for 18 cents. Why, in the midst of the distress and privation of the early 1930s, did New York want to raise the price of milk? The idea was that this would raise the income of dairy farmers, who would then purchase more industrial goods, thus stimulating the economy. The Supreme Court accepted this reasoning, giving state governments virtually unlimited power to enact economic regulations. Such counterintuitive trickle-up economic theory helped to turn the 1929 recession into the prolonged Great Depression. Ever since, the federal government has been trying to keep small dairy farmers in business through an elaborate price-support system.

The efforts of the dairy lobby helped to produce an unlimited federal taxing and commerce power, and an unlimited state regulatory power. If Congress does not enact a new farm bill before the end of its current session, we will return to the terms of a 1949 act, which could double the retail price of milk, further reducing sales. The system is a microcosm of the dysfunctional welfare state, harming first consumers and eventually its supposed beneficiaries.

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