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Cattle industry poised for corporate takeover by major meatpacking firms

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Reposted from Iowa Farmer Today

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Cattle industry poised for corporate takeover by major meatpacking firms

Bill Bullard | March 16, 2012 | Iowa Farmer Today

Cow/calf producers are receiving historically high prices for calves. Conversely, their customers —  feedlot owners — are paying historically high prices for those calves.

Pundits attribute higher prices to increased exports. But, this doesn’t square with the fact prices first jumped to historical highs in 2003-2004, when beef exports fell to a 19-year low.

Sure, exports can improve cattle prices, but U.S. consumers are the major price-driver as they purchase approximately 90 percent of U.S.-produced beef.

It is elementary why cattle prices first reached historical highs in 2003-2004, even when exports fell near zero, and continue to reach new highs today. The United States does not produce enough beef to satisfy domestic consumption. For 40-plus years, the U.S. imported beef to overcome this shortfall — a shortfall that was the largest in history from 2004-2007.

CATTLE PRODUCERS should ask:

1) Why were cattle prices chronically depressed prior to 2003-2004, when exports were then at record highs, domestic beef consumption was then increasing, and consumers were then paying record prices for beef?

2) Why did cattle prices suddenly catapult to a new plateau in 2003-2004, even when exports declined, then stay at this higher plateau even when beef consumption subsided after 2007?

3) What changes occurred in our industry to ensure cattle prices maintain a competitive relationship with beef prices?

The answers are:

1) Cattle markets were dysfunctional prior to 2003-2004 while concentrated packers exercised market power that disrupted, supply/demand forces.

2) In 2003 Canadian imports were halted, preventing packers from accessing cattle they controlled in Canada, and the chronically dysfunctional marketplace had so decimated the cattle industry by that time the numbers of cattle producers and numbers of cattle were drastically reduced. This combination overpowered the packers’ market power, unleashing competitive market forces that drove prices higher.

3) The only change to mitigate the packers’ exercise of market power is the long- term decimation of our industry created the tightest cattle supply situation in 60 years — everything else is the same, including export volumes that are only marginally higher than a decade ago.

Our cattle herd would not have contracted so drastically if our markets were competitive.

Cattle prices should have maintained a closer relationship with rising beef prices since 1998, which would have enabled our industry to maintain a herd size in balance with rising beef consumption. But, they did not and the spread between cattle prices and beef prices grew wider than any time in history.

The reason cattle prices lost their close relationship with beef prices is because packers are working to vertically integrate the cattle industry, which consists of capturing the cattle supply chain by substituting profit-motivated competition with corporate control.

Vertical integration focuses where concentration occurs. In our industry, concentration occurs at the feedlot. By controlling feedlots, packers reduce risks and increase margins by eliminating the profit margins a competitive supply chain would otherwise allocate to cattle feeders.

When packers capture feedlots, marketing opportunities for cow/calf producers will evaporate and their prospects for staying in business will be limited to a production contract with a major packer.

This already happened in the hog industry and is why 9 of 10 hog producers in business in 1980 are gone today.

Some say it cannot happen with cattle because cows annually birth one calf and too much capital is needed to bring that calf to market.

But, packers already signaled their intent to vertically integrate the cattle industry.

The American Meat Institute argues it is “unfair” to stop packers from vertically integrating the cattle industry. The National Meat Association argues demands from meat buyers are pressuring packers to vertically integrate.

The capture of our feedlot sector is well under way. Since the United States began liquidating its cattle herd in 1996, small- and mid- sized feedlots have declined in number and in the numbers of cattle fed while large feedlots increased in number and in the numbers of cattle fed. Already, 35,000 independent feeders have exited the industry.

Packers like JBS and Cargill are fast replacing numerous independent feedlot owners that once created robust competition for feeder cattle.

Does anyone think competition is enhanced with 35,000 fewer feeders?

Does anyone think when packers control a majority of feedlots there will still be competition for fed cattle?

OUR CATTLE industry is poised for a corporate takeover by major packers whose sights are set on the feedlot sector. The unprecedented tight supply situation has only slowed them down.

And, because feedlots operate on margins, higher cattle prices increase their vulnerability. If packers again shun the shrinking cash market for weeks at a time, independent feeders could be squeezed beyond the breaking point and forced to exit.

Everyone in the cattle-supply chain will be harmed because the already blurred relationship between cattle prices and beef prices will become non-existent, and a handful of packers will begin dictating the price for calves, not a competitive marketplace. Cattle producers must support a ban on packer ownership of cattle and a ban on unpriced formula contracts as these are the tools packers use to disrupt competitive market forces and consolidate feedlots.

Bill Bullard is CEO of R-CALF USA and on the Board of CPA.

44 Responses to “Cattle industry poised for corporate takeover by major meatpacking firms”

  1. Jim Schollaert says:

    Ain’t unfettered free market forces great!

    • Bruce Bishop says:

      The “free market forces” are always at the mercy of the government and of the busybodies who possess 1% of the “knowledge.”

      As usual, when things go awry, the government and those busybodies blame the “free market.”

      The “solution:” Bigger government and more intrusion by the busybodies who couldn’t raise a hamster, but who know “what’s best” for an entire industry that has thrived for 200 years.

      • Tom T says:

        We didn’t need bigger government to fix this problem. We just needed judges who would follow the law and not make excuses for the politically entrenched meat packers. The meat packers were losing jury trials and had to depend on courts to overturn those decisions, which they did. Juries no longer hear trials and all is well on the home front because of judges who will make up excuse after excuse so meat packers won’t have to face juries.

        Bruce, I agree we don’t need more government to fix these problems. What we do need is enforcement of existing laws. When we have interference by political members wishing to protect billionaires when they break the law, the Justice Department needs to bring actions against the participants. It is the same with China using U.S. agents to stop any action on trade problems.

        The Chinese problem was investigated by Senator Fred Thompson and others when they “investigated” Bill Clinton. There was no real action from that hoopla except for the trading of Bill Clinton’s meat packer clients to the new administration.

