On our last visit to the French countryside, in Normandy, we noticed a big pile of hay beside the road, with a sign on it: "Free Milk"
Another pile of hay had another message: "Farmers On Strike."
The story behind these signs has a depression-era, black and white, look to it. Newsreels from the Great Depression show US farmers dumping milk rather than sell it at deflated prices. Now, French farmers do the same. Prices have fallen so low that many refuse to sell it at all.
But they can't stop milking the cows. So what do they do with the milk? They give it away. Or, in a few instances, they throw it at the government's farm agency offices.
Meanwhile, a story in The New York Times explains one of the reasons why milk has become so cheap. New technology makes it easier and cheaper to produce good milk cows.
Technology and globalization are inherently deflationary. The former increases productivity, thus lowering the cost of output. The latter lowers prices by directing business to the world's lowest-cost producers.
Deflation is the natural order of things. Inflation is always an artifice caused by government. Central banks 'target' a certain level of inflation because they think - or say they think - that a bit of inflation helps create full employment. And it does, sometimes. But it does it by treachery. Inflation hoodwinks the working class. It reduces their real wages, making them cheaper to employ. Then, the proles wise up. They realize that prices are rising. They demand more wage increases. That is when inflation begins to get out of control and presidents get out the 'Whip Inflation Now' buttons.
Every time government offers to solve a problem, it inevitably makes the problem worse - except, occasionally, in rare episodes when a government-organized national defense pays off.
Bill Bonner
for The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Dan on 6 October 2009:
With computer prices (laptops for example), prices for a given level of technology have remained stable (not fallen) overall during the last twelve months. This is not what you would expect - a glut of manufacturing, and no discretionary buyers. But at the turn of the year, sales reps were advising that prices would actually climb to make up for lost sales.
Your point is taken re: milk production. Inflation, though, is really made through monetary dilution, otherwise the trick doesn't come off. This ultimately rests with central banks - who rules those? Governments?
I think governments are by and large powerless in the face of banks and finance.
Comment by Stuart Davies on 8 October 2009:
Come on Bill, I know you know that the central banks are privately owned, and not in any way an agency of the government(s). Why can't you, and everyone else who knows better, stop perpetuating this myth? Could it be that you are so obsessed with your libertarian dogma - that it it is always the government who is to blame for our economic problems - that you just can't bear to admit this simple truth?
To the extent that government aids and abets the banksters in their manifold scams (and this is to a very considerable extent), this is simply because governments have long ago been infiltrated, subverted, and essentially taken over by banking and corporate interests. It is the unfettered greed of the banks, and the vast interlocking web of coporate concerns that they control, that is to blame for our woes.