The past week witnessed a number of momentous decisions by the U.S. Supreme Court. One case involving raisins struck a blow for economic freedom. The case highlights how some public policies, by design, benefit some Americans at the expense of others.
Horne v. Department of Agriculture involved what are known as U.S. Department of Agriculture (USDA) marketing orders. The California Raisin Marketing Order required farmers to turn over a portion of their crop each year to the USDA, sometimes without any compensation. Marvin and Laura Horne refused to hand over part of their raisin crop in 2002 and 2003, and were fined almost $700,000. The Supreme Court ruled that confiscation of raisins was a taking of property protected by the Fifth Amendment, so the USDA must compensate the Hornes.
The above facts suggest that marketing orders punish farmers, but they actually artificially inflate prices of farm products. The USDA determines how many raisins to keep off the market each year to sustain high prices. The higher prices generally more than compensate farmers for surrendering part of their crop.
The USDA enabled raisin growers to realize the dream of many businesses of establishing a successful cartel. A cartel refers to a group of businesses coordinating to act like a monopolist, reducing output to increase profit. Such collusion is both illegal under antitrust laws and extremely difficult to achieve and maintain without government help. The lure of profit usually leads individual businesses or farmers to cheat on any cartel agreement.
The USDA enforced production limits through the marketing order. Uncle Sam had maintained numerous cartels at the expense of consumers. Marketing orders or price support programs have boosted the prices of many crops, including dairy products, corn, wheat and rice. In addition, the Interstate Commerce Commission and Civil Aeronautics Board maintained cartels in trucking, railroads, and airlines until deregulation in the 1970s.
The Raisin Marketing Order illustrates several inconvenient truths about many government economic policies. First, government’s economic acts ultimately involve coercion, in this case the confiscation of raisins. Government can spend money because it taxes, which people pay because of threats of fines or imprisonment for nonpayment. Regulation also involves coercion: people get building permits, for instance, because of the threat to forcibly halt building if the permit is not obtained. Coercion makes justification of the government’s acts important. Our criminal justice system relies on coercion for arrest and imprisonment, plus to collect the taxes to pay for the police officers, courts and prisons. Clearly coercion can be justified, but proponents should have a good reason for coercing their fellow Americans.
Government sometimes does nothing more than take from one group to give to other Americans. The Raisin Marketing Order was meant to enrich raisin growers at the expense of consumers. The use of coercion to transfer wealth, I think, requires a really good justification. Again this is possible; most Americans support transfer programs to help out the less fortunate. Other times politicians try to pass off wealth transfers as serving some larger purpose. Some claim, for instance, that farm programs ensure a supply of food for our nation, but this ignores that many crops are supplied without marketing orders or price supports.
Finally, the Raisin Marketing Order wasted resources. Farmers used land, tractors, water and labor to grow raisins that the USDA did not let people consume. These resources could not consequently be used to produce other goods and services. So not only do consumers have to pay more for raisins, our economy is poorer as well. It would be cheaper for the USDA to simply send raisin farmers a check and let all of the raisins go to the market.
Unfortunately the Supreme Court’s decision in Horne did not declare policies intended to enrich some Americans at the expense of others unconstitutional, but merely requires compensation to farmers for crops taken. Nonetheless, the ruling eliminates one tool for government meddling in markets, and thus increases our economic freedom.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. Respond to him at email@example.com and like the Johnson Center on Facebook.