        Bigger government is not the solution. It is a government that will actually work efficiently in enforcing the laws of the land no matter what billionaire’s interests are threatened that is needed.

        Our federal courts and the politicization of these courts by the power brokers is the real problem.

        Free markets without the rules enforced are captured by the guy with the most money who can run others out of the industry. That is what is happening in the meats industry. You can blame this one not on bad rules, but of judges who won’t follow the law as it is written.

        Tom T.

        • Bruce Bishop says:

          Tom,

          I totally agree. The rule of law is everything. Nations are successful, and their people are prosperous, to the extent that they rigidly adhere to their “rule of law,” whatever it happens to be.

          Players will enter a game, or not, based on their assessment of their chances of winning. There are a number of variables they must consider. The rules and the enforcement of the rules, must be a constant. If any part of the rules/enforcement is a variable, they will NOT enter the game — unless, of course, they have some sort of ability to manipulate the rules, or the referees.

          In countries where the rule of law is not enforced, or where the referees can be bought off, (which amounts to the same), there will be no honest players. Where all of the players are crooks, the people will not thrive.

          There is a direct correlation between governments that don’t enforce the rule of law, and impoverished people.

  2. Arthur Taylor says:

    This vaunting of “free markets” is great big load of horsecrap. Free markets live in theory only and they are never such in reality. So why does anyone keep cheering for them? We have one guy in these discussions who keeps telling of the virtues of both Hayek and Paul Craig Roberts. Well which is it? Because Hayek is a free trader and a free marketer whom, if we were to continue to follow his idiotic theories out to their bitter ends, is a globalist utopian who would have us – or any other country – unilaterally disarm in the face of the Chinese merely for the sake of testing his unworkable theory. All the while telling us that the consumer will benefit and implying that cost and price are somehow linked. Show me one country that has succeeded under his principles. In fact, as Ian Fletcher so brilliantly concludes, unilateral economic disarmament in the face of a world full of competing nations is a sure recipe for lasting decline (see England).

    Paul Craig Roberts, it seems, is an adherent of the American School of Economics which vaunts the American producer and uses whatever means we can to protect America’s interests both militarily and economically. He believes we should make what we consume and then make sure the rest of the world buys some too. He absolutely does not believe in unfettered markets as he knows there is no such thing. He follows in the footsteps of George Washington and Alexander Hamilton.

    We need to get our characters straight around here.

    • Bruce Bishop says:

      Arthur,

      Would you please cite your source for Hayek “is a globalist utopian . . .”?

    • MK says:

      Dear Arthur,

      Thank you for this correction. I am dismayed at how many people do not understand the role that Hayek, the Austrians, Alan Greenspan, AYN RAND (who was a nitwit at best and a complete sociopath at worst) have played in creating this disaster. After religiously pushing policies that he absorbed while toadying to Rand, Greenspan’s excuse for the real estate collapse in 2008 was that “he was misled.” Misled? He chose to embrace the wild rantings of a woman who proclaimed that “altruism is evil” and secretly modeled one of her heroes after a SERIAL KILLER (William Hickman) as the foundation of his economic policy…and he was misled?

      I would say that the country was misled. WE CHOSE TO REGULATE THE BANKS AND STOCK MARKETS IN 1933 AFTER IT WAS CLEAR THAT NEITHER ACTIVITY WAS BEING “SELF-REGULATED” due to the character traits of those that pursue such fields. Those traits have not changed, neither has the fundamentals of human nature. WHY ON EARTH WITH THOSE THINGS BEING CONSTANTS DID WE DE-REGULATE?

      Primarily, because far too many people do not know the difference between the THEORY of free markets and opposing theories. Far too many people don’t understand that there are policies being built on theories that were already discredited in the 1800s and again in the early 1900s. Those theories are the free market theories of David Ricardo (and based upon agrarian societies) and have as much relevance to our highly complex world as wooden shoes do to car tires. They cannot fit in each other’s place.

      MK

  3. Tom T says:

    I think the people making the “free trade” argument are mostly the people who are benefiting from their destructive, often illegal activities. It is all they have left. They are afraid the laws of the land will take away their ill gotten gains and “free trade” is their way of riding the band wagon of the positive benefits while trying to skirt the responsibilities.

    This is so easy to see through but that doesn’t really matter. It matters more what big money is behind.

    Tom T.

    • Bruce Bishop says:

      Tom,

      I totally agree. These people are “players.” Their goal is to make a profit, usually, but not always, with some consideration for longevity.

      They will exploit the rules, as they exist, and constantly push the edge of the envelope to see what they can get away with.

      They are not bad people. On the other hand, they are not the guardians of social justice. They depend on the government to fulfill that roll, and to sometimes go overboard with “well meaning” but stupid regulations.

  4. Arthur Taylor says:

    Studies in Philosophy, Politics and Economics (1967, p. 168), by Friedrich A. von Hayek: “from the first establishment of [trade] which served reciprocal but not common purposes, a process has been going on for millennia which, by making rules of conduct independent of the particular purposes of those concerned, made it possible to extend these rules to ever wider circles of undetermined persons and
    eventually might make possible a universal peaceful order of the world.”

    • Bruce Bishop says:

      Arthur,

      Thanks for the info on Hayek’s collection of essays. I will see if I can get my hands on a copy.

      I found the last few words of your Hayek quote — ” . . . eventually might make possible a universal peaceful order of the world.” — to be fairly benign. This is something we all might agree on.

      Maybe I will see it differently after I have read Hayek’s essay; but I don’t quite see “universal peaceful order” as being the same as “globalist utopia.”

      • Arthur Taylor says:

        Actually, given your contrast and comparison of the two phrases, I can see that my term, “globalist utopia” is actually an understatement as it would apply merely to the planet. Whereas what he really said was that (trade) would beget “universal peace” or peace throughout the universe.

        Hmmm.

