Sugar, Central America, CAFTA and Economics

I am writing “Scheider’s Simplifed Rules for Economics”. The product would be similar to my “Rules for Life”, or my “Rules for Managers”, or even “Rules for Politicians”.

This economics stuff fascinates me, and I am sure that there is a way to simplify the mess and make it comprehensible – but it is taking longer than I want. And my document keeps growing!

Our local paper recently had a nice short piece on sugar subsidies. Instead of a total overview of economics – why not a story at a time? No one is going to read a long thing on “economics” anyway.  This piece in the Wisconsin State Journal is very well done, nice and short, and makes all the key points. SugarSubsidy yields a bitter harvest  I just want to add a bit of framing to it.

When CAFTA was originally proposed, the ONLY benefit that economists in Central America could identify for that region was about 140 added jobs in the sugar industry. Sugar is one of the things that Central America can produce more cheaply than the US. After CAFTA was passed, the sugar industry lobbied our fearless elected leaders to provide them a subsidy. End of the benefit for Central America.

The American farmer can produce rice and corn and beans more cheaply than anyone can in Central America, ship them there, and still sell them for less than the local producers. But sugar – not so.

The way trade works is that when someone can do it better or more cheaply than you can – you should buy it from them. That increases our wealth – all of our wealth. Of course, there may be some people doing this for a living – and this causes a modest disruption in their lives. But for the good of the whole, and to grow wealth for all of us, you should focus those people on doing something else. Help them grow corn, or figure out how to get energy from wind. Subsidizing something that can be done more cheaply elsewhere is called “destroying” wealth.

Any time we restrict trade like this, we all pay for it – all of us – including the people in Central America, or Africa, or elsewhere on the planet. Most directly, of course, you and I in this country are paying a lot more for sugar - $3.5 Billion per year. I would have preferred to have put that money into research into better anything that would help grow the economy and facilitate wealth creation – not wealth destruction. We would have gotten more miles out of subsiding college educations for all of the displaced workers and their kids! And it would also have rewarded those Central American farmers for their productivity.

Do you see how this works? Yes, it costs us something in jobs, yes we need to adapt to that – but NOT doing that would put us back to subsidizing pin manufacturers, or buggy whip makers, or cotton spinning. With that approach, we would all still be farming, just as 97% of us did when this country was founded. Now we can feed the world with 0.7% of us actually farming. With that approach, all of your clothing and fancy gadgets would also cost you a small fortune, because virtually all of them are made elsewhere – increasing OUR wealth. ALL of us.

We are, after all, all in this together. Thank you, Red Green.
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N.B. As my good friend Pat Patten pointed out to me after this was posted, we cannot actually feed the world - we cannot even actually feed ourselves - but you get the point. The American farmer is amazingly productive - which generates wealth for ALL of us.