Who knew?

http://reason.com/archives/2013/03/23/supreme-court-may-put-an-end-to-governme

An interesting supreme court case about a massively outdated and pointless law that does nothing but raise prices on raisins. Oh, and we get to pay for the program too.

Honestly, why would the government even oppose getting rid of this program?

3/23/2013 9:09:14 AM

I just hope that SCOTUS or another court strikes it down as unconstitutional. From the SCOTUS vantage point, this case is much more about precedent than it is about raisins.

They could, as Justice Kagan stated, say "it's the world's most outdated law", but not strike it down--leaving it in the hands of Congress, and more importantly, not striking a blow for limited government.

...and if you care about raisins specifically, call me crazy, but I don't have great confidence in Congress doing much of anything.

3/23/2013 9:51:05 AM

Haha, congress doing things. That's novel.

Who knows what the hell SCOTUS will do. I hope they shitcan the program, but it is very possible that they just boot it back down to the lower courts.

3/23/2013 10:03:10 AM

So the government keeps 47% of the raisins that get packaged for sale...and does what with them? What in god's name are they doing with that many raisins?

3/23/2013 10:44:16 AM

http://www.miamiherald.com/2013/03/20/3297154/supreme-court-chews-over-case.html

Quote :

"he Hornes didn’t like the program and helped organize growers into the Raisin Valley Farms Marketing Association, which took care of the packing. By identifying themselves as producers rather than as handlers, the group’s members reasoned that they were exempt from the set-aside requirement imposed on handlers. The Obama administration, however, termed this a “scheme” designed to avoid legal requirements. The USDA subsequently ordered the Hornes and their coalition to pay more than $650,000 in fees and penalties. “They adopted a business model that was an intentional, willful attempt to evade regulatory requirements in order to secure an unfair competitive advantage,” said Assistant Solicitor General Joseph R. Palmore. The dissident growers, in turn, call the raisin set-aside, as well as the fees and penalties, a “taking,” or seizure, of property. Under the Fifth Amendment, takings require just compensation by the government. Read more here: http://www.miamiherald.com/2013/03/20/3297154/supreme-court-chews-over-case.html#storylink=cpy"

Also, from what I can tell the raisin "reserve" is taken and the the RAC then decides how it should be distributed and who should be compensated and how (note, compensation does not necessarily run along lines of how much was put in and by whom). Basically it sounds like part of the crop is seized and a sort of mandatory co-op is formed.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Farmers-ATG-Chapter-Six-Raisin-Grapes-1

I mean honestly, even if you can somehow do the mental gymnastics to justify weird raisin price control and production controls can we at least agree that this is not something that the government really needs to be doing?

3/23/2013 10:56:28 AM

^^creating jobs!

3/23/2013 12:00:09 PM

Quote :

"What in god's name are they doing with that many raisins?"

3/23/2013 5:53:11 PM

There's a lot of old AG laws that need to go under the microscope and probably get the Ax.

But Ag is the most politically contentious industry in the US (well its a close race b/w healthcare/pharma, energy, and Ag IMO) and all this BS just keeps getting passed in the Farm Bill (I assume that's how this program is continued?)

3/23/2013 9:56:21 PM

I knew there was a legitimate reason I didn't like raisins. Now I have even more of a reason to tell the fiancee that I don't eat raisins.

3/24/2013 10:33:20 PM

It's not the only crop the government price fixes

3/24/2013 10:43:13 PM

I'd like you a lot more if you didn't take everything so literal and think/have to show that you're smarter than everyone else.

3/24/2013 10:51:52 PM

Quote :

"Who knew?"

<-----------

3/24/2013 10:53:16 PM

http://reason.com/reasontv/2013/07/18/usda-v-horne-farmers-fight-for-their-rig

http://www.scotusblog.com/case-files/cases/horne-v-department-of-agriculture/

Well, SCOTUS ruled 9-0 that the 9th circuit must hear the Horne's case and judge it based on its constitutional merits. Let's hope they do away with this stupid, stupid, stupid law.