        • Bruce Bishop says:

          Arthur,

          I thought that was what the Miss Universe Pageant was created for. ;)

          Thanks, also, for the link to Cafe Hayek and your insights into Donald Boudreaux. I haven’t had time to check it out, but I will.

          Bruce

  5. Arthur Taylor says:

    Bruce:

    You may be interested in this link to Professor Donald Boudreaux’s website, Cafe Hayek: http://cafehayek.com/2005/04/the_incoherent_.html .

    I must first warn you that Boudreaux believes himself to be the current reincarnation of the now dead Hayek, here on this earth. And like many self professed prophets, Boudreaux believes himself to be on par with God. I am currently going through chemotherapy and I believe that reading one of Boudreaux’s smug and sanctimonious columns, blogs or letters to the editor causes a sense of nausea and sickness equal to that of chemotherapy.

    But I thank Boudreaux for my main contribution to the study of economics, which is that price and cost are not linked. I realized early on that all Boudreaux’s arguments are based on this simple and false premise. As in the time he argued that: it doesn’t matter if the Chinese cheat because the American consumer will prosper because of it. I knew then, Boudreaux had no understanding of how business actually works, nor had he ever been in a high level meeting wherein price of an object was being determined (in these meetings, the dominant question is: What will the market bear? Costs are brought up later and generally have more bearing on what profits will be either acceptable or achieved. If you ever want to drive a group of free market economists nuts, make the statement that price and cost are not linked and therefore have little or possibly no bearing on each other). Boudreaux’s theory fails the truth test as the profits from these global bargains are pocketed long before they reach the consumer. Leaving the American who has been outsourced with no job and no bargains.

    In the above link, Boudreaux rails on Paul Craig Roberts from a Hayekian point of view. Time, however, has proven Roberts the victor and Boudreaux, with his globalist utopian views, a fraud. A fraud who is nothing more than a PHD’d pimp for the plutocracy.

    • Tom T. says:

      Arthur you are right that so many “economists” get this confused—I think on purpose, to continue their boss’s profit machine. We have seen the likes of Walmart being able to exert market power to push prices down to costs, and below costs while using that difference to either compete other companies out of the market or retain the difference as monopoly profits. It ends up concentrating the market into the hands of the few and destroys the economy in the process.

      This is one of the reasons there was so much resentment of the “robber barons” because their self interest actions destroyed the economy in this way. It allowed them to capture the market through anti-competitive actions that destroyed the economy of countless market participants. We are seeing the same thing today.

      Even with industry specific laws such as the one in the meats industry, the elite power structure still finds ways to justify their actions benefiting the 1% as Bruce calls them, who know what is going on and keeps the puppet strings ready to pull. It is the justice system failing in their responsibilities to the nation and becoming the “just us” system of crony capitalism and abuse of power. As Bruce said, this is detrimental to the nation’s economy. Incidentally, this is what the Chinese are doing in trade when they restrict their citizens from buying U.S. goods by the national tax on trade of currency manipulation. Sure it hurts the average Chinese– it steals their value– so that the leaders of the country can use that value for national purposes of their own deciding. I don’t see much difference between the lack of justice and accountability here in our system and what the political elite are allowing to happen for the moneyed elite and what the Chinese government does to its own citizens. In both cases it is a grab for power of the elite over the many.

      Tom t.

  6. Arthur Taylor says:

    Part One of The Plan

    Bruce,

    As a hobby, much to my wife’s chagrin, I’ve come to enjoy doing battle on the comment boards with regards to free trade and free markets. Two years ago, in our local newspaper here, we had a raging debate that culminated in 507 postings, 65,000 words, and 165 pages in a Word document (I accounted for approximately 25% of the postings). In fact you can’t get to it via the internet because we ran the memory allotment out and crashed the newspaper server in that particular instance.

    The incident precipitating this online debate was my own letter to the editor regarding the South Korean, Panamanian and Columbian Free Trade Agreements (FTA’s) in which I pointed out that this was going to be nothing more than another failed FTA that would end up with an increase in the U.S. trade deficit, more penetration of foreign producers into our markets and more American producers in decline. (Which, after all, is nothing more than the truth given our experiences thus far)

    I was immediately attacked by a cabal of amateur and professional economists (some of them were members of Utah State University’s economics department – Which, by the way, received a $750,000 grant from the Koch brothers to teach lies to our children) who relied upon von Hayek, von Mises and Schumpeter as the theoretical foundation for their views in favor of free trade and in opposition to the simple facts pointed out by my letter. They also relied heavily on Boudreaux and J.M. Perry, a PHD clone of Boudreaux’s.

    When I drew these people out to the edges of their beliefs, what I found was that:

    A. They had zero consideration for the American worker and or the American producer.

    B. They had zero concern for American national security as it relates to China’s rise.

    C. They had zero consideration as to the impacts on the finances of America so long as their theory was advanced internationally.

    D. They could care less who owned America’s asset base so long as their theory was advanced internationally.

    E. They believe the consumer is a deity, who is to be vaunted above the producer as well as the well being of the nation wherein the consumer resides.

    F. They have no problem with communist China or what their government (The Chinese Communist Party) does internally, so long as they produce goods cheaper than Americans, and the consumer is rewarded with bargains (which they are not).

    G. Their long range goal was to achieve a borderless planet with no limits on an individual’s ability to sell his services or wares anywhere in the world – A global utopia.

    H. They were, in deed and thought, anti-American.

    Bruce, I found these people and their views to be more dangerous than communism, and very much at odds with the interests of the United States. Therefore I believe that the one single great hurdle we must overcome is the Austrian school’s insidious hold on the economics profession. We must ask why, in the face of an overwhelming amount of data showing the failure of free markets and free trade within our own country (7 trillion in trade deficits, 2 trillion in bailouts, 7 million jobs lost, anemic growth of 1.9 percent 50,000 factories and manufacturing concerns shut down and moved), why do these people maintain their indefensible defense of a school of thought that clearly is not working for the U.S.? Why are we allowing these people to indoctrinate our children with these utterly discredited theories? Most importantly, why do we allow these people to associate their very un-American ideals with those of the founding fathers?

