Not since Franklin Roosevelt threatened to pack the Supreme Court has New Deal legislation been handled so roughly. By an 8–1 vote this week the Justices knocked the heart out of a New Deal law aimed at raising the price of farm commodities by empowering the government to force farmers to keep part of their crop from the market. The case was brought by California raisin growers who were fined for trying to sell their raisins in defiance of the government restrictions. The growers argued that the government order limiting their ability to sell their raisins was a “taking” of their property (comparable to what happens in eminent domain when the government seizes private property to build a road or for some other purpose). Under the Constitution, the government must compensate property owners for such seizures. SCOTUS ruled for the growers.
A number of things limit the scope of the case. The majority decision did allow for the government to limit production in the first place (rather than taking crops after they are grown). And indeed, the WSJ reports that in the particular case at issue, “the [Raisin Administrative Committee’s reserve] program barely affected raisin prices,” but was aimed more at increasing exports. Those of our readers who don’t happen to be raisin growers may therefore be wondering why they should care.
The answer is that the old farm laws (which affected a great many products, not just raisins) were one of the building blocks of the 20th century American system, and the SCOTUS decision, even in its limited scope, is one more sign of a deep social change. Here at The American Interest, we call the old system the “blue social model,” since defending what remains of it and enhancing it if possible is the core concern of the Democratic Party mainstream. Back in the days of the New Deal and the Great Society, the American economy was dominated by a relatively small number of very powerful companies. AT&T had a monopoly on telephone service, while the Big Three automobile companies dominated the car market—especially at a time when upstart Japanese and German competitors weren’t yet exporting cars to the United States. Airlines, banks, trucking companies, and most large industries were heavily regulated: Government officials decided the interest rates that banks could charge, the routes airlines could fly and the fares they could offer, and so on.
Farm price-support programs were part of the system. When the prices of crops and livestock fell during the Great Depression, the U.S. government acted to inflate those prices by restricting the supply. The 1933 Agricultural Adjustment Act paid farmers not to plant crops and compensated them for slaughtered pigs. With fewer crops and livestock available, the theory was, prices would rise and farmers would earn more money. The farmers could then spend that money (and the subsidies not to produce) on other goods, like farm equipment, and the whole economy would be better off.
Support the income of farmers so they can buy more farm equipment and consumer goods. Support the wages of industrial workers (via minimum wage laws and the Wagner Act to make unionization easier) so they can pay higher prices for the food the farmers produce—and buy more consumer goods made by other well-paid factory workers. Restrict competition so the large industrial firms like GM and GE can pay workers the high wages that pump demand into the economy. Support the overall economy by deficit government spending so that the big industrial companies can keep their factories humming. That was logic of this system.
Similar measures were adopted to restrict the supply and raise the wages of labor. Schooling was extended from eight to twelve years as much to keep adolescents out of the labor force and from driving down adult wages as because the nation’s factories and construction sites were crying out for workers with an extra four years of classroom learning. Laws restricting the practice of professions ranging from law and medicine to cosmetology and hair cutting were progressively tightened to require longer periods of formal classroom study and to protect the incomes of licensed providers by making it harder for new people to enter those fields.
Producerist policy is inherently inflationary. Restricting the supply of goods and services, or the competition to supply them, is the whole point—the higher prices that result aren’t bugs but features. For an extreme example, look at the certificate of necessity laws, which require new companies to demonstrate to officials that existing providers do not already meet the need the new company plans to meet. Aspiring new competitors must also notify the existing companies, which then can make trouble for the proposed business in court. Licensing laws, which require everyone from florists to hair dressers to acquire licenses, are another example. Restrictions that exist on the number of doctors who can immigrate to America—or on how much work nurse practitioners can do without doctor supervision—are yet a third. There have even been reports of thousands of foreign-trained doctors already living in the United States who cannot practice—even as the nation struggles to pay high health care costs. These laws, of course, raise wages for producers in the guild, but they cost consumers heavily, reduce productivity, and slow innovation by keeping out aspiring entrepreneurs and service providers.
Over time, the proliferation of producerist policies leads to perverse and increasingly destructive effects. Policies designed to keep food prices high to protect farm income create pools of low income people who can’t pay the high prices. Answer: food stamps—subsidize the purchasing power of people priced out of the market by government action. Taxpayers end up paying the government to raise prices at the same time they pay taxes to help poor people afford those artificially inflated food prices. At the start of 2015, more than 46 million Americans were on food stamps—but that didn’t stop all the producerist farm programs from trying to jack up prices.
The madness doesn’t stop at the supermarket check-out counter. Look at health care. Health care wonks are almost obsessively focused on providing subsidized insurance, the health care equivalent of food stamps, to people who cannot otherwise afford health care. Fair enough in principle, since very few Americans want to see their fellow citizens die in the streets because they can’t afford treatment. But since health care prices are even more distorted and inflated by producerist subsidies and regulations than food prices, more and more people are priced out of the health care market and need “health stamps” from government to get the insurance they need.
The real beneficiaries of these multi-billion dollar government subsidies are the producers, usually the most powerful and well-connected ones that are best able to influence government regulations and subsidy policies. In farm policy, it’s the giant agribusiness companies rather than the small farmers; in health care it’s the insurance companies and hospitals—and the politicians to whose campaigns they contribute handsomely—who make the big bucks.
The average middle class family probably doesn’t care much that the food bill is a bit higher than it would be if the producer lobby hadn’t rigged the market, but health care costs are something else. Unaffordable health care is a leading cause of financial distress for many families. And despite high premiums, health insurance comes with enough limitations on how that coverage can be used, not to mention deductibles and loopholes, that “being insured” becomes less and less meaningful even as the costs of insurance eat up household budgets.
Or take the other Great Bane of the American middle class: higher ed. Higher education, like health care, is too expensive for middle class families to afford. But instead of thinking about how to make it cheaper, or about how to reduce the rampant credentialism that forces many young people to spend unnecessary time and unnecessary money collecting empty certificates and vacuous degrees to get into the labor market, producerists want to make student loans bigger or expand “college stamps” to subsidize increasingly inflated costs.
The Supreme Court’s decision in the Horne case isn’t going to bring down the whole producerist edifice of privilege, crony capitalism, and high prices. But it’s a step in the right direction, an acknowledgement that those disadvantaged by price fixing regulations have suffered a real loss which demands compensation. It’s an acknowledgement that an economic system based on crony capitalism and sweetheart influence peddling isn’t just inefficient; it is unfair. Courts across the country at both federal and state levels have been looking at producerist laws lately with new and skeptical eyes. Are “restraint of trade” laws unconstitutional infringements on the civil rights of Americans to engage in any legal business they want to try? Are laws that require long and expensive “courses” of “study” for people who want to cut hair really fair?
Producerism looked to many Americans like a good bet back in the Depression. But these days the cost of such policies is becoming unsupportable. Government policy should stop helping producer cartels raise their prices, and instead aim to make it easier for competition and innovation to bring down the costs of the goods and the services the middle class needs. The United States government doesn’t have enough money to give everyone all the food stamps, health stamps, and college stamps they will need if something isn’t done.