7/19/2013 4:01:20 PM

https://www.youtube.com/watch?v=pM2OK_JaJ9I

7/19/2013 8:45:39 PM

How is this not a violation of the Fifth Amendment?
https://www.youtube.com/watch?v=A8S4S49TyDk

7/20/2013 12:32:08 PM

bill of rights LOL

7/20/2013 2:58:18 PM

more like a bill of goods

7/20/2013 11:39:07 PM

It's a lot like a famous Commerce Clause case, Wickard v. Filburn, where a guy was fined for growing wheat for his personal consumption. There was a limit on how much anyone could grow to drive up prices in the market. It's always been one of my least favorite Commerce Clause cases.

The Court basically said that by growing wheat for his own personal use he was not buying wheat from the market like he was supposed to, and that was impacting interstate commerce.

http://en.wikipedia.org/wiki/Wickard_v._Filburn

I guess I can see where the government is coming from, attempting to "save" or "protect" an industry by preventing the glut of those products on the market, but I have to imagine there is a better way the USDA can deal with the problem. (This is assuming that this is actually their best efforts to deal with a problem, and not legislative pork shit or some attempt to help out big business.)

7/21/2013 4:15:04 AM

The only people who support this garbage are those in the industry benefiting from it or those in the government receiving votes for it. Everyone else loses.

Take a look at the sugar industry. I remember back in my macro class our prof told us about a study where if they removed all trade restrictions on sugar we could pay every worker in the US sugar industry six figures to do nothing and we would still be better off economically as a whole.

7/21/2013 10:34:57 AM

The picture I had painted of our farm policy is that we used to worry about boom and bust in farmland. It's a somewhat justified concern. We do have historical presidents. Japan had a well documented event where rice yields were dramatically lower by like 30% one year due to weather basically. The total value of the crop, despite being lower quantity, was dramatically higher than other years.

It does make you question the merit of economics as we're taught. You have an industry that will take more revenue by producing less product. Sure, unit price should go up with a lower supply, but this is something else entirely. If you can command a sufficiently large fraction of production capability, then it's far more profitable to manipulate the market than to compete by the familiar market principles.

So pre-1970s we paid farmers to not plant on their land (as I understand it). I see how this isn't ideal, but I can understand the motivations, starting from the great depression. If farmers go bankrupt then you can have this capital investment cycle where we need xx tons of wheat this fall, but the capacity to produce it can't be developed until 5 years later. It would be nice to be over-capacity. It seems logical to pay farmers to not grow on some fields.

The logic for ending this policy is also somewhat obvious. Why grow less when you could grow more? That makes sense in the world of globalization. Perpetual farm surplus is perfectly politically palpable if you can export whatever you don't need. We might also strangle independent African farmers, but lawls, oh well ヽ（´ー｀）┌

I feel like this was all an obvious contradiction. We pushed forward toward a free market farm policy... but no one tolerates a free market farm policy. And we didn't, we still subsidized based on the formula of production, making uneconomic crops profitable. There was no reason for other nations to tolerate this, and it's the exact same kind of shit that we lambast other nations for. It's the same export-driven economic model that is failing all over the world today. If the business cycle doesn't lead to problems domestically, it's probably tearing apart the social fabric of some other nation.

7/21/2013 11:02:36 AM

^good post.

As I said earlier, I'm not against putting all of these Ag related rules and subsidies under the microscope, but we've got to be pragmatic and realize that in some cases they may be useful to a degree.


A great example of :

Quote :

"It does make you question the merit of economics as we're taught. You have an industry that will take more revenue by producing less product. Sure, unit price should go up with a lower supply, but this is something else entirely. If you can command a sufficiently large fraction of production capability, then it's far more profitable to manipulate the market than to compete by the familiar market principles."

From this weekend:

http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?hp&pagewanted=all&_r=0

TLDR version: Goldman bought a huge Aluminum warehouse (controlling like 20% of the market) and slowed delivery to drive up the price. Goldman then makes billions on some commodity derivative swap involving Aluminum. They've single-handedly doubled the spot price of Al in 3 years and its been estimated to cost consumers about $5 billion.

All commodities are susceptible to this kind of manipulation, and while I don't think price control is necessarily the best answer, there are ways we can make these markets work for consumers.

7/22/2013 9:05:29 AM

Quote :

"...and if you care about raisins specifically, call me crazy, but I don't have great confidence in Congress doing much of anything. "

pretty much this. There's no wealthy lobby that would "fund" the correction of this law. Unfortunately congress functions on a series of bribes, only they're called "campaign contributions"

7/22/2013 9:57:38 AM

A SCOTUS thread and no Supplanter. Hmmm, I wonder why?