    The Free Market, Free Traders have managed to supplant the genuine American School of Economics for their own inferior Austrian/Neoclassical/Libertarian product and in the process, they’ve pulled off a bloodless coup d’éta on behalf of the plutocracy that is now running this country. And until we attack on a multiple fronts they will succeed in relegating America

    Part 2 to follow-

    • Bruce Bishop says:

      Arthur,

      I have cited, on several occasions, F.A Hayek’s book “The Road to Serfdom,” as an argument against central planning of the economy — socialism. That book was published in 1943. I am not prepared to discuss what Hayek did for the next 49 years, or who he associated with. I don’t think you are either.

      I think we agree that our government needs to stop the flow of manufacturing jobs out of our country by imposing “balanced trade” or tariffs to reduce the flow of Chinese goods into our country. As to the various schools of economics and the theories they represent — I DON’T CARE!

      The whole problem, as I see it, is that the “experts” who have been giving bad advice to our political class, live in a gray fog of competing economic theories. As Thomas Sowell says, “They pay no penalty for being wrong.”

      Putting people, who pay no penalty for being wrong, in charge of planning our economy, is a recipe for disaster. That is the whirlwind we are reaping.

  7. Arthur Taylor says:

    Correction: my last line should be:

    And until we attack on a multiple fronts they will succeed in relegating America to a has-been superpower – a one time leader of the world.

  8. Tom T. says:

    Arthur, I totally agree with you on you analysis and recommendations. Our economics departments have been captured by the globalists with their money and influence. Instead of taxing these guys and funding higher education adequately, they have received tax breaks and then use a small portion of the money saved to buy off the system. They did it with economist Senator Phil Gramm and the repeal of Glass-Steagall Act which lead to the taxpayer having to bail out the financial sector’s gamblers while they banked money.

    Our Congress’s intelligent quotient has been replaced with the elite’s self interest’s spin at a high cost to the nation.

    People like to misuse historical economic theories they don’t understand to prop up or even fly in the face of current data that contradicts the theory as it is applied by them. Economists like Phil Gramm and many others tied to the money train do so not because they really know economics so well as to know better, but because money is influencing their field. I could go down the list with examples.

    Money and bought ignorance are at the root of it. It is paid for by those who would play the political elite for their own benefit against the interests of the nation.

    Tom T.

  9. MK says:

    I strongly recommend that everybody here read GRIFTOPIA by Matt Taibbi to find out what nimrods that Alan Greenspan and his cronies are. Alan Greenspan not only used the FED as an ATM to bail out bad banking policies, but he got his primary approach to economics from AYN RAND–a fiction writer without an economics background who did not know her posterior from a whole in the ground. She labeled even the most prudent use of government funds to benefit the majority as collectivism. Her entire life and career was a huge reaction to the policies of Stalin, but had little to do with the realities on the ground in the USA.

    Greenspan was one of her proteges. When her ill-conceived FREE MARKET policies failed to deliver, but produced the opposite of what she OPINED would occur, what did he do? In 2008, he apologized and said that he was “misled.” Misled? He willfully abused the power of his office to curry favor with banksters and left taxpayers holding the bag for very stupid wealth-concentrating policies that put more money in the pockets of the already obscenely rich and their minions.

    He also pushed for the Commodities trading changes that are being used to kill us all with ridiculous gasoline prices in the time of a glut of crude.

    Read Taibbi. Tell your friends to read Taibbi. Maybe publishers will wise up and begin printing better books on economics than the dreck that has been foisted off on the nation over the past 40 years.

  10. Tom T. says:

    MK, I think the best policies get the incentives right. Unfortunately that was one big mistake in getting rid of the Glass-Steagall Act and allowing off shoring of jobs by companies in the U.S. The sad thing is that it really takes a long, long time for the political goons to see what they did wrong (everyone does something wrong) and change course.

    It is like they are admitting that they were stupid in the first place, which we all have a deeper understanding of as they don’t change course. We have to sit back and watch the Titanic hit the iceberg in slow motion and suffer because they want to maintain their illusion.

    The financial collapse has cost an estimated 14 trillion so far and I saw a quote on an article posted here where our trade deficit was 7 trillion. Multiply that 7 trillion by the economic multiplier of 2 (the estimated for value added) and you get 14 trillion. Add the financial collapse to the lost economic value in trade and you get 28 trillion dollars.

    The U. S. could have paid for all health care in the United States by printing money, no debt for the estimated 28 billion we just lost due to policies that pander to the rich elite. The US could have paid for all health care for about 15 years for that amount (just a guess) and our country would have been much more competitive and all the stimulus by doing this would have been stimulating our economy, not China’s.

    What a waste our politicians have been and still are (there are exceptions).

    Tom T

    • MK says:

      Dear Tom,

      Since 2003, I wrote about these issues on blogs everywhere. I gave a presentation to the Kerry Core pointing out that if they continued the “free trade” policies of the Bush administration, the only growth industries left would be crime and, specifically, kidnapping. They were impressed with the many slides that I showed that revealed that the concentration of wealth in the USA was higher at that point than it was prior to the alleged “Great Depression.” They took my presentation and then Kerry sold out to Bush Jr.

      I worked on a number of audits of votes in Texas. I can assure you that there were serious irregularities. We discovered that in some counties, there were more votes than voters. Now, I understand patriotism, but when it reaches from beyond the grave to vote, I draw a line. ;-) There were a group of us who tried to get the voting records for counties in states across the country on only to have such phenomenal prices for the records quoted that we gave up. (THIS WAS IN DEFIANCE OF FEDERAL LAW THAT REQUIRES THAT THOSE RECORDS BE MADE PUBLIC AT “NOMINAL FEES”)

      When you write that our politicians are a waste, it doesn’t begin to cover the illegal, myopic and treasonous behavior that these individuals have engaged in. If you do any reading into the last global depression, you will discover that the patterns are the same including the desire to enact martial law. (If you have not read Jule’s Archers book about Smedley Butler–THE PLOT TO STEAL THE WHITE HOUSE, I highly recommend it. I strongly encourage everybody to read it.)

