The rise in the price of beef offers a meaty lesson in the limits of the government’s ability to fight inflation by pumping more money into the problem.
Even in an environment where almost everything gets more expensive, the price of a pound of beef can make you cry. The Bureau of Labor Statistics says beef prices have risen 12% since last September – beef steaks, in particular, have increased 16% over the same period. This is considerably more than the increases for food (3.7 percent) and all commodities (5.3 percent) over the past 12 months.
The Biden administration, perhaps worried about the political toll that higher food prices could bring about midway through next year, announced plans earlier this month to offer up to $ 500 million. dollars in loan guarantees to beef producers. This is in addition to the $ 500 million approved as part of the $ 1.9 billion US bailout that was supposed to “expand processing capacity and increase competition in the meat and poultry industries,” according to the United States Department of Agriculture.
The second part of the White House’s plans appears to involve shaming meat processing companies. “Only four major conglomerates control the majority of the market for each of these three products (beef, pork and poultry), and data shows these companies have raised prices while generating record profits during the pandemic,” Brian Deese, director of the National Economic Council of the White House, said at a press briefing last Friday, the Detroit Free Press reports.
Overall, the White House’s approach to high meat prices can be summed up as an argument for increased government subsidies based on the idea that stimulating more competition in the meat packaging industry will increase supply and reduce bottlenecks.
But, as David Frum details in Atlantic today there are good reasons to be skeptical of this argument. For starters, it takes around $ 200 million (and several months, if not more) to build a single new meat processing plant. This means that the Biden administration’s new loan programs won’t buy a lot of additional capacity, and the gains won’t happen immediately. Even if the plan is successful, small producers are likely to need continued support beyond the initial loans – if there was a market for more small meat processors, the private sector would already invest in it.
“There is a real risk,” Frum writes, “that the initial commitment of $ 500 million in aid and loan guarantees to small packers will spill over into continued market intervention to keep smaller competitors in business. in the face of increased efficiency and lower prices. big packers. “
Of course, because this is Frum, he handles the shortcomings of President Joe Biden’s plan with gloves, while admitting that White House officials had no answers to his fairly basic questions on how which it will all actually work for, you know. Yet, he writes, “the architects of the Biden plan are awkwardly aware that it rests on a lot of optimistic hopes, assumptions and assumptions.”
Let’s call it that: a good way to waste $ 500 million without impacting the price of beef.
In some ways, Biden’s approach here mirrors his recent big announcement regarding the use of the Defense Production Act to make faster in-home COVID testing available to the public. Thanks to an inept Food and Drug Administration (FDA) still refusing to approve rapid COVID tests that are readily available in Europe and elsewhere, America has a relatively low supply of these tests – and, naturally, that means tests are relatively more expensive here. This is a problem because the main benefit of rapid home COVID testing is that you can take a test whenever you want, but it’s much more difficult to do when the tests cost $ 20 each – and even more when you don’t. do not find any. .
Biden’s solution is to use the hammer of government power to force companies to do more testing. It may seem achievable in theory, but in practice, even the White House admits it will be able to oust only 280 million more testing. That’s enough for every adult in America to pass… a test.
But 280 million sounds like a lot. The same is true of $ 500 million. Indeed, these are large numbers. But in the context of a national economy like that of the United States, they’re actually quite small. So small that it is insignificant, really.
It’s not impossible to imagine a more costly government response to rising beef prices, of course. The Biden administration could ask Congress to approve $ 20 billion to subsidize farmers who raise cows, build more meat processing plants, and send every American family a weekly coupon to reduce the cost of steaks and burgers at the local supermarket. (At the very least, it would allow those of us in the news business to write fun headlines about how the Beef Tsar was grilled in a congressional hearing.)
It would be a response that could move the needle, even if it would be terrible on so, so many levels. The endless interventions that Frum describes would only be part of it. It probably wouldn’t take long for the beef industry to become a sacred cow to Congress in the same way that corn farmers already are.
And even if the government did all of this, it would still do nothing to remedy the real root causes of the current beef price problem: a massive drought in the western United States that resulted in dwindling beef herds and an average cow 15 pounds lighter when slaughtered. This would not solve the pandemic-related staff issues at meat packing plants, which operate less efficiently even when fully staffed, as they must take the necessary precautions to limit outbreaks that could cause even greater disturbances.
The lesson here is that of the government’s inability to run the economy on a large scale. Using the Defense Production Act isn’t the best way to get faster COVID testing in U.S. homes, bypassing the FDA red tape. The testers will do the rest. Offering $ 500 million in loan guarantees to anyone who wants to build a new meat processing plant will not solve the supply chain problems at existing plants or end the drought in the West.
Higher prices, while politically difficult for the Biden administration, will send signals down the supply chain that will result in the hiring of more workers and the raising of more cows. Beyond that, it is only a matter of waiting, because any government intervention will be either insignificant or ineffective.
And maybe we’ll have to eat more pork for a while.