7/22/2013 9:59:08 AM

I agree. He should be required to post in every SCOTUS thread or be banned. Regardless of if the thread title is not obviously relating to the SCOTUS. And regardless of his knowledge, invovlment and personal interest in whatever the topic happens to be.

7/22/2013 11:15:48 AM

Quote :

"http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?hp&pagewanted=all&_r=0 TLDR version: Goldman bought a huge Aluminum warehouse (controlling like 20% of the market) and slowed delivery to drive up the price. Goldman then makes billions on some commodity derivative swap involving Aluminum. They've single-handedly doubled the spot price of Al in 3 years and its been estimated to cost consumers about $5 billion."

I glanced at that story, but I must admit I was unsold. In principle, I don't have a problem with private storage of commodities. There always has to be something more to the story than what you read.

Futures markets are actually our fucking savior IMHO. They accomplish exactly what we're always saying that the free market doesn't do, which is good long term planning. If you want to store something because the future price is high enough to justify it, then bless your heart, store away.

As I was reading, however, GS was doing some scheme where they transport Al between their own factories to satisfy the requirement that it gets shipped in under 30 days (or something like that). Now, why did they have a requirement that it get shipped quickly? And is that a general requirement for investors, or is it that the company provided some kind of direct market service to the exchange that would fuck up if they could keep it there for months?

Regardless, GS should have to play by the same rules as everyone else. I have no idea why they had this rule, and it sounded boneheaded. Blaming their speculation on the price of Al seems misplaced though.

I've also not seen any data to substantiate the claim that the Al market is doing much of anything at all.



I don't doubt that they're engaged in tomfoolery, but the articles on the recent Al debacle certainly didn't sufficiently communicate such claims.

7/22/2013 12:14:22 PM

Quote :

"I glanced at that story, but I must admit I was unsold. In principle, I don't have a problem with private storage of commodities. There always has to be something more to the story than what you read. Futures markets are actually our fucking savior IMHO. They accomplish exactly what we're always saying that the free market doesn't do, which is good long term planning. If you want to store something because the future price is high enough to justify it, then bless your heart, store away."

The problem that is occurring here is the same company is a major player in both the storage of Al and the exchanges. Note that regulated banks weren't allowed to participate in the physical side of commodities until 2003 (Thanks Mr. Greenspan!!!). The London Metals Exchange has some crappy formula for determining the spot price of Al that takes into account inventories. GS can manipulate that spot price based on how much they hold in their warehouses, and then make the appropriate bets on the exchange to profit off the difference in price of what is being reported and what reality is actually dictating the price should be.

Quote :

"s I was reading, however, GS was doing some scheme where they transport Al between their own factories to satisfy the requirement that it gets shipped in under 30 days (or something like that)."

The London Metals Exchange instituted the rule after complaints from Aluminum buyers:

http://www.nakedcapitalism.com/2013/07/how-goldman-made-5-billion-by-manipulating-aluminum-inventories-and-copper-is-up-next.html

Quote :

"Metro’s inventories ballooned from 50,000 tons in 2008 to 850,000 tons in 2010. By 2011, Coca Cola complained to the London Metals Exchange, which attempted to address the situation by increasing the amount that warehouses must ship daily from 1,500 tons to 3,000 tons. But all that appears to have taken place is that Goldman simply shuffles more inventory among the 27 Metro warehouses while thumbing its nose at the LME (its inventories have almost doubled again from the 2010 levels, standing at 1.5 million tons). "

Also

http://ftalphaville.ft.com/2013/07/22/1575852/commodities-and-banks-a-recap/

7/22/2013 1:04:01 PM

I see that point now.

Although, I do want to note that it sounds to me more like distribution manipulation rather than some form of speculative manipulation. Also, characterizing this as relaxed regulations leading to manipulation is correct, but it also sounds like it's a different regulation which is being manipulated in the first place.

These storage facilities sound like they're also distribution facilities, and ones that are vital to the proper operation of trade on exchanges. This is why you don't sign a contract that increases the price for a service the longer it takes the company to provide it, but the WSJ article paints a picture where that seems to be the case.

7/22/2013 1:32:54 PM