      What bothers me the most is that so many Americans are so poorly informed about economics and policy that they keep blaming the wrong people for the problem. Even though I know that the voting is RIGGED due to my own experience, I have met too many people who push the wrong solutions, vote conservative even though they don’t appear to understand what that group stands for and WHAT THEY ARE DEDICATED TO CONSERVING and, in general, are their own worst enemies. Not everybody falls into this camp, but a substantial number of people do.

      Have you ever read VETERANSTODAY.com? Those guys get it. They understand the entire situation very well. They had to get shot at to get it, but they see things pretty clearly.

      I hope that we can save this country from fascism. I do, but I am wondering what it will take. I was delighted to see that CNN has lost audience as have all the networks. I am delighted to see that Murdock is getting his comeuppance in Britain. But when is the combined control of the media and political structure currently exercised by the banksters going to be ended in the USA?

      I wish that I knew. Frankly, I am tired of explaining how derivatives were used to siphon off money or how they lack the regulation provided for para-mutual betting. I find myself explaining this to supposedly educated people…even though my degrees are in Communication and English and supposedly that makes me incapable of understanding high finance.

      The depth of wrong-headed and ill-informed thinking in this country is staggering. The inability of the citizenry to think and reason clearly has been impacted by so many policies that it is difficult to enumerate them. I have been left with speech and prayer as the only tools that I consider reliable countermeasures anymore.

      MK

      • Tom T. says:

        “Fascism will come to America, but it will be wrapped in the American Flag”—-Huey Long, assassinated Senator from Louisiana

  11. MK says:

    Dear Tom,

    Sorry for going off like that. I agree with you on Glass Steagall and I would add that the Commodities Modernization Act of 2000 which has lead to the rampant and deleterious speculation of the last few years must be repealed as well.

    Again, for anybody not clear on these topics, let me recommend Griftopia.

    MK

    • Tom T. says:

      MK, you are speaking to the choir here and I have come much to the same conclusions as you.

      The Commodity Modernization Act was pushed by none less than Wendy Gramm and her husband Phil Gramm. Wendy sat on the board of Enron and IBP (who was carrying out a plan of illegal market fraud in the cattle markets at that time—stuff an economist would come up with).

      This “modernization” bill allowed many of the loopholes that actors like Enron and others used to defraud the market.

      I simply find it amazing that Bill Clinton, whose wife was caught breaking the old rules and committing what amounts to insider trading with their old buds at Tyson could ever be trusted with “modernizing” commodity trading. They modernized it enough for major frauds to be committed. The list of supporters includes the heavy weights of finance. Our laws and rules are being loopholed for the wealthy elite to game the economy without accountability. The voters are not holding them accountable and people like Obama are still hiring them for the top jobs in government overlooking the economy. Many of them should be spending the rest of their lives in jail, not using their connections to bribe the government into bad policy enacted into law.

      We truly have the Best Congress and President that money can buy. The bad thing is that as they bank the profits, the economy pays the price.

      You didn’t go overboard, you just told a part of the story we all need to acknowledge so it isn’t a continual loop of corruption our country has to keep paying for time and time again. We are still in that loop, just another part of the cycle.

      Tom T.

  12. Arthur Taylor says:

    As a follow up to part 1, I am proposing another strategy that involves battle on multiple fronts. First we have to admit that America has a sales problem of which our government deficit is a symptom. We are not bringing in enough revenue to fund our expenditures. This is totally as a result of our experiment with free markets and outsourcing. Outsourcing has been the undeclared class war on the middle class being waged against us by the plutocracy who gained total control of the U.S. government through the Clinton years.

    Many complain about Obama and Bush, but lets look at the policies Clinton signed that were in direct opposition to working people, union or nonunion, White, Hispanic or Black:

    First came NAFTA, a payback to his major financier Sam Walton, and Hillary’s boss for six years while in her position as a director for WalMart Stores.

    Then came GATT, the WTO, the Radio and Telecommunications act (which cut media ownership by 75%, consolidating the rest into the hands of the remaining 25%).

    Then came Permanent Most Favored Nation Status for China and her entry into the WTO (another payback to Walmart)

    And finally, the Commodity Modernization Act and the repeal of Glass Steagall and the ensuing financial meltdown and trillion dollar payoffs stemming directly from free and unregulated markets.

    These Austrian/Neoclassical/Libertarian policies were all put in place by Bill Clinton and this nation has suffered egregiously because of them. Furthermore they were sold under the guise of free markets and free trade – both of which were depicted as American as apple pie… This being the big lie – as what they truly were, was as Austrian as wiener schnitzel – which is not apple pie at all.

    These policies were then given the stamp of approval by the large majority of America’s professional and academic economists even though they were based on totally disproven theory, historically and in practicum.

    The first wave of attack needs to come against the very notion that Austrian/Neoclassical/Libertarian policies of free markets and free trade align historically with the viewpoints of the founding fathers – they do not. The founding fathers created The American School of Economics and it was this system that caused America to grow and prosper throughout it’s rise to it current status as the world’s only superpower.

    The beautiful thing about “The American School of Economics” is that it precisely articulates what must be done to move forward to success and it has the best branding we could ever ask for. It even has it’s own space on Wikipedia that succinctly describes what it is and the history behind it.

    Thus, all battle should be on behalf of a return to the American School of Economics and a repudiation of the failed policies of the Austrians and free markets, who historically have never proven a success.

    As it is, our side of the debate starts at a loss because the free marketers have aligned themselves, however incorrectly, with the founding fathers and the ideals of liberty. When in fact, what free marketers are is a cabal of enthusiasts and apologists for laissez faire capitalism that historically has led to monopoly, plutocracy, anarchy, violence and revolution. As true laissez faire capitalism ultimately leads to control of the many by the very few or even the one – true laissez faire capitalism is decidedly unAmericn and was never tolerated long by the citizens of this country.

