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.
for The Daily Reckoning Australia