    It is my studied opinion that the strategy to undo our current trade agreements has to begin with an attack on free market, Austrian theories as you won’t be able to succeed in vaunting the American School of Economics until you can supplant it for the current Austrian/neoclassical/libertarian school that is de rigueur in the economics profession today. And this can be now done because the Austrian/neoclassical/libertarian school has been hollowed out by current events and realities which show their theories to be utter failures in practice.

  13. Arthur Taylor says:

    I would start this campaign on college campuses with full page or even two page advertisements in college papers that explain the history and success of the American School of Economics and the failed promises of the status quo. Paul Craig Roberts does a marvelous job of picking apart employment statistics and disproving the free trader’s theory that America will replace lost manufacturing jobs with technically advanced jobs up the production chain. Ian Fletcher excels at the historical arguments – and they both can utterly pick apart comparative advantage and prove it is nothing more than labor arbitrage in its current practice.

    From there you take CPI statistics and show the pitiful or nonexistent savings that have been passed along to the American consumer in this Faustian free trade bargain. You then note how really stupid the economics establishment is, as was proved by the 2008 meltdown, it’s causes, and the fact that 99% of economists couldn’t read and interpret two simple charts showing the rise in home prices, the stagnation or declines of real wages, and the inability of many borrowers to make their payments based on the divergence of the two numbers.

    At this point, the academic economists can only respond with increasing the volume of the theory, as they have no real numbers to prove their theories have been successful as promised. They’ll start babbling about straw men and post hoc fallacies, but if the advertisements were written correctly, they would give students the fodder to question the very foundations that make up economics teachings today. Throw in some discussion on China’s military threat, technology theft and the poison food she’s sending us and you’ll pick up another 20 points in support. I would then finish these advertisements by picking a fight with any willing professor and challenging them to debate in front of the student body. Our arguments would carry the day with today’s young people by more than 70%. By the time you’d gone through twenty universities you’d have them on the run and you’d rock the entire profession to its core. They could not withstand such an onslaught at this moment in American history and the wheels would literally fall off their wagons.

    • Bruce Bishop says:

      Arthur,

      As you invoke Paul Craig Roberts and Ian Fletcher, I would quote them in response to your anti-free trade argument.

      Paul Craig Roberts says, “The offshoring of American jobs is the antithesis of free trade. Free trade is based on comparative advantage, jobs offshoring is an activity in pursuit of the lowest factor cost — an activity that David Ricardo, the originator of the free trade theory , described as the betrayal of one’s own country . . .” “How The Economy Was Lost,” p155

      Ian Fletcher (and William Shearer) says, “Now the first thing to remember about this is that what we have today under the name “free trade” isn’t free trade at all. It’s free on America’s part, because our market is about 98% open to the world. But in the other direction, it’s not. It’s mostly mercantilism: gaming the system. So even if the theoretical case for free trade were valid, it wouldn’t apply to our present circumstances.” “The Conservative Case Against Free Trade,” p22

      • Arthur Taylor says:

        Bruce,

        I’m not understanding, are you saying that Bruce and Ian are advocates of free trade?

      • Arthur Taylor says:

        Correction:
        Bruce

        I’m not understanding, are you saying that Paul and Ian are advocates of free trade?

        • Bruce Bishop says:

          Arthur,

          I am merely pointing out that Paul and Ian have both declared free trade to be an innocent party when it comes to assigning blame for the destruction of our economy.

          For two years, I have listened to rants against free trade by recently indoctrinated college students (EIC), by economists whose motives are questionable (Paul Craig Roberts calls them “shills” and “whores” who are being paid by the transnational corporations), and amateur economists — especially those from the left.

          Assuming you are not part of that sinister mob who are looking to take away more of our freedom, I would suggest that you not toss out the baby with the bath water.

          There is nothing wrong with free trade when it is really free trade. When it is twisted into something entirely different, it can be something awful. That is what has happened.

          In my opinion, our “leaders” have no intention of addressing the flow of our jobs and our wealth to China. They do, however, see this as an opportunity to attack free trade and the free market — which they have always despised. By blaming the innocent free trade and by flogging the red herring “currency manipulation,” they continue to slide by without doing anything substantive to fix our problem.

          I don’t know if there is a quote to the effect that “The least the sheep can do is to avoid advocating for the wolf,” but there should be. We must be careful that we do not find ourselves arguing on the side of the enemy.

          • Arthur Taylor says:

            So then Bruce, are you saying that Ian’s book entitled “Free Trade Doesn’t Work” and it’s calls for a return of tariffs, is somehow an endorsement of free trade and free trade’s central tenant of eliminating all international tariffs and barriers to trade?

            Maybe Ian can weigh in and tell us what his book was really meant to say.

            And yes, I am part of the sinister mob who would return us to The American School of Economics and would vaunt U.S. production over the cheap Chinese state owned, communist made crap that the free traders say is liberating us from our once high standard of living.

  14. Tom T. says:

    I think the meats industry and our international trade have two things in common. The government we elect can not or will not make an even playing field for anyone but the big guys. The politicians along with our judicial elite are doing everything they can to advantage the big guys at the expense of the little guys. There is no level playing field in these markets because Congress and the Judicial elite will not allow it despite the laws on the books.

    The anti-trust laws are not being enforced and the resulting market power is allowing for an economic grab by the big guys. They are employing market power and their influence to grab economic activity. Our politicians are allowing China to do it and they are allowing the meat packers to do it. If you want to blame someone, there can be no better group of people to blame. It will turn our country into a banana republic if it hasn’t already.

    Tom

    • Bruce Bishop says:

      Tom,

      Are you finally agreeing with me that the problem is our CORRUPT government, not the capitalists and the opportunists who are exploiting opportunities wherever they find them?

      Our government has a death grip on “the big guys,” as well as on “the little guys.” The “big guys” are there because of economies of scale, which are necessary because our government has squeezed most of the profits out of every industry. The “little guys” are there as a testament to the free market. The little guys who are clever, can find opportunities where the “big guys” have blind spots. The “little guys” who try to compete, head on, with the big guys, will crash and burn.

      So, in conclusion, did I mention that the problem is our CORRUPT government?

      Congress has about a ten percent approval rate, but we will probably reelect about 90% of them in November. Nothing will change until we change. As Pogo said, “We have met the enemy and he is us.”

      • Tom T says:

        Burce, I am not “finally” agreeing with you on this. I have always said as much backed by personal experience.

        I agree with your conclusions also. Part of the reason is that there is no real debate on the issues, it gets turned into this party against that party, take sides and vote, then allow the party that wins to continue the corruption. I think if our political leaders heading some of these committees were grilled by a group of people on this site we would quickly find out how incompetent they are on the issues and when they are incompetent as to principles, they let “principals” buy their position.

        I am not against free trade but just as you, am totally against what they are calling free trade now. They are doing a disservice to the meaning of the words and hoping no one will hold them accountable.

        The bottom assessment on their policies can easily be seen by the current and accumulative trade deficits and what it is doing to the economy.

        I like to argue with you on points but totally agree with you on 99% of what you say. Take my posts when I reply to you in this spirit. The problem is the CORRUPT government and what it is doing to mess up the economy just so a few can rake in the cash and they can get their “commission”. It is still a pay to play government and former speaker Tom Delay hasn’t served his sentence.

        Tom T

        • Arthur Taylor says:

          Tom,

          I think you’re too nice. Bruce calls the politicians corrupt, but fails to mention it is “the capitalists and the opportunists who are exploiting opportunities wherever they find them” that are the ones who are paying the bribes.

          Corruption is a tango – It takes two. So when the free traders, free marketers and the multinationals pay off our politicians to supplant their rules for those of the founding fathers… should not they be held in just as much or more contempt?

          • Bruce Bishop says:

            Arthur,

            The corruption is not as straightforward as capitalists handing bags of cash to politicians. The money is filtered into political campaigns and the endless perks that politicians have come to view as their birthright.

            It would be impossible to stop the thousands of individuals (and organizations) who are bent on influencing legislation, or simply delaying legislation, from exerting their influence in ways that are beyond detection.

            Our only hope is to elect people who are honest and who will put the interests of the country ahead of their own selfish interests. Such people are out there, but if we, the voters, can’t get them elected, then our system has fallen apart and our republic has run its course.

  15. Arthur Taylor says:

    The great test of an economic system would seem to be in the standard of living it returns to the citizens of the country that utilizes it. In the late eighties and early nineties, the American people were told point blank that a shift from what was then the status quo of protecting American workers and industry to a new form of economic system that was essentially globalism would enrich the nation and provide more jobs than we had at the time. The results are in and sans the tech boom and the artificial housing boom, America’s growth rate has actually declined. Trillions have been shifted out of country. Trillions have been paid out to the wealthy in the form of bailouts. Millions of jobs lost and our nation is declining in real terms.

    If free markets and free trade haven’t worked in practice for this nation… Isn’t it moronic to continue defending them? Why would anyone continue to defend them when the failure is obvious? When you fail at a strategy in business… When the numbers don’t add up… Do you continue on or do you develop a new strategy?

    How stupid are we to continue beating a dead horse? Any answers Bruce?

    • Bruce Bishop says:

      Arthur,

      Much of the world “hates” us because we have had the highest standard of living. They say we could have only done this by cheating and stealing from the rest of the world. As the argument goes, the poor countries are poor because the U.S. has taken more than its share of the world’s resources. Of course, this is hogwash, but it’s a way that ineffective and corrupt governments can defer the blame for their own failures.

      Since I first learned about globalism in the seventies, I have believed that it was inevitable, but that it could and should be managed to a soft landing for us by having a national strategy for manufacturing. From basic macroeconomics, I learned that systems seek equilibrium, and the long range outcome of globalization would be a lower standard of living for us and an improved standard of living in the poorer countries – assuming they got their act together. Life in those countries with horrible cultures or corrupt/inept governments would continue to suck. And the corrupt/inept governments would continue to blame us for their troubles.

      Arthur — You say, again, “If free markets and free trade haven’t worked in practice for this nation . . .”

      Arthur — These are NOT free markets and this is NOT free trade we are talking about. You seem to have a mental block about this. I have quoted both Ian Fletcher and Paul Craig Roberts to the effect that, what we have been arguing about is NOT free trade, yet, you persist in referring to it as free trade.

      There is an old saying, “You can put your boots in the oven, but that doesn’t make them biscuits.”

      David Ricardo defined free trade as something that involves mutual benefits. He further indicated that outsourcing manufacturing jobs to China — what Arthur is calling “free trade,” is NOT free trade, but is a betrayal of one’s own country. Arthur — take your boots out of the oven. They are not biscuits. And please, stop calling them biscuits!

      As to your 2:29 PM post, there was no reply button, so I will address it here.

      Ian Fletcher’s book title, “Free Trade Doesn’t Work,” was an echo of the meme, created by the “progressive” left, that “free trade doesn’t work.” It was a very popular meme among the freshly-indoctrinated college students who populated EIC for a while.

      The “progressive” left is largely driven by a socialist element that has been pushing against free enterprise and pushing for central planning for decades.

      Central planning, by an all-powerful government was the theme of Friedrich Hayek’s 1943 book, “The Road to Serfdom.” Hayek opposed central planning because it always leads to tyranny, and Hayek was opposed to tyranny. Most Americans are opposed to tyranny except for those who expect to be part of the ruling class.

      As to The American School, it was a wonderful idea. It worked. It made us the richest, most powerful nation in the world. Unfortunately, it’s over. Those birds have flown. It would be very difficult to reconstruct anything like it now, with most of the world and all of the globalists and socialists against it.

      We can adjust to an economic leveling. We already have. It’s the tyranny that we must fight against. Be careful who you trust.

      • Arthur Taylor says:

        I’ll try to not be rude Bruce, but I wouldn’t give a warm bucket of spit for your opinion on the future of America. You ought to be ashamed of yourself.

  16. Arthur Taylor says:

    MK:

    Thanks for your insights on Ayn Rand. I started Atlas Shrugged a couple of times but never had enough boredom in my life to finish it (same was true for Das Capital).

    I did however listen to her interview with Mike Wallace in 1959 and found her ideals to be something that would never fit into my conception of how human beings should treat each other. Nor would they fit into my concept of success as the older I get the more I define success as being able to help others. Additionally, through my years in business, I find success is more likely a team than an individual sport. Thus, your prompting to look into her beliefs was an eye opener for me, and my dislike of Alan Greenspan is now even more acute.

    When you think of it, two of the main thinkers embraced by today’s establishment, Hayek and Rand, were writing to head off an embrace of both Stalinism and National Socialism al la Hitler, two schools of thought that never had a chance of gaining acceptance in America – and in doing so they may have weakened the one country that has sacrificed most greatly to end the legacies of both Hitler and Stalin.

    I would be interested to hear what your strategy would be to begin making a positive change during these current times and what it was you told the Kerry campaign. Perhaps even more interesting would be your observations as to why the Democrats continue to support the status quo.

  17. Joe Brooks says:

    Go Arthur! Your researches have led you to the same conclusions I reached, years ago.

    Like you, I was very active on many different venues, I have slowed down recently, but still continue to update a slide show I wrote and distributed for several years.

    • Arthur Taylor says:

      Thanks Joe,

      My guess is we’ve all been doing this for years.

      For me, it started in 1992 when I first started hearing talk of NAFTA. I knew from my experience working for a major fitness equipment manufacturer in addition to later owning my own apparel manufacturing concern – both of which were engaged in selling to major retailers – that none of the benefits would be passed along to the consumers and that we would suffer a net loss of jobs (as per Ross Perot’s warning).

      I knew then it was a big lie, and to have watched my initial hunches proved correct over all these years has been less than satisfying. However, after all my letters to the editor and the few op-eds I’ve had published, it has not been until recently that the average man in the street has sought me out to tell me they now see it as do I.

      Additionally, I came late to the game in realizing that free trade is a symptom of the free market Austrian/neoclassical/libertarian school, and it is shocking to me that it’s adherents, who are typically nut cases, have been able to so utterly infiltrate their ideas into every level of political thought and provide cover for the robber barons who are currently engaged in milking out the majority of America’s equity into their own pockets.

      My feeling however, is that the American public now knows something is wrong (although they don’t know exactly what it is) and they are no longer buying into the free market, free trade lie. This is one reason why the Republican candidates can’t get anywhere and why Obama will probably win in the fall. But this merely sets the stage to swing the pendulum back and I am throwing some of my own ideas out there to see if there is any feedback. We are still a couple of years from a tipping point, but once we hit it, the current economic regime, which is already hollowed out, will crumble rather quickly into disgrace. We already know they are desperate, as is evidenced by the recent crop of arguments from the economics establishment explaining current economic conditions:

      “Business is holding on to its cash because of either existing regulations or the uncertain regulatory environment” Multi-nationals have more cash on hand than ever in history. Free trade theory tells us that these companies will invest this cash in new plant and equipment here in the U.S. But why would they when their plants and labor force are doing just fine in China? As to the uncertain regulatory environment… what regulations are being passed other than health care? This last congress was probably the most gridlocked in history, so where is the regulatory uncertainty? Where are the bills? Where is the momentum?

      “Unemployment is high because of automation” If you’ve moved your plants to China, this would seem to be irrelevant.

      “We simply can’t find engineers with the right skills.” This is code for the fact that business wants H1B visa holders to supplant U.S. engineers. Paul Craig Roberts has picked apart the statistics and has proven beyond doubt that America has a surplus of engineers and other competent professionals…. but why hire them when you can get an H1B visa holder for two thirds less?

      The question now is what can be done to exacerbate the fall? I don’t believe that working within congress is the whole answer. You have to target specific districts with candidates who can supplant free market ideologues and you have to educate and organize the voters in those individual districts to do so. Take Chaffetz in Utah. He might as well work directly for the Chinese Communist Party. He could be replaced in an intra-party race with a candidate who was truer to the principles of the founding fathers and it would be easy to make the case that he is completely out of touch with economic reality given his voting record. But you would have to spend a great deal of effort within his district making the case for the American School of Economics and showing the current regime for the fraud it is. The same result could happen against Matheson in Utah’s 2nd district. But you have to kick the guts out of the Austrian/neoclassical/libertarian school first.

      I would like to see your slide show and I would like to hear other strategies that could be implemented, cost effectively, that can help reach this tipping point and win back our nation’s future.

      • Joe Brooks says:

        “But you have to kick the guts out of the Austrian/neoclassical/libertarian school first.”

        Agreed.

        I have sent my slide show to many economists, the message I get back is that it is boring, too technical and has no “grab”. Guilty as charged. One of my long term tasks, besides Field Service, R&D and Sales Tech Support was writing technical manuals; Procedural methods to restore down systems from various failures. I learned very quickly that I could assume no knowledge of any subject, even with highly educated engineering technicians, the best course was a highly detailed procedure with even a little background info. Otherwise, there would always be misunderstandings, or just plain resistance to taking the time to do it “right”.

        BTW, Bruce has an outdated version, I have debated Bruce many times and he moderated a debate between a “free trade for the US and tariffs for India proponent” over on EIC/email that ran for several weeks.

        Here is link that will give you a very good idea of what my slide show is about, nearly all of the info I present is from the slide show, scroll down and you see me:

        http://www.scottmanning.com/content/communist-body-count/

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